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Health Care Reform – Notable News

Supreme Court to Take on another ACA Challenge

On November 7 the U.S. Supreme Court unexpectedly agreed to hear an appeal of a July 22 U.S. District Court ruling concerning the validity of a key Affordable Care Act (ACA) component – specifically the provision of the law that allows the federal government to distribute tax credits (subsidies) to people buying coverage through the ACA’s health insurance marketplace which subsidize the cost of insurance for qualified individuals. The challengers in the case, King v. Burwell, maintain the provision in the law limits subsidies to “an exchange established by the state” and only people in states with their own exchanges can get subsidies.
 
Currently only 14 states (and the District of Columbia) have fully set up their own marketplaces, with the remainder utilizing the federal exchange. Given the large number of states affected, if the Supreme Court rules in favor of the challengers, many fear it would represent a major destabilization of the ACA and a mandatory dismantling of the law. However, some legal observers contend the decision to hear the case is “much ado about nothing,” since there is little chance the Court will ultimately accept the argument. Others welcome the Supreme Court’s decision to hear the case as a means to clarify the law’s intent and state’s rights regarding health care policy decisions.

More than a few legal experts have pointed out the case doesn’t fit the normal criterion for Supreme Court review because there no longer exists any conflict among the federal appellate circuits, despite an earlier split among two courts. In the King case, a three-judge panel of the United States Court of Appeals for the Fourth Circuit in Richmond, Virginia unanimously upheld the government’s position that the tax subsidy is available to those who buy insurance on the federally run exchanges that are now in operation in 36 states. That same day, a divided three-judge panel of the United States Court of Appeals for the District of Columbia Circuit ruled the other way, agreeing with the challengers that only people in states with their own exchanges are eligible for subsidies.

The Supreme Court typically steps in when there are conflicting decisions among federal appeals court. However, the split between the two courts was ultimately wiped out when the full District of Columbia Circuit vacated the July ruling and set the case for argument in December – leading to surprise on the part of many court observers that the Supreme Court would deem to get involved.

The challengers to the provision argue that Congress made the distinction in question to encourage states to participate in the marketplace. However, the Internal Revenue Service (IRS) has issued a regulation stating subsidies are allowed whether an exchange is run by a state or the federal government. The challengers believe the regulation is contradictory to the law and in a supporting brief, several Republican lawmakers cite the “tens of billions of dollars of unlawful spending in the next year, and hundreds of billions over the next decade” as a compelling reason for the Court to hear the case.

The federal government contends language elsewhere in the ACA establishes Congress’s intent that the federal government should be able to run exchanges – including dispensing subsidies – where states chose not to do so. In addition, the chairs of the main congressional committees that drafted the law have publicly affirmed that that was their intent1.

Approximately 5 million Americans have purchased private insurance through the 36 federally run marketplaces. Of these individuals, more than 4 million qualified for subsidies because they earned 400 percent of the federal poverty level or less and were not eligible for Medicaid in the their states. Supporters of the law, such as the Commonwealth Fund, speculate the loss of these subsidies would make insurance unaffordable for most of these individuals, undermining the ACA’s “current and future success in reducing the number of uninsured Americans, which dropped by an estimated 8 to 10 million during the first open enrollment period.”

A ruling in favor of the challengers could also make meaningless the individual and employer mandates that depend on the availability of “affordable coverage” and federal subsidies. Further, defenders of the law point to the so-called premium “death spiral” that could occur if insurance markets lose their low-risk individuals when ACA subsidies are no longer available. ACA reforms that prevent insurers from limiting annual or lifetime benefits or from denying coverage because of pre-existing conditions tend to increase the number of insureds with high health care costs.

In order to keep premiums affordable, insurers need low-risk individuals to offset these added costs. Supporters fear low-risk individuals will back out if subsidies go away and premiums will increase significantly. A recent RAND Corporation study found that ending subsidies would increase premium costs in the marketplaces “by as much as 43 percent and cause enrollment to drop by 68 percent.”

Says Clare Krusing, the director of communications for the industry trade group, America’s Health Insurance Plans, “This issue is now in the hands of the justices, but it’s clear that significant policy changes would be required to ensure an affordable and stable market for consumers were the court to rule against the government.”

Some legal experts such as Alden Bianchi, practice group leader for employee benefits and executive compensation at Mintz Levin, believe the court will reject the challenge to the subsidies, determining that the ACA never intended for such a literal interpretation of the law. He recommends employers and other stakeholders proceed with their existing ACA strategies, “At the end of the day, I’d be surprised to see the court side with the challenge. The ACA is the law of the land, there’s nothing to change or do.”

The case is expected to be argued in February or March, with a decision in June – three years after the Supreme Court upheld the constitutionality of the ACA. No matter what the outcome, the Supreme Court’s decision to hear the case adds yet another level of uncertainty to one of the most scrutinized and debated laws in recent history.

Works Cited

1 Tom Harkin et al, “Affordable Care Act Opponents are Cherry-Picking Their History.” Washington Post, October 30, 2014, accessed November 17, 2014, http://www.washingtonpost.com/opinions/affordable-care-act-opponents-are-cherry-picking-their-history/2014/10/30/2199a04e-5fac-11e4-91f7-5d89b5e8c251_story.html

About the Law. (2014). Retrieved November 17, 2014, from hhs.gov/healthcare: http://www.hhs.gov/healthcare/rights/

David Blumenthal, M. D. (2014, November 7). The Supreme Court Decides to Hear King v. Burwell: What Are the Implications? Retrieved from The CommonWealth Fund: http://www.commonwealthfund.org/publications/blog/2014/nov/the-supreme-court-decides-to-hear-king

Liptak, A. (2014, November 7). Justices to Hear New Challenge to Health Law. The New York Times.

Postal, A. D. (2014, November 10). How ACA Challenge Could Affect Insurers. Retrieved from insurancenewsnet.com: http://insurancenewsnet.com/innarticle/2014/11/10/how-aca-challenge-could-affect-insurers-a-572336.html#.VGo3kmd0zIU

Winn, M. A. (2014, November 7). SCOTUS to Review ACA Subsidies; Experts Predict Little Change. Retrieved from Employee Benefit Adviser: http://eba.benefitnews.com/news/eba_hc_health_reform/scotus-to-review-aca-subsidies-experts-predict-little-change-2744686-1.html

 

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BHCG Monitor: Focus on Health Care Benefits - April 2012