Supreme Court Rules on Subsidies

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On Thursday June 25, 2015, the U.S. Supreme Court ruled that the federal government can provide subsidies to individuals who buy health insurance coverage through the federal exchange.  Its decision in King v. Burwell essentially left the status quo intact for the Affordable Care Act (ACA).

Background

As written, the ACA allows states to set up health insurance marketplaces, or Exchanges.  It also provides that in those states that do not establish exchanges, the Federal government will allow people access to a federally-established exchange.  To date, fourteen states, including the District of Columbia, have established state-based exchanges. Another ten have either federally-supported marketplaces or state-partnership marketplaces, and 27 rely on the federal exchange.

The ACA also provides for subsidies to offset the cost of coverage for low-to-middle income individuals and families who buy insurance coverage through an exchange.  About 85 percent of people obtaining coverage on an exchange have qualified for these subsidies, based on their income.

This lawsuit, brought by four Virginia residents, was based on the ambiguous wording of the ACA section that provided for those subsidies.  The statute specifically provides for subsidies for persons purchasing coverage on “an exchange established by the state.”

The plaintiffs argued that saying the phrase meant that the law forbids the federal government from providing subsidies in states that do not have their own exchanges. The Court, led by Chief Justice Roberts, disagreed.  Writing for the majority, Justice Roberts wrote, “In 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.” He added, “Congress passed the Affordable Care Act to improve health insurance markets, not to destroy them. If at all possible, we must interpret the act in a way that is consistent with the former, and avoids the latter.”

California Impact

California adopted its own state-based exchange, Covered California, early on.  The immediate impact of King v. Burwell on California would have been negligible regardless of how the Supreme Court ruled today.  However, the long-term impact of a ruling for the plaintiffs could have caused significant disruption in the health insurance marketplace nationally, as millions of people lost subsidies.  Most observers believe that Congress and the President would have had to re-negotiate parts of the ACA, which has proved politically contentious.  Today’s decision avoids all of that uncertainty.