Sometime this month the U.S. Supreme Court will announce a decision on whether subsidies for enrollees in the federal government’s health insurance exchange are lawful.

Plaintiffs in the case before the High Court, King v. Burwell, argue that IRS misinterpreted a key provision of the 2010 Affordable Care Act.  

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Supreme Court to Rule on ACA Subsidies

Tue Jun 2, 2015

Sometime this month the U.S. Supreme Court will announce a decision on whether subsidies for enrollees in the federal government’s health insurance exchange are lawful.

Plaintiffs in the case before the High Court, King v. Burwell, argue that IRS misinterpreted a key provision of the 2010 Affordable Care Act.

The provision states that subsidies shall be available to help individuals pay for health insurance “through an Exchange established by the State.” IRS interpreted those seven words to include an exchange established by the federal government, i.e., the Department of Health & Human Services (HHS).

Put simply, the Supreme Court must decide whether IRS’s interpretation was correct—is an exchange established by the federal government “an Exchange established by the State”?

The legislative history of the Affordable Care Act suggests that Democratic lawmakers (Republicans unanimously opposed the bill) assumed all 50 states would establish their own exchanges. For a number of reasons, some political, 34 states decided not to do so, opting instead to use the federal exchange—teeing up the issue now before the Justices.

The implications could be huge, as the latest HHS data make clear. This year 8.8 million people are enrolled in health coverage through the federal exchange, versus about 3 million in state exchanges. Of the 8.8 million, 87% get subsidies that pay an average of 72% of premiums.

If the Supreme Court invalidates federal exchange subsidies, premiums could zoom by as much as 50% for over 7 million people, no doubt prompting most to abandon health insurance altogether.

What Will Happen?

It’s helpful to remind ourselves that in King v. Burwell the Justices are interpreting the text of the ACA, not deciding a constitutional question.

Even if the Court strikes down IRS’s interpretation, Congress could fix the problem by re-writing the language to allow subsidies for federal exchange enrollees, as it could have been written in the first place.

The bigger question, of course, is will the Republican-controlled Congress “fix” the ACA?

A safe bet is “Yes, if…”, and it’s a big if, the President is willing to agree to some ACA modifications Republicans have long urged—like a change in the definition of “full-time” to 40 hours per week and an extension of transition relief from the employer mandate for small business.

Whatever the Supreme Court decides, subsidies for 7.7 million people are unlikely to disappear. On the contrary, Republicans and Democrats may finally find a way to work together on healthcare reform.