At the Intersection of Health, Health Care and Policy Cite this article as: Timothy S. Jost The Affordable Care Act Returns To The US Supreme Court Health Affairs, 34, no.3 (2015):367-370 doi: 10.1377/hlthaff.2015.0043

The online version of this article, along with updated information and services, is available at:

For Reprints, Links & Permissions: E-mail Alerts : To Subscribe:

Health Affairs is published monthly by Project HOPE at 7500 Old Georgetown Road, Suite 600, Bethesda, MD 20814-6133. Copyright © 2015 by Project HOPE - The People-to-People Health Foundation. As provided by United States copyright law (Title 17, U.S. Code), no part of Health Affairs may be reproduced, displayed, or transmitted in any form or by any means, electronic or mechanical, including photocopying or by information storage or retrieval systems, without prior written permission from the Publisher. All rights reserved.

Not for commercial use or unauthorized distribution Downloaded from by Health Affairs on May 10, 2015 at CARLETON UNIVERSITY LIBRARY

Entry Point

ACA challenge: Sylvia Burwell, secretary of health and human services, encouraged consumers to enroll in health insurance during a news conference on Thursday, November 13, 2014, at the Columbus Metropolitan Library in Columbus, Ohio. The Supreme Court’s ruling may determine whether low- and middle-income enrollees from states, such as Ohio, that rely on the federally facilitated insurance Marketplace will continue to receive subsidies meant to help them afford coverage under the Affordable Care Act. doi:


The Affordable Care Act Returns To The US Supreme Court As premium subsidies hang in the balance, the law’s advocates and opponents prepare for the justices to rule either way. BY TIMOTHY S. JOST


he Affordable Care Act (ACA) is once again before the US Supreme Court. The ACA survived its last appearance before the Court but just barely, and badly maimed.1 Four

of the Court’s nine justices would have stricken the entire act as unconstitutional. Five members of the court upheld it as constitutional, but seven members of the Court rolled back the ACA’s mandatory Medicaid expansion to adults below

Photograph by Fred Squillante, AP Photo/The Columbus Dispatch

age sixty-five with household incomes not exceeding 138 percent of the federal poverty level, turning it into a state option. This change left almost five million of the neediest Americans currently uninsured.2 The current litigation before the Court known as King v. Burwell is based on an interpretation of the statute itself rather than on the Constitution, but the result of a ruling for the challengers could be as devastating as the Court’s 2012 decision, depriving millions of additional Americans of health insurance coverage. The case turns on the meaning and significance of four words in the section of the ACA that defines eligibility for premium tax credits and on how those words should be read in the context of the larger statute. Two subsections that deal with the computation of the tax credits refer to enrollment in qualified health plans through an exchange “established by the State.”3 The plaintiffs in King v. Burwell claim that the use of these four words in this section means that only state-operated and not federally facilitated Marketplaces (FFMs) can issue premium tax credits. Therefore, the challengers argue, the current Internal Revenue Service (IRS) rule, which allows the FFMs as well as state-operated exchanges to issue premium tax credits, is invalid.4 They have asked the Supreme Court to invalidate the rule. The litigation is sponsored by the Competitive Enterprise Institute, a limited-government, free-market advocacy organization, which has made no secret of its desire to use this litigation to destroy the ACA.5 As only sixteen states and the District of Columbia currently have state-operated exchanges, invalidation would mean that premium tax credits would be unavailable in twothirds of the states. As of the end of 2014, 6.5 million Americans had selected plans through the FFM.6 Eightyseven percent of them receive premium tax credits, which in most instances are substantial.7 If the challengers succeed, health coverage would again become unaffordable for most of these Americans.

