Skip to Main Content

Keeping you informed

Supreme Court Case Does Not Directly Challenge Obamacare, But Could Lead to Its Implosion.

    Client Alerts
  • March 05, 2015

The media coverage in the run-up to today’s Supreme Court oral arguments in King v. Burwell has described King as an attack on Obamacare. That isn’t quite right. Understandably, some of the imprecise language is due to the need to make the “news fit.” But some of the media descriptions create confusion about what the action is and what the implications to the federal health law would be were the Supreme Court to decide in the challengers’ favor.

The King plaintiffs are not challenging the constitutionality of the Affordable Care Act (“ACA”) or Obamacare. In the last Supreme Court case grappling with the ACA, National Federation of Independent Business v. Sebelius, 132 S. Ct. 2566 (2012) (“NFIB”), the challenger was directly challenging the ACA. In NFIB, the main issue was whether Congress had the authority to mandate that individuals purchase health insurance or pay a penalty.  Because the provision was enacted as part of the ACA, there was no dispute that Congress intended to impose the individual mandate when enacting the ACA. Ultimately, in an opinion authored by Chief Justice Roberts and joined by a majority of the justices, the Supreme Court determined that Congress had the authority to impose individual mandates under Congress’ taxing power.

In the King case, the challengers are not attacking the constitutionality of the ACA. The challengers are not attacking the ACA itself. Instead, the challengers are questioning the IRS’ implementation of the ACA in extending tax subsidies to individuals who have purchased health insurance plans in States that have not set up their own health insurance exchanges and instead rely upon the default federal exchange. The King plaintiffs point to the ACA’s language authorizing subsidies only to individuals who buy insurance on an “Exchange established by the State.”

If the Supreme Court agrees with the challengers’ argument that the ACA limits subsidies to State-run health insurance exchanges, the ACA will remain intact. Nothing about the law itself would directly be impacted. The implications for such a ruling, however, would be significant. If the Supreme Court were to side with the plaintiffs, the Obama administration would not have any ability to extend subsidies to the affected individuals. According to the federal government, more than 8.5 million of the 11.4 million people who have acquired health insurance through the exchanges would no longer be eligible for subsidies.

One solution would be for the affected States to set up their own exchanges.  In some States, however, this solution would be politically or logistically challenging.  Another potential solution would be for President Obama and Congress to “fix” the law to extend subsidies to individuals in States that use the federal exchange. This statutory change could be made by simply amending the language of the ACA.

Given that both the U.S. House of Representatives and the U.S. Senate are now controlled by Republican majorities, it is unlikely that Congress would change the law without demanding more significant and fundamental reforms to the ACA. This would set up a showdown between President Obama and Congressional Republicans to see who blinks first. If the Congress and the President could not reach a compromise, it could create what some of have called a “death spiral,” wreaking havoc on the insurance markets and potentially the ACA. Even though the Supreme Court would not have struck down the ACA, the federal health law could collapse under its own weight. Today’s oral arguments contained some drama, and all signs point to it being a close case.  If the Supreme Court sides with the plaintiffs, the high drama may be yet to come.