U.S. Supreme Court Set to Decide Affordable Care Act Subsidies

 Posted on March 30, 2015 in Affordable Care Act

Earlier this month the United States Supreme Court heard oral arguments in King vs. Burwell, which challenges the payment of insurance subsidies to health insurance enrollees under the Affordable Care Act (ACA).

A Brief Intro to the Affordable Care Act

One of the major provisions of the ACA requires citizens to sign up for health insurance. For individuals who cannot get insurance through an employer, the ACA established healthcare exchanges, which allow people to shop for the insurance plan that best suits their needs and their budget. For those living in states that opted not to create their own healthcare exchange (34 did not), insurance may be purchased on the federal exchange.

To ensure that low to middle-income families can afford to purchase health insurance, the ACA provides subsidies to qualified taxpayers to help pay a portion of their premiums. The amount of the subsidy is based on the insured’s income, age and family size.

King vs. Burwell

At issue in King is language in the ACA that states subsidies are paid to those who enroll in health care through “an Exchange established by the State.” The plaintiffs, four Virginia residents who purchased health care through a federal exchange, argue that this language means they are ineligible to receive the subsidies under the ACA, because they purchased their insurance through a federal, rather than a state, exchange.

The plaintiffs in King have indicated they do not want health insurance, and without the subsidies they would fall under an exception that would exempt them from the individual coverage mandate. Thus, the receipt of subsidy in the form of a tax credit is an outcome the claimants are attempting to avoid.

To the plaintiffs the language in the ACA is clear and unambiguous – sign up for health insurance through a federal exchange and you are not eligible to receive a tax subsidy. If Congress had intended subsidies to be paid to eligible taxpayers regardless of whether they signed up for insurance through a federal or state exchange, they just as clearly could have said so.

The federal government disagrees, arguing that the ACA authorizes the payment of subsidies regardless of whether the insurance was purchased through a federal or state exchange. The intent of the law was make the purchase of healthcare affordable for all individuals in the United States, it argues, and language in other portions of the ACA make clear that the federal government meant the subsidies to be paid to those who purchased insurance through a federal or state healthcare exchange.

The government also argues that eliminating the subsidies would send the healthcare system into a “death spiral.” The ACA eliminated the pre-existing conditions exception many health insurance providers had in place, meaning they must provide insurance to anybody wishing to purchase it. Without the subsidies, many of those whom they were designed to help would fall under the ACA’s affordability exception and would not be required to purchase insurance. Only those individuals who are sick and in need of health insurance would purchase it.

Without healthy people buying insurance and paying premiums in to the system, however, there would not be enough money in the pool to pay claims. According to the government, this sets the stage for a vicious cycle to be played out - insurance premiums will increase to cover costs, causing fewer people to enroll, which will further increase premiums, and on and on.

The court is expected to make a decision in the case sometime this summer. You can listen to the oral arguments, or read a full transcript, here.

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