Questions of Context, Practical Effect Highlight Oral Arguments in King v. Burwell

The Supreme Court of the United States today heard oral arguments in King v. Burwell, a case that could make the 2010 Affordable Care Act (ACA) unworkable in most states by eliminating premium subsidies for 7.5 million Americans; this would make coverage unaffordable and effectively render the law unworkable.

The 6 simple words, “an Exchange established by the State,” and their possible impact, were discussed by the justices for more than the allotted 1 hour, as the court was sharply divided; Justice Anthony Kennedy appeared, once again, to be the swing vote.

The case began when an ACA opponent combed through the law looking for potential weaknesses, and it has become the most serious threat to President Obama’s signature legislation since the 2012 challenge to the individual mandate. It even involve the same attorney, Michael Carvin, who brought the constitutional challenge to the ACA in 2012. The case boils down to this: does the plain reading of the ACA mean that premium subsidies only benefit those who live in states that set up their own? Such a ruling would cancel financial help for consumers in 34 states that use HealthCare.gov, the federal exchange. Three other states have exchanges but use the federal website to calculate subsidies.

Early questioning of Michael Carvin, the attorney for the plaintiffs, by the liberal wing of the court turned on the question of context—could the law function constitutionally if were permitted to stand as the petitioners suggest? In particular, a hypothetical instance posed by Justice Elena Kagan forced the petitioners to concede that context matters. Justice Kennedy said he appeared to see “a serious constitutional problem” if Congress were to require states to set up exchange, or risk seeing their consumer lose access to tax credits and their insurance markets damaged. Of note, Justice Kennedy compared this to the first challenge of the ACA, in which the court ruled that states could not be forced to expand Medicaid, and thus far only 29 have. Making this ruling consistent with the 2012 decision will be critical, several observers believe.

The liberal justices grilled Carvin on the practical fallout of accepting his argument, with Justice Ruth Bader Ginsburg saying that without subsidies there would be no benefit to using the exchanges; when Carvin disagreed, Justice Ginsburg asked what those benefits would be. Later on, Justice Kagan told Carvin that today’s argument wasn’t squaring with what he told the court during the 2012 challenge.

In the affected states, an estimated 87% of consumers in the states receive some assistance, with the average subsidy totaling $268. There are no fallback plans for what to do if the court eliminates the subsidies, although some believe the court might grant a grace period to allow states to set up exchanges or for Congress to correct the law. In her final point, Justice Kagan said that if Congress intended such dire consequences for states that did not set up their own exchanges, it would have done so more explicitly.

A recent report published by the Kaiser Family Foundation predicted widespread market disruption if the court eliminates the subsidies, with healthy consumers who no longer receive financial help opting against any coverage, which would send premiums into a “death spiral” as insurers seek to cover losses, a scenario cited early on in oral arguments by Justice Sonia Sotomayor. Some insurers would pull out of certain markets if they did not believe regulators would allow rate increases to support costs. The ability to keep rates “affordable” would be in doubt, threatening the nature of the ACA.

Solicitor General of the United States Donald Verrilli took the podium well past his scheduled time. His first argument was simple: the government interprets the statute as making subsidies available on both state and federal exchanges, and his second was that this reading is “compelled by” the ACA’s overall design. Absent such an interpretation, states would lack flexibility and market disruption would result. Congress simply could not have intended the chaos that would come with the petitioners’ request. But Justice Antonin Scalia argued otherwise: of course Congress could have.

Verrilli, however, noted that no one seemed to know about this possibility—not the IRS in publishing regulations, not the states who submitted comments, not the HHS. Justice Kennedy asked, however, whether that could lead to a circumstance of reading a statute in a manner of avoiding finding it unconstitutional.

But Justice Samuel Alito raised what he called the “puzzle” at the heart of the case: why does the statute say exchanges “established by the state” if the intent is to include both federal and state mechanisms? Verrilli could not answer directly.

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