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Supreme Court case threatens PPACA health insurance laws

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(Bloomberg) — The U.S. Supreme Court is poised to consider the fate of the Patient Protection and Affordable Care Act (PPACA) for the second time in three years, weighing an attack on tax credits designed to help millions of people afford insurance.

An hour-long argument Wednesday in Washington will provide the first real clues about the justices’ views on an appeal by four Virginia residents who would block the subsidies in the states with exchanges established by the U.S. Department of Health and Human Services (HHS).

A decision halting HHS exchange credits could make many core PPACA provisions that affect the commercial health insurance market ineffective, potentially causing the market for individual insurance policies to collapse in much of the country. Hospitals could be left with billions of dollars in unpaid bills.

See also: The two questions that could make or break the case against Obamacare.

“This would be the greatest instance of judicial overreach in the modern history of the court,” Sen. Chris Murphy, a Democrat from Connecticut, told reporters on Tuesday. The court will rule by the end of June.

A decision against the administration would put pressure on the states, most of them Republican-controlled, that have refused to set up their own exchanges, as the insurance marketplaces are known. Residents of those states would face the prospect of losing tax credits. Congress could step in, though it is riven by opposition to PPACA. The Obama administration says it can do little on its own.

Four-word phrase

Arguments on King vs. Burwell (Case Number 14-114) center on a four-word phrase that has become a linchpin of PPACA. The measure says people qualify for tax credits when they buy insurance on an exchange “established by the state.”

PPACA drafters left that phrase out of a section of PPACA that lets HHS offer exchange services in states without their own exchanges.

More than 80 percent of exchange customers use the tax credit to reduce their share of the premium bill.

See also: White House: 11.4 million now enrolled in PPACA exchange plans.

The challengers say the absence of the phrase in the HHS exchange section means premium tax credit subsidies aren’t available in the dozens of states that didn’t set up their own exchanges. Residents of those states instead use the HHS-established HealthCare.gov system. 

The Obama administration says HHS exchanges can offer the subsidies. 

“The ACA plainly limits subsidies to coverage purchased on state-established exchanges,” the challengers said in court papers filed by Washington lawyer Michael Carvin, who will argue the case.

The Obama administration is defending an Internal Revenue Service (IRS) rule that interpreted the law to mean that HHS exchanges can offer the premium tax credit subsidies. The administration says the court should look beyond the disputed phrase to the rest of the law and to its broad purpose of providing coverage to uninsured Americans nationwide.

Debated, evaluated

“The act was debated, evaluated, and passed under the universal understanding that tax credits would be available in every state — including states with federally facilitated exchanges,” U.S. Solicitor General Donald Verrilli said in court papers.

The hospital and health-insurance industries are backing the administration. That includes HCA Holdings Inc. (NYSE:HCA), the hospital chain that is the nation’s largest private health-care provider.

Would-be spectators began lining up Tuesday night in hope of securing a seat for what may prove to be a historic argument. About 200 PPACA supporters gathered in front of the court Wednesday morning, chanting slogans and waving brown-and-white signs that said, “Don’t Take My Care.”

Three years ago a divided Supreme Court upheld the law against a broader challenge, even after arguments suggested that the five Republican appointees were poised to strike down the measure. Chief Justice John Roberts joined the court’s four Democratic appointees — Justices Ruth Bader Ginsburg, Stephen Breyer, Sonia Sotomayor and Elena Kagan — in the majority.

Ripple effect

Both sides say a ruling limiting tax credits would have a ripple effect. With millions of people unable to afford coverage, the administration says the individual insurance markets will be shaken: Healthy people will forgo the policies and only the sickest and most desperate will buy plans. The Urban Institute estimates premiums ultimately would increase by an average of 35 percent.

Opponents of the law don’t dispute that scenario, though they say the blame would lie with the administration.

“Millions of individuals and families will hit a major roadblock: They’ll be stuck with health insurance designed by Washington, D.C., that they can’t afford,” Republican Reps. John Kline of Minnesota, Paul Ryan of Wisconsin and Fred Upton of Michigan wrote Tuesday in the Wall Street Journal.

A ruling against the administration would also gut the law’s requirement that employers provide insurance to their workers. Penalties on employers for not providing coverage are triggered when their workers receive a subsidy for PPACA exchange plan; without subsidies, there’s no penalty.

‘Massive damage’

The question would then be how federal and state officials respond. HHS Secretary Sylvia Mathews Burwell said last month that the administration, on its own, would be powerless to undo the “massive damage” of a high court ruling.

See also: King vs. Burwell: 5 PPACA patch ideas.

If so, the administration would have to find an accommodation with Republicans who have repeatedly sought to repeal the law. Kline, Ryan and Upton said they would push an alternative to give more choices to states and individuals.

Some states would also face new pressure to set up their own exchanges so their residents could continue to collect the tax credits.

Two shortcuts are possible. States might be allowed to pass legislation or issue an executive order declaring that they have established their own insurance marketplace — and that the healthcare.gov system runs it for them. Another option that may be more palatable to Republican leaders is to join with states that already run their own exchanges.

Unwanted insurance

In the Supreme Court case, the four Virginians say they don’t want to buy the insurance required under PPACA. They say, should the court block the subsidies, they would fall within an exception to the insurance mandate for people who can’t afford coverage.

One lurking issue is whether any of them have suffered the type of legal injury that entitles them to sue.

A federal appeals court upheld the IRS regulation in July on a 3-0 vote.

The justices agreed to hear the case even in the absence of a divide among federal appeals courts — something that normally is an important factor in deciding whether to take up a case.

Although a different federal appeals court rejected the administration’s approach, a larger panel of judges on that court later agreed to reconsider its case, effectively eliminating the division.

—With assistance from Alex Wayne and David McLaughlin in Washington and Margaret Newkirk in Atlanta.

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