“Established by the state.” Those are the four words at the center of an upcoming Supreme Court case that could strip affordable health insurance coverage from millions of working families and result in billions of dollars in uncompensated care costs.
The case is known as King v. Burwell and at its core is the question of whether residents who live in states with federally administered health insurance marketplaces, versus state-run marketplaces, are eligible to receive insurance subsidies. The plaintiffs in the case claim that those four little words in one section of the entire Affordable Care Act — “established by the state” — mean that Congress never intended for federal subsidies to be available to people living in states where the feds set up the health insurance exchange. (A little background: As authorized in the ACA, the federal government will set up an exchange in a state where state lawmakers choose not to do so on their own.)
However, legal observers and advocates argue that the plaintiffs are simply taking the words out of context and if one looks at the ACA as a whole, it’s clear that Congress intended all Americans to have access to federal subsidies and thus, affordable health insurance. The Supreme Court is scheduled to hear arguments in the case next Wednesday.
“The motivation is to undermine the ACA and the system that sets it up,” Sarah Somers, managing attorney at the North Carolina office of the National Health Law Program and an attorney with the Network for Public Health Law, told me. “This was a legal theory that was designed to bring this litigation. …It doesn’t make any sense that Congress would put that kind of poison pill in the legislation. Why would they do that?”
This is the language that’s in question — it’s known as Section 36B of the Internal Revenue Code as authorized by the ACA: the monthly premiums for such month for 1 or more qualified health plans offered in the individual market within a State which cover the taxpayer, the taxpayer’s spouse, or any dependent (as defined in section 152) of the taxpayer and which were enrolled in through an Exchange established by the State under 1311 of the Patient Protection and Affordable Care Act…
But in examining references to the exchanges within the ACA’s thousands of pages, it’s clear that the concepts of a state-administered exchange and the federal exchange are interchangeable, Somers said. In an amicus brief that the National Health Law Program signed onto along with AARP, Services and Advocacy for Gay, Lesbian, Bisexual and Transgender Elders, and the National Council On Aging, the authors noted:
Petitioners’ acontextual interpretation of a single phrase in one provision of the Act—if accepted—will make insurance unaffordable in the 34 states that use the Federally Facilitated Exchanges, harming low- to moderate-income residents of those states. It would also render meaningless other key provisions of the ACA designed to increase access to affordable health insurance for all.
Somers said a Supreme Court ruling in favor of the plaintiffs could have a “massive impact — it’ll affect millions of people and will cause incredible difficulty, if not chaos, for federal governments, state governments and the insurance companies.” So, just how many people are at risk for losing subsidies in the 34 states that now depend on federally facilitated health insurance marketplaces? According to a map from the Kaiser Family Foundation, more than 13 million Americans estimated to benefit from subsidies in 2016 could be impacted, with the numbers ranging from about 32,000 residents in Alaska to more than 784,000 residents in Georgia to more than 1.7 million in Texas.
“It’s amazing to think what a wreck this would be,” Somers told me.
Earlier this month, the Urban Institute released a report on what a ruling for the plaintiffs would mean for uninsured rates and health care spending. That report estimated that a ruling for the plaintiffs — a ruling that would prohibit federal subsidies in 34 states — would result in 8.2 million more uninsured people, including thousands of children, who would have otherwise spent more than $27 billion on health care in 2016. Without federal subsidies that enable people to buy affordable health coverage, the reports estimates that those newly uninsured would spend only $5.3 billion on health care, with another $12 billion provided in uncompensated care. (The uncompensated care estimate is based on the assumption that governments would fund such care and health care providers would make in-kind contributions at the same rates they had previously.)
