The Supreme Court Rules in Favor of Subsidies

Health Insurance

June 29, 2015

“The Constitution only gives people the right to pursue happiness. You have to catch it yourself.”
— Benjamin Franklin

Though these words were uttered over two centuries ago, they’re just as relevant now. In light of the Supreme Court’s groundbreaking decision regarding the King vs. Burwell lawsuit, millions of Americans can continue to receive essential healthcare through the Affordable Care Act (ACA). But on June 25, 2015, the Court ruled 6-3, in favor of the law, thus ensuing coverage for beneficiaries nationwide. “Congress passed the Affordable Care Act to improve health insurance markets, not to destroy them,” stated Chief Justice John Roberts. “If at all possible, we must interpret the act in a way that is consistent with the former, and avoids the latter.”

A case of federal subsidies

This positive outcome wasn’t a sure thing, as this case had the potential to place the entire ACA program at risk. The entire legal matter concerned four simple words: “established by the state.” You see, one key issue for the ACA has been the government’s responsibility for paying out enrollees’ subsidies. Currently, 34 states have declined to establish their own government marketplaces (or exchanges). Instead, they chose to rely on the federally run healthcare exchange on to enroll their citizens in health insurance plans. The government was responsible for providing any tax credits and other subsidies to millions of enrollees.

That was the problem, as this lawsuit sought to determine whether the government should continue to provide subsidies to the estimated 6.4 million people in those 34 states without their own exchanges. Without these subsidies, millions would have had to drop their coverage, as they couldn’t afford their monthly premiums.

But those four simple words caused an incredible amount of drama. Opponents interpreted them to mean that no tax credits could flow to those 34 states. Supporters felt the phrase should be taken in context with the entire law, which intended to provide health coverage to “all Americans.” Roberts wrote that when read in context, the law made it clear that Congress wanted subsidies available everywhere. But, he cautioned, that the alternative “could well push a state’s individual insurance market into a death spiral.”

This wasn’t really an exaggeration, as the independent Congressional Budget Office (CBO) estimated that a loss for the ACA would have increased the federal deficit by $137 billion over the next decade. About 85 percent of all consumers using the exchanges qualified for subsidies, based on their income. A negative decision would have made those 34 states’ insurance markets unmanageable, with an estimated 24 million people dropping their coverage. The government and those states’ officials would have been forced to quickly repair the law or create new state marketplaces. Beneficiaries able to pay their own premiums would have also been affected, with average premiums increasing by $3,300.

Financial crisis averted

But with the Court’s favorable decision, the ACA is firmly supported, now and in the immediate future. “The Affordable Care Act is here to stay,” stated President Obama an hour after the decision was announced. “This morning, the court upheld a critical part of this law – the part that’s made it easier for Americans to afford health insurance regardless of where you live.”

While the Affordable Care Act still faces a few pending decisions, the issue of federal subsidies was considered the biggest obstacle since 2012. In that case, the Internal Revenue Service issued regulations that made subsidies available in all 50 states.

Opponents argued that these subsidies were made available only in state-run exchanges to force governors and legislatures to create their own marketplaces. But supporters countered that governors and legislatures weren’t told they needed to establish state exchanges allowing their citizens to get tax credits. They said that as this issue wasn’t discussed when the law was being drafted, it shouldn’t be considered now, as it could harm millions of people.