King v Burwell—ACA Armageddon Averted

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Statutory wording in the Affordable Care Act (ACA) has been controversial. In King v Burwell, petitioners argued that the plain language of the ACA statute, in particular, the statutory wording “established by the State,” made it so that subsidies should be available only through state-run exchanges and not federal ones. An alternate way of saying this is that only persons in state-run exchanges would be eligible for tax credits. Legal experts feared that if this strict interpretation were true, insurance markets would undergo a “death spiral.” In detail, premium subsidies would be withdrawn from federally run exchanges, accounting for more than half the country, while ACA’s other major provisions would remain in effect, meaning that insurance would become unaffordable for many people, leading to “adverse selection” behavior that would drive up rates and lower enrollment numbers. Fortunately, for the ACA, the Court rejected this interpretation.

US Supreme Court Chief Justice John Roberts, representing a 6-member majority, ruled that the ACA’s tax subsidies for insurance premiums would be available both in states with their own insurance exchanges and in states relying on federal exchanges. Foreseeing the potential adverse effects of a strict “established by the State” interpretation, the Court emphasized reading the wording in context of ACA’s overall structure and purpose. Congress did not obviously intend to create destructive consequences for the insurance market. In addition, other sections of the ACA would clash with a strict interpretation. One section of the ACA requires the federal government to establish an exchange if the state cannot establish one on its own. Another section requires all exchanges to provide subsidy calculators and report the amount of subsidies they confer. These requirements would not make sense if some states did not qualify or receive subsidies.

King v Burwell is notable for a few reasons. This case deviates from previous cases in which the Court deferred ambiguous statute interpretations to the Internal Revenue Service. It also represents the Court’s position on having a well-defined health policy analysis, in lieu of a “long history of failed health insurance reform.” Successful health policy in the ACA follows a series of 3 interlocking reforms: guaranteed issue and community rating of insurance policies, individual mandate, and premium subsidies. It is of note that some argue that these measures force healthy individuals to pay higher premiums or that individual states will struggle with managing state-run, federally run, or a combination of both exchanges. Nevertheless, King v Burwell removes judicial uncertainty regarding the ACA and shows that the Court has little appetite for future challenges that threaten the ACA’s core structure.

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