March 2 015

3 4: 3

Downloaded from by Health Affairs on May 10, 2015 at CARLETON UNIVERSITY LIBRARY

Health Affa irs


Entry Point A Ripple Effect This would be the beginning of the repercussions of a decision to invalidate the IRS rule, however. The taxes imposed on employers that fail to provide minimum essential coverage or adequate and affordable coverage for their employees apply only if one or more employees receive premium tax credits, so the employer mandate would cease to apply in states that did not have stateoperated exchanges.8 People who cannot afford health insurance are exempt from the individual responsibility requirement. Affordability is determined after taking into account available tax credits; thus, if premium tax credits ceased to be available in FFM states, far more of the residents of those states could choose to remain uninsured and not be penalized.9 A Supreme Court decision invalidating the IRS rule would not affect the provisions of the ACA that prohibit insurers from considering a person’s health status in offering coverage or setting premiums or from excluding coverage for pre-existing conditions. But without premium tax credits and with a weakened individual mandate, it is likely that many more healthy Americans would forgo coverage. This would, in turn, drive up premiums for those who remained in the market, who would likely be higher-risk people with greater needs for coverage. Recent studies of the impact of a decision denying the FFM the authority to grant tax credits predict that the number of uninsured nonelderly adults in FFM states would increase by 44 percent to 26.6 million, the nongroup market (both inside and outside the exchange) would shrink by 70 percent to about 4.5 million, while premiums in the nongroup market would increase 35–47 percent.10,11 Health care providers in FFM states could see a dramatic increase in their uncompensated care burden, which could threaten their financial viability. The effects of a Supreme Court decision for the challengers would spread far beyond its immediate effects on those who currently benefit from the premium tax credits. The ACA was built on four essential elements: market reforms to ensure that everyone can purchase private health insurance regardless of health status; 368

H e a lt h A f fai r s

an individual mandate to encourage healthy as well as unhealthy people to seek coverage; premium tax credits to make coverage affordable for low- and moderate-income Americans; and health insurance exchanges (called Marketplaces) to facilitate competition among insurers, choice for consumers, and access to the tax credits to finance coverage. These elements were supplemented by an expansion of Medicaid, to make coverage available to the lowest-income Americans; and an employer mandate, to discourage employers, which had traditionally provided coverage for most Americans, from abandoning employees to public coverage. All of the health care reform bills that advanced through the House and Senate in the summer and fall of 2009 included these essential elements.12 The House and Senate bills differed, however, in where they located the exchange. The House bill created a national exchange, from which the states could opt out. By contrast, all versions of the bill that emerged from the Senate located the exchanges in the states. All versions, however, also included a fallback exchange that would be operated by the federal government in the states that elected not to operate their own exchange. The final ACA was based on the Senate bill with some modifications that could be adopted through the budget reconciliation process; thus, the exchanges remained located in the states.

Four Words The task of the Supreme Court in ruling on this challenge will be to determine whether the IRS interpretation of the statute is contrary to the “unambiguously expressed intent of Congress.”13 Unless the Court concludes that the ACA unambiguously prohibits premium tax credits for FFM states, the Court should uphold the IRS interpretation of the rule if it is not unreasonable. The challengers claim that an exchange is “established by the State” only if it is operated by a state. Although the challengers argue that there is evidence Congress intended to deny premium tax credits to FFM states, their primary argument is that the clear wording of the key provision should determine the outcome of the case. The federal government and its sup-

March 2 015

3 4: 3

porters, on the other hand, argue that the Court must consider the text of the entire statute and not focus exclusively on the four words. Another provision of the statute directs the states to establish exchanges but provides that the federal government shall establish “such” an exchange when a state elects not to establish the “required” exchange.14 The statute defines exchange to mean an exchange established under the section of the ACA that, in turn, describes an exchange as a state-established exchange.15,16 The provisions of the statute that actually address determination of tax credit eligibility provide that the Department of Health and Human Services (HHS) must create a system under which the exchanges in “each state” shall determine tax credit eligibility. Moreover, the oft-stated statutory purpose of making coverage available in all states necessarily assumes that tax credits will be available regardless of whether a state operates its own exchange. Four lawsuits have been filed challenging the IRS rule, two by the Competitive Enterprise Institute and two by the attorneys general of Oklahoma and Indiana. The IRS rule has been upheld by two out of three of the district courts that have so far decided the case.17–19 The federal appellate court for Virginia upheld the lower court decision validating the rule.20 A panel of the D.C. Circuit federal appellate court would have invalidated the rule, but that decision was vacated by the full D.C. Circuit, which set the case for rehearing.21 The US Supreme Court then agreed to review the decision of the Virginia federal appeals court, and all other cases are now on hold. If the Court considers the text of the statute as a whole, as the federal government urges, it should uphold the IRS rule. If it focuses primarily on the four words in the tax credit calculation subsection, the Court could conclude that the IRS rule is invalid. If the Court finds the statute ambiguous, it should uphold the IRS rule as a permissible interpretation of the statute. If it looks beyond the text to the purpose, structure, and legislative history of the ACA, it should also uphold the rule. The most likely path to a Court decision invalidating the rule is if the Court focuses narrowly on the four words of the statute. If the Court holds the IRS rule invalid,