However, the ACA was specifically designed with the assumption that demand for uncompensated care would go down — for example, the law reduced certain Medicare and Medicaid hospital payments that had historically gone to cover uncompensated care. Those types of funding reductions coupled with additional revenue losses resulting from a rise in the uninsured rate could be disastrous for providers. In addition, losing health insurance and the opportunity to access preventive care as well as care in the earliest stages of an illness has tragic effects on people’s health and mortality risks. In an amicus brief in support of the defendants, the American Public Health Association along with a host of deans, chairs and faculty within schools of public health write:
Because of the interrelationship between insurance coverage, health care access, and population health, a decision striking down the IRS rule (on federal subsidies) can be expected to lead to a loss of improvements in access to care, worsening health, and more preventable deaths. Applying the results of a prior study estimating mortality declines linked to the first four years of health reform in Massachusetts, a loss of health insurance by estimated 8.2 million persons can be expected to translate into over 9,800 additional deaths annually.
‘Sucker-punch to the gut of the middle class’
Linda Blumberg, an economist and senior fellow at the Urban Institute, described the plaintiffs’ arguments as “very flimsy,” as it seems clear that they’re taking the four words at the center of the case out of context. Blumberg was involved in the process of providing technical assistance to states as they decided whether to set up state-run exchanges or let federal officials take over. She told me that the question of whether that decision would jeopardize the availability of federal insurance subsides never came up — not once. If Congress had intended to use federal insurance subsidies as a way to pressure states into setting up their own exchanges and ultimately punish states that chose not to — as the plaintiffs argue — it’s incredible that no state took notice, she told me.
“You can’t create this coercive situation with very substantial consequences for a state without it being noticed,” said Blumberg, who also co-authored the Urban Institute report cited above. “It’s kind of impossible to have been part of the conversation around reform and believe that there’s legitimacy to this case. Having been a part of the policy process, I just don’t see any legitimacy in their argument whatsoever.”
In addition to an increase in the uninsured rate and uncompensated care, Blumberg explained how a ruling for the plaintiffs could upset the very foundation of the ACA, much of which builds off the premise of a mixed insurance pool of healthy and sick people. She said that if insurance subsidies disappear in states that depend on federally administered exchanges, the rise in some residents’ monthly insurance bills would exempt many from the ACA’s individual insurance mandate. That means some people could drop insurance coverage without facing a penalty. Blumberg said in that scenario, it’s likely that the first people who drop coverage will be healthy people — people who use the least amount of health care. That means that sicker people who use more health services remain in the insurance pool, which pushes premiums up. From there, it can be a domino effect — as premiums go up, more and more healthy people leave the insurance market and a primary mechanism for controlling health care costs starts to disappear.
“We have a situation in which we’ve created all these consumer protections that let everyone (access the insurance market), but if the only people coming in are sicker and more costly, you have a very bad dynamic,” she told me.
Regarding the four words at the core of King v. Burwell, Blumberg argued that for all intents and purposes, every exchange is established by the state — “regardless of the semantics over who’s doing the administrative role, all of these are exchanges established by the state by either the state setting it up themselves or by choosing to let the federal government set it up for them.”
“The legal folks that I listen to and trust seem cautiously optimistic and feel the case against the plaintiffs is incredibly strong on its merits,” Blumberg said.
Jane Perkins, legal director for the National Health Law Program, told me that the plaintiffs have to prove that the “statute is unambiguous on its face” and as a result, the IRS regulations about federal subsidies are beyond the agency’s authority. However, Perkins said that a hallmark of statutory construction is to determine the meaning of words by looking at the statute as a whole — in other words, you don’t untether a small group of words from its statutory context.
“The intent and wording throughout (the ACA) is to extend coverage to as many Americans as possible and the whole statute is set up to do just that,” Perkins said. “I think if the court ruled for the plaintiffs, it would not only upset (the entire) ACA, it would be reworking the rule of statutory constructions that has applied in cases for generations.”
Regarding the ruling’s potential impact, Perkins said “it would be a sucker-punch to the gut of the middle class if this ruling came down in favor of these politically driven plaintiffs.” She noted that the great majority of those affected if subsidies go away would be working people. However, she also said that if the Supreme Court rules in the plaintiffs’ favor, Congress could still step in to fix the law’s language or help states convert as seamlessly as possible to state-operated insurance exchanges.
“But it would be a very bumpy road,” Perkins said.
Kim Krisberg is a freelance public health writer living in Austin, Texas, and has been writing about public health for more than a decade.