King v. Burwell: The Supreme Court Rules in Favor of the Administration and the Affordable Care Act Survives

The U.S. Supreme Court has once again ruled in favor of the Affordable Care Act (ACA).  At issue in King. v. Burwell was whether the landmark legislation allows federal subsidies to be given to low-income consumers residing in the 34 states that did not set up their own health insurance Exchange.  In a 6-3 decision, the Court answered in the affirmative, preserving subsidies for millions of Americans who purchased their health insurance through a Federal Exchange.  Affirming the decision of the U.S. Court of Appeals for the Fourth Circuit, the Supreme Court opined that the tax credits are, indeed, available to individuals in states that use a Federal Exchange.  The majority decision was written by Chief Justice Roberts, and joined by Justices Kennedy, Ginsberg, Breyer, Sotomayor, and Kagan, while Justices Scalia, Thomas and Alito dissented.

The 6-3 ruling was a huge victory for the Administration, preserving the President's signature domestic policy from fundamental disruption and disarray. Unlike the Court's prior ruling upholding the ACA's "individual mandate," King v. Burwell did not involve a constitutional question, but rather a question of statutory interpretation. Petitioners argued that the ACA statute directs that tax credits are only available for consumers who purchase their insurance through "an Exchange established by the State under [42 U.S.C. §18031] of the law." Accordingly, the petitioners contended that the Federal Exchanges (established pursuant to a different section of the ACA) operating in states that did not set up their own Exchanges does not qualify as "an Exchange established by the State under [§18031]," so consumers in such states should not receive any tax credits.  However, under the IRS rule implementing the ACA tax credit provision, a Federal Exchange operating in a state that did not set up its own Exchange would qualify as "an Exchange established by the State under [42 U. S. C. §18031]," so individuals in such states would receive tax credits.

The Court rejected petitioners' argument, concluding that, when read in context, the phrase "an Exchange established by the State" is ambiguous, in part because other sections describe the Federal Exchange and the State Exchange interchangeably, or by using the term "such Exchange." Given that the text is ambiguous, the Court turned to the broader structure of the ACA, concluding that the statutory scheme compels the Court to reject the petitioners' argument because it would destabilize the individual insurance market in any state with a Federal Exchange, and likely create the very "death spirals" that Congress designed the ACA to avoid. The Court's majority displayed great concern that the combination of no tax credits and an ineffective coverage requirement could well push a state's individual insurance market into such a death spiral.  The majority opinion cited one study predicting that premiums would "increase by 47 percent and enrollment would decrease by 70 percent."

The Court writes: "If a State chooses not to follow the directive in Section 18031 that it establish an Exchange, the Act tells the Secretary to establish 'such Exchange.' §18041. And by using the words 'such Exchange,' the Act indicates that State and Federal Exchanges should be the same." The Court acknowledged that whether those credits are available on Federal Exchanges is a question of deep "economic and political significance."

The political stakes could not have been higher.  In the months and weeks leading up to the decision, Congressional Republicans were preparing legislation to "bridge" a decision that would have ruled the federal subsidies were not available to the millions of Americans who are currently receiving them. Congressional Republicans themselves were challenged by the task of trying to "bridge" efforts to minimize the potential disruption with their long-standing objective of dismantling the ACA.  The Supreme Court's decision today negates the need for such bridge legislation, and will likely slow momentum for wholesale changes to the ACA.  The prospect for piecemeal changes to ACA, however, remains, and efforts to repeal or shape provisions—including the 2018 "Cadillac plan" excise tax—continue. 

With the ACA once again having survived the Supreme Court's scrutiny, the focus returns to implementation. The debate on the ACA in Congress did not end with the King v Burwell decision. 

Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.