Almost exactly three years after issuing his opinion upholding the Affordable Care Act's ("ACA") individual mandate, Chief Justice Roberts authored the King v. Burwell decision, which he penned for a 6-3 majority of the Supreme Court of the United States.1 The Court ruled that the disputed phrase, "an Exchange established by the State," does not limit tax credits to individuals who purchase insurance through health insurance exchanges established by the state ("State Exchanges"). In doing so, it provided much-needed certainty to industry stakeholders and government policy-makers and preserved tax credits for more than six million individuals.
Justices Kennedy, Ginsburg, Breyer, Sotomayor and Kagan joined the majority opinion, which casts the ACA as "a series of interlocking reforms." They view the ACA as erecting three pillars that, together, are intended to expand coverage in the individual health insurance market: the nondiscrimination rule, the individual mandate and the tax credits.
- The ACA bars insurers from taking a person's health into account when deciding whether to sell health insurance or how much to charge (the "guaranteed issue" and "community rating" requirements);
- The ACA generally requires each person to maintain insurance coverage or make a payment to the Internal Revenue Service ("IRS"); and
- The ACA gives tax credits to certain people to make insurance more affordable. These tax credits are available through health insurance "exchanges," or marketplaces.
An early draft of the ACA required each state to establish its own exchange. However, as enacted, the law gives states the option to establish a State Exchange, while providing that the federal government will establish an exchange ("Federal Exchange") if the state does not - i.e., healthcare.gov. The Petitioners argued that an IRS regulation improperly expanded the third pillar, the tax credits, to Federal Exchanges.2 Citing the statute's "plain meaning," the Petitioners contended that individuals who purchase health insurance through a "Federal Exchange" should not be eligible to receive the tax credits, as such an exchange would not be "established by the State." The majority acknowledged the strength of this argument but stated, "[i]n this instance, the context and structure of the Act compel us to depart from what would otherwise be the most natural reading of the pertinent statutory phrase."
In shifting the focus from the "established by the State" language, the question for the majority became "whether the Act's interlocking reforms apply equally in each State no matter who establishes the State's Exchange." To answer this question, the majority declares, "[a] fair reading of legislation demands a fair understanding of the legislative plan." The Court explained that, without the tax credits, many lower-income patients would be unable to afford health insurance and would thus be exempt from the individual mandate. The combination of no tax credits and a dulled individual mandate, while the ACA non-discrimination rule (protecting those with preexisting conditions) remained in effect, could push a State's individual insurance market into a so-called "death spiral." To rule against the availability of subsidies "would destabilize the individual insurance market in any State with a Federal Exchange . . . Congress passed the Affordable Care Act to improve health insurance markets, not to destroy them."3
Notably, the Court declined to employ the Chevron doctrine, the standard framework for judicial review of agency interpretations of law.4 The deference afforded to agency interpretations under Chevron applies only if Congress intended to delegate to an agency the power to decide the question5- but the availability of tax credits through Federal Exchanges, according to the Court, was not a question for the IRS. It is a question of such "deep 'economic and political significance'" that the Court found it implausible that Congress would leave it to the IRS, "which has no expertise in crafting health insurance policy of this sort."
In refraining from Chevron analysis, the Court effectively precluded a future administration from construing the ACA in a way that excludes Federal Exchanges from the tax credit system. It effectively guarantees the existence of President Obama's signature law unless and until Congress adopts legislative changes to the ACA that are not vetoed by a president.
The Court's ruling removes a major uncertainty to the ACA's continued implementation... As the tax credit issue worked its way through the courts, industry stakeholders and federal and state government officials explored contingencies, alternatives and "workarounds."
The stock market immediately reacted to the positive effect of having an answer to this question that has lurked in the background for businesses. Overall, the decision itself will likely have little impact on providers, as it maintains the status quo for tax credits. The lack of upheaval is significant. Providers can expect the federal government and many states to continue, without hesitation, their implementation of the ACA. This new certainty allows businesses to focus on additional reforms.
Although the decision maintains the status quo, it can generally be seen as beneficial to hospitals, which faced the threat of losing billions of dollars in patient revenue. Approximately 87% of health insurance customers using the exchanges qualify for a tax credit to help pay for their coverage. Providing services to a patient whose health insurance coverage is at risk can become complicated; compliance with treatment and continuity of care may become problematic. And, ultimately, providers must focus on ways to keep their businesses financially viable. Indeed, hospital chains were among the many industry stakeholders that filed amicus briefs with the Court in support of the tax credits, trying to avoid losing the growing number of patients from which they were able to collect payment.
Stock prices of large health insurers also gained - though not quite as much as hospitals, because customers receiving tax credits make up a relatively small proportion of total business of public insurers. The high level of mergers and acquisitions activity in the industry could continue to heat up as a result of the Supreme Court's removal of a major business uncertainty.
Implementation of the ACA - often referred to as "Obamacare" and, now, dubbed "SCOTUScare" by Justice Scalia - returns to normal following the King v. Burwell ruling. Providers will move ahead with the rolling requirements, altering operations to keep pace with new standards. Now assured of the availability of tax credits through both State and Federal Exchanges, some states might consider reverting to Federal Exchanges, shedding the technical and logistical challenges that came with establishing a State Exchange. And, tax credits will continue to flow to millions of individuals who might otherwise not be able to afford health insurance.
1King v. Burwell, 576 U.S. ______ (2015). Opinion available at http://www.supremecourt.gov/opinions/14pdf/14-114_qol1.pdf.
2 45 CFR § 155.20 ("Exchange means a governmental agency or non-profit entity that meets the applicable standards of this part. . . regardless of whether the Exchange is established and operated by a State (including a regional Exchange or subsidiary Exchange) or by HHS.")
3 The majority also pointed to Justice Scalia's dissent from the 2012 case determining the ACA's constitutionality: "Without the federal subsidies. . the exchanges would not operate as Congress intended and may not operate at all." Nat'l Fed. of Independent Bus. v. Sebelius, 567 U.S. ____, _____ (2012) (Scalia, Kennedy, Thomas, and Alito, JJ. dissenting) (slip op. at 60).
4 Chevron U.S.A. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984).
5 This is known as Chevron "Step 0" - the inquiry into whether the Chevron framework applies at all.