Supreme Court upholds subsidies on federal exchanges

In King v. Burwell, the Supreme Court upheld the availability of subsidies for person who purchase health insurance on federal, as distinguished from state, exchanges.  In writing for the majority of six justices, Chief Justice Roberts was emphatic, making clear what was at stake in the case.  Congress, he wrote, “passed the Affordable Care Act to improve health insurance markets, not to destroy them.”  The Court thus rejected the challengers’ invitation to destroy the insurance markets in the 34 states which relied upon federal exchanges. 

The Court’s holding in King was based on the structure of the ACA and its three interlocking reforms: (1) insurers are required to make insurance available irrespective of an individual’s health condition (“guaranteed issue”) and insurers cannot discriminate by pricing the required coverage based upon an individual’s health condition (“community rating”); (2) all persons are required to have health insurance or pay a penalty (the “individual mandate”); and (3) subsidies, via tax credits, are provided to make insurance affordable for those who could not otherwise afford to purchase insurance, and thereby satisfy the mandatory coverage obligation. 

{mosads}The Court’s structural understanding of the Act doomed the challengers’ effort to kill subsidies for the millions of persons in the 34 states which did not establish health insurance exchanges, but, instead, relied upon the federal exchange.  As the Chief Justice observed, the consequences of the challengers’ position was that in these 34 “federal exchange states” subsidies would be altogether unavailable and the mandatory coverage requirement “would not apply in a meaningful way.”  Absent subsides, persons of lower incomes would be effectively exempt from the coverage requirement and, in any event, they would be financially unable to afford health insurance. 

To be sure, the ACA is far from a model of legislative craftsmanship.  The provision at issue inexplicably (given the overall structure of the Act) does provide in just so many words that the amount of the subsidy depends in part on whether the taxpayer has enrolled in an insurance plan through “an Exchange established by the State,” seemingly excluding subsidies to those who purchase insurance through “an Exchange established by the federal government [not the State].”  The Chief Justice acknowledged that the challengers’ “arguments about the [provision’s] plain meaning are strong.”  While facially strong, their arguments were wrong because “the context and structure of the Act compel [the Court] to depart from what would otherwise be the most natural reading of the pertinent statutory phrase.”

Justice Scalia, writing for himself and Justices Thomas and Alito, was having none of this.  One of his more temperate descriptions of the Chief Justice’s opinion was to characterize its conclusion as “quite absurd.” 

The Supreme Court’s decision in King v. Burwell marks the end of a major chapter in the attacks on the ACA.  While the legal and political battles over the ACA are not over, there is no longer much doubt as how this war is going to end.  The Act has now withstood two major Supreme Court challenges, first to the coverage requirement (the “individual mandate”) and now to the subsidies, and millions of people have insurance who did not have it previously and who would not have it but for the Act.  The ACA is the status quo; it is here to stay.  Future challenges will be on the margins. 

Tyler, a partner at Venable LLP, served as Chief Counsel at the FDA and insurance commissioner for the state of Maryland.