Downloaded from by Health Affairs on May 10, 2015 at CARLETON UNIVERSITY LIBRARY

the Court’s mandate could issue within weeks, ending the provision of premium tax credits in FFMs under the current rule. Premium tax credits are issued monthly, and tax credits issued in earlier months in 2015 should not be affected by the decision, as a federal statute gives the IRS authority to determine whether a court ruling has retroactive effect, and it certainly would not apply a negative Supreme Court decision retroactively in this case.22 On the other hand, once the rule is invalidated, the IRS will not be able to issue further tax credits in FFM states. People enrolled in qualified health plans through the FFM would have to pay the full premium for their coverage or face termination. Insurers could terminate enrollees for nonpayment in as few as thirty days. Costsharing reduction payments are dependent on premium tax credit eligibility and would also end. Under the current qualified health plan certification agreement, insurers may terminate plan participation if they cease to be eligible for premium tax credits or cost-sharing reduction payments, so some insurers are likely to leave the exchange altogether.23 Other consequences of a ruling for the challengers are a dramatic increase in the uninsured population, significantly increased premiums in the individual market, and increased uncompensated care burdens for health care providers.

After The Ruling Of course, the ruling will not directly affect premium tax credits in states with state-operated exchanges. One course of action, therefore, is for current FFM states to establish exchanges. The ACA sets out in some detail the responsibilities of exchanges but does not describe how exactly a state establishes an exchange. The current HHS rules provide only a bit more detail.24 The most detailed description of how a state establishes an exchange is found in the Ex-

Many of the current FFM states are steadfastly opposed to any form of collaboration with “Obamacare,” including establishing state exchanges. change Blueprint that HHS issues each year for states to follow in applying to the Centers for Medicare and Medicaid Services (CMS) to establish an exchange, but the Exchange Blueprint is guidance and could be easily amended by HHS.25 Presumably CMS could issue emergency regulations specifying in greater detail how a state could establish an exchange and helping states to expedite that process. Any action taken by HHS, however, will risk yet another lawsuit challenging the administration’s authority. FFM states seeking to establish exchanges will face practical and political problems. Under the current rules, states must give 6.5 months’ notice before changing from the FFM to a state exchange.26 The most recent Exchange Blueprint required states to apply by June of one year to have a state exchange operational by January of the following year, which would mean that the earliest a state could establish an exchange following an adverse Supreme Court ruling in late June of 2015 would be 2017. HHS could reduce the time required for a transfer, but there may be limits to how quickly the transfer could happen. A greater problem may be that many of the current FFM states are steadfastly opposed to any form of collaboration with “Obamacare,” including establishing state exchanges.27 Most states with FFMs are dominated by Republican governors and state legislatures that would have a difficult time politically acceding

in the establishment of an ACA exchange. Moreover, a number will not be in legislative session by the time a Supreme Court decision comes down, complicating any possibilities of state exchange establishment. In theory, the easiest way for tax credits to be made available in FFM states would be for Congress simply to pass a technical amendment clarifying that the FFM can grant premium tax credits. This would be in the tradition of technical amendments that have been routinely enacted in the past in response to technical issues that have arisen in implementing major pieces of litigation. This course is unlikely in a Congress now dominated by Republicans, who unanimously oppose the ACA. Some opponents of the ACA are already suggesting that a decision against the administration would put Congress in the driver’s seat, allowing it to repeal the ACA and replace it with health reforms of its own design.28 Some of these changes, such as eliminating meanstested tax credits altogether, could do even more damage to the goals of the ACA than would a ruling for the challengers on FFM-issued tax credits. The history of the ACA has been one of repeated escapes from near-death experiences—from the election to the Senate of Massachusetts Republican Scott Brown, which cost Democrats their sixty-vote Senate majority in January 2010, to the Supreme Court challenge in 2012, to the defeat of Republican Mitt Romney in the 2012 presidential election, to the meltdown of the exchanges in the fall of 2013. Perhaps the ACA will survive yet another trip to the Supreme Court. Oral arguments before the Court are scheduled for March 4—just as this article is being released. ▪ Timothy S. Jost ([email protected]) is a contributing editor at Health Affairs and the Robert L. Willett Family Professor of Law at the Washington and Lee University School of Law, in Lexington, Virginia.

M a r c h 20 1 5


Downloaded from by Health Affairs on May 10, 2015 at CARLETON UNIVERSITY LIBRARY

Health Affairs


Entry Point

NOTES 1 National Federation of Independent Business v. Sebelius, 132 S.Ct. 2566 (2012). 2 Kaiser Family Foundation. A closer look at the impact of state decisions not to expand Medicaid on coverage for uninsured adults [Internet]. Washington (DC): KFF; 2014 Apr 24 [cited 2015 Jan 28]. Available from: http:// 3 Refundable Credit for Coverage under a Qualified Health Plan, 26 U.S.C. Sect. 36B(b)(2)(A), (c)(2) (A)(i) (2014). 4 Eligibility for Premium Tax Credit, 26 C.F.R. Sect. 1.36B-1(k) (2014). 5 Greenhouse L. By any means necessary. New York Times [serial on the Internet]. 2014 Aug 20 [cited 2015 Jan 28]. Available from: 2014/08/21/opinion/linda-green house-by-any-means-necessary .html?_r=0 6 Department of Health and Human Services. Open enrollment week 6: December 20–December 26, 2014 [Internet]. Washington (DC): HHS; 2014 Dec 30 [cited 2015 Jan 28]. Available from:


