King v. Burwell ruling could be costly
Just three months ago, the Affordable Care Act once again took center stage at the Supreme Court in King v. Burwell, thanks to a dispute over whether the law’s premium subsidies can be offered on federal exchanges. Within the next month, SCOTUS will likely rule on the case, with the decision expected to affect more than 7.5 million Americans.
The petitioners in King have a simple, powerful argument. Section 1311 of the ACA provides subsidies for qualified Americans who buy health insurance on state exchanges. In states that do not set up state exchanges, the federal government is required to do so in their stead. The petitioners’ argument is that the letter of the law only allows subsidies to flow through state exchanges.
In a 2012 ruling by the Internal Revenue Service, however, an exchange was redefined to be any “State Exchange, regional Exchange, subsidiary Exchange, and Federally–facilitated Exchange.” One of the administration’s main lines of defense is, indeed, that the federal government “steps into the shoes” of states to install an exchange where the state does not.
In oral arguments in March, both sides faced hard questions. Justice Anthony Kennedy expressed concern that halting subsidies to the 34 states on federal exchanges (and possibly the seven states where the federal government operates the exchanges but the states perform some functions) would pose serious problems. Justice Kennedy also appeared to question whether “Chevron deference” (which defers to regulatory agencies in the case of statutory ambiguity) would be appropriate in this instance.
Nonetheless, the aforementioned points are mostly academic. The judicial history of the ACA should teach us one thing: predicting SCOTUS opinions can be next to impossible. What would happen should the Supreme Court—in a worst-case scenario for the law—decide that the IRS exceeded its authority?
Should King prevail and the employer mandate become void, more than 11 million Americans would be freed from having to buy Obamacare insurance.
While numerous analysts see a catastrophic scenario arising from the effective elimination of the individual mandate in many states, the ultimate effect on insurance markets is less clear. A National Bureau of Economic Research (NBER) working paper examined the effects on insurance coverage of community-rating and guaranteed-issue regulations. The analysis found a strong positive relationship between higher-risk individuals and the likelihood of their finding insurance coverage. Regulations primarily serve to change the mix of the insured, according to the authors, resulting in fewer healthy insured individuals.
Whatever the ultimate effects of a ruling in favor of the petitioners, it would be poor politics and even poorer policy to leave 34 states with an odd combination of the pre-ACA status quo coupled with most post-ACA regulations. Fortunately, the ACA itself presents an opportunity for Republicans to engineer some creative solutions.