Can an “Ambiguity” Derail Obamacare? Premium Subsidies in Court
After more than 40 attempts to pass legislation calling for repeal or significant changes to the health law, opponents of the Affordable Care Act have moved their focus from the House floor to the courthouse. Currently at least four lawsuits are working their way through state and district court—and one case awaits a nod from the Supreme Court—that would make it illegal for the federal government to provide premium subsidies to qualified consumers who buy Obamacare plans in 36 states that failed to set up their own exchanges. Depriving lower-and middle-income Americans of affordable healthcare is bad enough. But these lawsuits are just the latest weapon in the long-term quest to overturn the ACA—and hobble the Obama presidency—by any means necessary.
In fact, it is a strategy grounded in disruptive economics. As Jonathan Gruber, an MIT economist and chief architect of Massachusetts’ health reform law explains it, the Affordable Care Act is designed as a three-legged stool: The first “leg” is new rules that prevent insurers from hiking premiums or denying coverage for people with pre-existing conditions. The second “leg” is the individual mandate that requires all Americans to have health insurance. The third “leg” of the health law is the federal subsidies that make this insurance affordable to lower and middle-income people. Knock out one leg and the whole law becomes economically unfeasible.
Where are the potential weaknesses? The first leg of the stool is solid: There is bipartisan support for ending discriminatory practices in the insurance industry. The second leg is strengthened by the Supreme Court decision that found the individual mandate to be constitutional and enforceable. But the third leg—federal subsidies to help lower-income families and individuals pay for health coverage—is considered wobbly enough by conservatives to collapse with the right legal pressure. Their focus now is on the wording of a section of the Affordable Care Act that authorizes the federal subsidies. The law allows that tax subsidies may be available to qualified citizens who enroll in insurance plans “through an Exchange established by the State.”
This phrase, buried deep within the 2000 pages of the health law is the basis for at least four lawsuits charging that the ACA did not intend for premium subsidies to be legal in the 36 states relying on the federal government to run their exchanges. Although conservative groups like the Competitive Enterprise Institute are bankrolling these suits, plaintiffs include employers and individuals who claim that they are being “forced” to buy insurance even though their states failed to establish exchanges. On July 22, a three-judge panel from the District of Columbia’s appeals court ruled 2-1 in one such case—Halbig v. Burwell—that federal subsidies are illegal in the 36 states that rely on the federal exchange. “A federal exchange is not an ‘exchange established by the state,’” said Judge Thomas Griffith who added, “We reach this conclusion, frankly, with reluctance,” considering the “significant consequences both for millions of individuals receiving tax credits and for health insurance markets more broadly.”
This reluctance is well founded. If the ruling stands, some 4.6 million people in 34 states would lose premium subsidies. The Kaiser Family Foundation estimates that if you include those who are eligible for subsidies in federal marketplace states but have not yet signed up, the ruling could potentially affect a total of 9.5 million uninsured individuals. Almost 90% of Americans who purchased insurance through the exchanges have received subsidies. Many of them—including a significant number of healthy, young people—would no longer be able to afford insurance. Since many of them live in the 24 states that also refused to expand Medicaid benefits, they would be exempt from the individual mandate and likely join the ranks of the uninsured. The Halbig decision would also invalidate the employer mandate in states using the federal marketplace, removing the requirement that employers pay penalties if they fail to provide affordable health insurance for their workers. According to Adrianna McIntyre at Vox, “Halbig v. Burwell is arguably the Affordable Care Act’s greatest existential threat since the Supreme Court case decided in 2012.”
That threat is the tangible goal for conservatives like the Cato Institute’s Michael Cannon who see the Halbig decision as a victory for the majority of taxpayers. Cannon calls the federal subsidies “illegal,” writing in Forbes, “a victory for the Halbig plaintiffs would not increase anyone’s premiums. What it would do is prevent the IRS from shifting the burden of those premiums from enrollees to taxpayers. Premiums for federal-Exchange enrollees would not rise, but those enrollees would face the full cost of their ‘ObamaCare’ plans.”
If, in fact, enrollees did have to cover the “full cost of their ‘ObamaCare’ plans,” it’s easy to imagine a two-tier healthcare system where you either have to be wealthy or have good employer coverage to access what most of us consider essential benefits.
Fortunately, the federal subsidy issue is far from settled. On July 22 another appeals court in Virginia voted 3-0 to reject a second subsidy challenge, ruling in King v. Burwell that Congress did intend to offer subsidies nationwide regardless of whether consumers bought insurance on a state or federal exchange. Judge Roger Gregory, of the Virginia court, wrote that although the wording of the law was “ambiguous and subject to multiple interpretations,” the Congressional sponsors clearly intended that the ACA make affordable coverage accessible to all Americans. If the subsidies were not available on the federal exchanges, the “economic framework supporting the Act would crumble,” added Gregory, and millions of Americans would be uninsured.
What happens next? The Obama administration will likely ask all 11 judges on the D.C. Circuit Court to rehear the Halbig case—a so-called “en banc” review that could result in a ruling that validates federal subsidies in all states. Meanwhile, lawyers for the plaintiffs in the King v. Burwell case have already asked the Supreme Court to review their case in the current term, citing the “profound consequences” of the D.C. Circuit Court’s ruling:
“If the ACA means what it says, as the D.C. Circuit held, the consequences are profound: It means millions of people are ineligible for subsidies and exempt from the ACA’s individual mandate penalty. It means hundreds of thousands of employers are free of the Act’s employer mandate. It means a fundamental change in the health insurance market in two-thirds of the country. And it means that the IRS is illegally spending billions of taxpayer dollars every month without congressional authority.”
Besides these two high-profile cases, there are two other suits wending their way through the legal systems of Indiana and Oklahoma that could also end up in appellate courts. It is fair to say that the federal subsidies issue is having a moment—despite the fact that this was a non-issue throughout myriad Congressional hearings, years of policy debate and reams of analysis by pundits and reporters scouring the ACA for potential legislative pitfalls. To succeed, conservatives ultimately have to prove that the law’s creators intended to deny premium subsidies to people who live in states that rely on the federal exchange. As Brian Beutler writes in the New Republic, “Trying to take health insurance away from five million people on an admitted technicality doesn’t wear well. It wears much better if you pretend that’s what Obamacare’s creators wanted.”
If that deceit doesn’t fly, conservatives intent on dismantling the ACA can always fall back on an even more maddening Plan B; suing the President for “overstepping his authority” in his handling of the employer mandate and subverting the health law that way.