Health A ffairs







facts/blog/2014/12/openenrollment-week-six.html Department of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation. Health insurance Marketplace 2015 open enrollment period: December open enrollment report [Internet]. Washington (DC): HHS; 2014 Dec 30 [cited 2015 Jan 28]. Available from: reports/2014/MarketPlace Enrollment/Dec2014/ib_2014 Dec_enrollment.pdf Shared Responsibility for Employers, 26 U.S.C. Sect. 4980H(a) (2), (b)(1)(B) (2014). Requirement to Maintain Minimum Essential Coverage, 26 U.S.C. Sect. 5000A(e)(1) (2014). Saltzman E, Eibner C. The effect of eliminating the Affordable Care Act’s tax credits in federally facilitated Marketplaces. Santa Monica (CA): RAND Corporation; 2015 Jan 8. Blumberg L, Buettgens M, Holahan J. The implications of a Supreme Court finding for the plaintiff in King v. Burwell: 8.2 million more uninsured and 35 percent higher premiums. Washington (DC): Urban Institute; 2015 Jan 8. Brief of Health Care Policy History Scholars as Amici Curiae Sup-

M a r c h 20 1 5




15 16

17 18


20 21

porting Respondents, King v. Burwell, Supreme Court of the United States No. 14-114 (2014) [cited 2015 Jan 30]. Available from: http://premiumtaxcredits %20amicus%20Health%20Care %20Policy%20History%20 Scholars.pdf/538893884/SC%20 amicus%20Health%20Care%20 Policy%20History%20Scholars .pdf Chevron v. Natural Resources Defense Council, 467 U.S. 837, 843 (1984). State Flexibility in Operation and Enforcement of Exchanges and Related Requirements, 42 U.S.C. Sect. 18041(c) (2014). Definitions, 42 U.S.C. Sect. 300gg-91(d)(21) (2014). Affordable Choices of Health Benefit Plans, 42 U.S.C. Sect. 18031(d)(1) (2014). King v. Sebelius, 997 F.Supp.2d 415 (E.D. Va. 2014) (upheld rule). Halbig v. Sebelius, 2014 WL 129023 (D.D.C. 2014) (upheld rule). Oklahoma v. Burwell, 2014 WL 4854543 (E.D. Okla., 2014) (rejected rule). King v. Burwell, 759 F.3d 358 (4th Cir. 2014). Halbig v. Burwell, 758 F.3d 390 (D.C. Cir. 2014), rehearing en banc granted, decision vacated,

Downloaded from by Health Affairs on May 10, 2015 at CARLETON UNIVERSITY LIBRARY

2014 WL 4627181 (D.C. Cir 2014). 22 Rules and Regulation, 26 U.S.C. Sect. 7805(b)(8). 23 Centers for Medicare and Medicaid Services. Qualified health plan certification agreement and privacy and security agreement between qualified health plan issuer and the Centers for Medicare and Medicaid Services. Baltimore (MD): CMS; 2014 Oct 16. 24 Establishment of State Exchange, 45 C.F.R. Sect. 155.100 (2014). 25 Centers for Medicare and Medicaid Services. Blueprint for approval of affordable state-based and state partnership insurance exchanges [Internet]. Baltimore (MD): CMS; 2014 Mar 7 [cited 2015 Jan 28]. Available from: Regulations-and-Guidance/ Legislation/PaperworkReduction Actof1995/PRA-Listing-Items/ CMS1254283.html 26 Election to Operate and Exchange after 2014, 45 C.F.R. Sect. 155. 106 (a)(2) (2014). 27 Bagley N, Jones DK, Jost TS. Predicting the fallout from King v. Burwell—exchanges and the ACA. N Engl J Med. 2015;372(2):101–4. 28 Barnett R. Obamacare can be repealed—Supreme Court decision opens political, legal door for a replacement. USA Today. 2014 Dec 5;Sect. 8A.

The Affordable Care Act returns to the US Supreme Court.

The Affordable Care Act returns to the US Supreme Court. - PDF Download Free
146KB Sizes 2 Downloads 12 Views