On March 4, 2015, the Supreme Court is scheduled to hear oral arguments in King v. Burwell, the lawsuit challenging the federal government’s authority under the Affordable Care Act (“ACA”) to provide subsidies to people who buy insurance in federally operated insurances Exchanges. King is yet another high-stakes moment for the ACA. It is an absurd case brought by the Competitive Enterprise Institute, an anti-government advocacy group, but one that could have devastating consequences for millions of Americans living in States that refused or otherwise failed to establish insurance Exchanges on their own.
Under the ACA, the executive branch is authorized to make “premium assistance tax credit” payments and “cost-sharing subsidy” payments directly to insurance companies on behalf of eligible taxpayers who enroll in health coverage “through an Exchange established by the State.” The petitioners in King have seized on this language to assert that low-income families in states with federal Exchanges cannot receive tax benefits. They argue, in essence, that an Exchange established by the federal government is not established by the State.
This argument appears simple because it isolates a few words from the overall statutory context, and invokes the supposed “plain meaning” of those words. Indeed, much of the commentary about the case appears to accept as a given the premise that the literal language of the challenged section justifies petitioner’s case, placing the burden on the government to overcome it. But the simplicity of this argument is deceptive; the premise is false. The ACA clearly indicates that subsidies are available in all States, regardless of whether the State or federal government is running the Exchange.
As a general rule, the ACA is long and complicated. The establishment of the Exchanges under the ACA is no exception. In fact, the ACA has more than 15 sections creating the Exchanges and describing their duties. But the key is what the ACA does not say. Nowhere does it announce, “Subsidies are not available on Exchanges established by the Secretary.”
What those sections do say is ineluctable and dispositive. The three provisions that together set forth how Exchanges will be established an operated – Section 18031, Section 18041, and the definition of “Exchange” – demonstrate that an Exchange established by the federal government for a particular State qualifies as an “Exchange established by the State.”
Section 18031(b)(1) directs that “[e]ach State shall, not later than January 1, 2014, establish an American Health Benefit Exchange (referred to in this title as an ‘Exchange’) for the State.” In Printz v. United States, however, the Supreme Court made clear that Congress could not mandate that such an Exchange be implemented by the State itself. In recognition of this, the ACA sough to provide “State[s] flexibility in operation and enforcement of Exchanges and related requirements.” To provide such flexibility, the Act furnished alternative means by which Section 18031(b)(1)’s requirement may be fulfilled – namely, a State may “elect” under Section 18041(b) to establish the Exchange for itself if it does so by the date specified by Section 18031(b)(1). But if a State opts not to do so, or if the federal government determines that a State that attempted to set up an Exchange will not have the “required Exchange operational by January 1, 2014,” then the federal government “shall . . . establish and operate such Exchange within the State.”
The use of the phrase “such Exchange” conveys that the Exchange to be established by the federal government for the State is the “required exchange.” For purposes of the ACA, therefore, an Exchange created for a particular State by the federal government is “an Exchange established by the State under Section 18031.” In the face of inaction by the State, the federal government is viewed as acting or standing in for the State.
To read the statute any other way is illogical and self-contradictory. In addition, it would produce a torrent of anomalies within the ACA’s other provisions. For example, in the States with federally facilitated Exchanges, there would be no “qualified health plans,” because to fall within that definition, the plan must be certified through an “Exchange.” With no “qualified health plans,” however, the insurance provisions of the statute would unravel in those states. The ACA would thus become a health insurance law without health insurance.
It is also important to consider the context of the statutory language being used to justify the condition the petitioners in King argue Congress created – that is, that Congress sought to induce states to set up their own Exchanges by denying subsidies to its residents if they failed to do so. This, quite obviously, would be conditionality with enormous consequences. But, if such significant conditionality truly existed, one would expect Congress to have made such conditionality crystal clear and to clearly communicate it to the States. It certainly did not.
Rather, the statutory language cited by the petitioners in King is buried in a sub-clause of the Internal Revenue Code (“IRC”) setting forth the technical formula for calculating how much the subsidy should be. Section 36B(a) of the IRC deals with the eligibility for the subsidies, directing that for applicable taxpayers – defined as those earning less than 400 percent of the federal poverty level – “there shall be allowed as a credit against the tax imposed by this subtitle for any taxable year an amount equal to the premium assistance credit amount of the taxpayer for the taxable year.”
Section 36B(b) then lays out how the to calculate the credit required by the preceding subsection. It is here, in subsection (b)(2)(A), that the challenged language appears, in describing the formula for that calculation based on the monthly premiums for qualified health plans “which were enrolled through an Exchange established by the State under 1311 of the Patient Protection and Affordable Care Act.”
Thus, to argue that low-income families in States with federally facilitated Exchanges cannot receive subsidies, you need to read the same provision of the IRC to both giveth and taketh away benefits at the same time. Under that reading of the statute, subsection (a) of the refundable tax credit provision awards applicable taxpayers a credit to buy insurance, but then subsection (b) calculates the amount of that credit as zero for taxpayers who live in States with federally-facilitated Exchanges. If Congress intended to impose a statewide bar to tax credits, it certainly could have chosen a less perverse route of first instructing the IRS to bestow it and then setting the amount at zero.
The anodyne language of the legal debate in King v. Burwell should not obscure the stakes for real people struggling with economic insecurity. One of the primary goals of the ACA was to expand the pool of those covered by health insurance. It has done so. In 2009, prior to the ACA, 50 million people (17 percent of the population) in the U.S. did not have health insurance. Today, due to the ACA, 12 million more Americans have health insurance, and the uninsured rate has dropped to 13 percent. As a direct result of expanded access to health insurance, 2014 marked the first ever decrease in the number of Americans who delayed essential health care because of cost.
The key to this expansion and improvement through the Exchanges has been the availability of subsidies. In every state, consumers are benefitting from the credits. In 2014, 80 percent of all enrollees qualified for premium subsidy tax credits. In Texas, for example, 86 percent of enrollees were eligible for financial assistance enabling them to afford health insurance; 92 percent in North Carolina; and 94 percent in Florida. While experts may disagree about the damage a pro-King verdict would do to national health reform overall, no one doubts that in many states large numbers of Americans would abruptly lose the federal subsidies that help them pay monthly-insurance premiums.
Many of these people, as a result, would no longer be able to afford health insurance, and the insurance markets in the affected states would likely collapse as healthy people drop coverage, leaving companies with disproportionately sick customers desperate enough to pay suddenly higher insurance premiums.
As Families USA noted in their amicus brief to the Supreme Court, these people “are not combatants in the health care reform wars. Nor are they attempting to score some political point. They are simply trying to protect themselves and their loved ones from catastrophic medical expenses.”
It’s important to remember that, in King v. Burwell, the Supreme Court took a case that it did not need to take, on an issue that should not be an issue. The IRS and the Fourth Circuit interpreted the ACA correctly – indeed, the only way it could be interpreted consistent with the language, structure, and purpose of the statute. But, for whatever reason, at least four Justices voted to review it. So, it now is important that the Court get the decision right.