06/25/2015

Supreme Court Upholds ACA Subsidies in All States

The Affordable Care Act (ACA) avoided a potential death blow today when the Supreme Court ruled that citizens in 34 states that did not establish their own insurance marketplaces, or exchanges, are eligible for premium subsidies under the 2010 law.

The decision offers relief to 6.4 million Americans in those 34 states who have purchased private coverage with the help of subsidies.

For the second time now, the ACA has survived Supreme Court scrutiny. In 2012, the high court upheld the law's individual mandate to purchase coverage, but made Medicaid expansion optional for states.

The challenge to the subsidies centered on a section of the law saying that this assistance was intended for individuals buying a health plan through an exchange "established by the state." Only 16 states opted for their own exchange. The remaining 34 states — mostly Republican — defaulted to a federally established exchange that uses the enrollment website called healthcare.gov.

In 2012, the Internal Revenue Service (IRS) interpreted the law as a whole to mean that qualifying citizens in those 34 hold-out states also could receive subsidies, which take the form of a tax credit. ACA critics challenged that policy in several federal lawsuits, saying that the government should follow the letter of the law and limit subsidies to people obtaining coverage through an exchange "established by the state." When the Obama administration defended the IRS ruling in those cases, it said that the law treated federally established exchanges as proxies for those created by states.

Two federal appellate courts rendered conflicting decisions on the legality of the subsidies, prompting the Supreme Court to hear one of the cases, King v. Burwell. It was filed by four residents of Virginia, a state that had exercised its right not to form its own exchange.

Much was at stake. As of March 31, 2015, a total of 10.2 million Americans had active coverage under an ACA exchange plan, according to the US Department of Health and Human Services. Of this group, almost 8.7 million nationwide and 6.4 million in states with a federally established exchange had received a premium tax credit averaging $272 a month.

The subsidy case has kept the healthcare industry and the political world at a low boil of anxiety since the Supreme Court agreed to hear it last November. Some experts predicted that defeat for the Obama administration would not only deprive millions of Americans of health insurance but also wreck the law through an insidious chain reaction..

Without the availability of subsidies in the 34 states, individuals there who otherwise could not afford insurance coverage would not come under the law's mandate to buy a policy. Without the individual mandate, not enough young healthy adults would be forced into the exchanges, leaving insurance risk pools composed mostly of older, sicker individuals whose preexisting conditions, thanks to the law, no longer bar them from the coverage they need.

Faced with a preponderance of enrollees needing lots of healthcare, insurers would have had no choice but to raise premiums, making coverage less affordable and the risk pools smaller and sicklier, according to these predictions. Premiums would have continued to increase, sending the exchanges into a "death spiral."

The waiting period also spawned contingency plans. President Barack Obama said that if the court struck down the subsidies, Congress could restore them simply by deleting the words "established by the state" from the ACA. A GOP-controlled Congress would have been loath to do that. However, some Republicans proposed extending invalidated subsidies temporarily, while others favored a new set of tax credits as part of an ACA replacement bill. Another option was for hold-out states with federally established exchanges to create their own so they could qualify for subsidies, a plan some states were starting to pursue. Earlier this month, the Department of Health and Human Services approved plans by three such states — Arkansas, Delaware, and Pennsylvania — to proceed with the switchover.

A Plan B is no longer necessary, though, now that the Supreme Court has preserved the status quo.