Supreme Court preserves subsidies

July 8, 2015

Stuart M. Gerson explains how Chief Justice John Roberts came to his conclusion in King v. Burwell and how subsidies will affect the healthcare industry.

The much-anticipated Supreme Court 6-3 ruling in King v. Burwell, upholding the key provision of the Affordable Care Act (ACA) regarding tax credit subsidies payable to economically eligible persons, while wildly anticipated, is unsurprising. Neither, is the majority opinion, for that matter, or the fact that it was written by Chief Justice John Roberts.

This marks the second time that the Chief Justice has authored a controversial decision rescuing the ACA from judicial uprooting. In National Federation of Independent Business v. Sebelius, the Chief Justice opined that-despite the way it was originally described by the Administration and its supporters in the Congress and the statute itself as a “penalty” (questionable under the Constitution’s Commerce Clause) to which certain non-purchasers of health insurance would be subjected under the individual mandate-the penalty actually should be treated as a tax (consistent with the Constitution’s taxation provision). This time, I believe, the Chief Justice was on stronger legal and logical ground as to the ACA’s tax credit provision.

Related:Health plans share reactions to King v. Burwell

On its face, the provision at issue in King limited the relevant subsidies to persons who could participate in “an Exchange established by the State under [42 U. S. C. §18031].” To Justice Scalia and the other two dissenters, this apparently plain language should have ended the inquiry. Thus, Scalia chastises the majority for having created “SCOTUScare” and having engaged in “somersaults of statutory interpretation.”

 

NEXT: Examining the Chief Justice's positions

 

However, the Chief Justice has a compelling position to the contrary. In gleaning congressional intent, he noted not only the centrality of the tax credits to the overall scheme of the ACA, but looking to other parts of the statute which described the availability of the credits to eligible persons generally without reference to exchanges, concluded that there was no real difference between exchanges established by the states and those established by the federal government.

Ultimately, the majority held that “Congress passed the Affordable Care Act to improve health insurance markets, not to destroy them. If at all possible, we must interpret the Act in a way that is consistent with the former, and avoids the latter. [The ACA] can fairly be read consistent with what we see as Congress’s plan, and that is the reading we adopt.”

Related:Four healthcare consequences of King v. Burwell

There are several healthcare consequences that likely will follow. The first is the political momentum from which the Obama Administration continues to benefit. The ACA is the centerpiece of whatever legacy President Obama will have and he will leave office with the program essentially intact.

Second, and perhaps most importantly, health insurers now gain the certainty that is required for proper rate setting. If the young and relatively healthy could not get the credits and chose to opt out of the system, insurers would have been faced with statistically unhealthier populations and rates would have had to increase substantially, threatening the entire balance that the ACA was intended to provide. Third, eligible employers, particularly smaller businesses, likely will be spurred more quickly to comply with their ACA mandate and will encourage their employees to purchase health insurance (if they are not providing it).

Fourth, a bit more speculatively, will be the effect on the states and their exchanges. The literal language of section 18031 made it more advantageous to citizens of states that had their own exchanges. However, now that any useful distinction between state and federal exchanges has been removed by the Supreme Court, there is little incentive for new state exchanges.

One thus foresees an increasing federal presence at the grass roots of health insurance as the result of a case that marks the triumph of “contextualism” over strict “textualism.”

ABOUT THE AUTHOR

Stuart M. Gerson is a member of Epstein Becker & Green’s Litigation and Health Care & Life Sciences practices.