The countdown to King v. Burwell

Any day now, the Supreme Court will decide the highly anticipated King v. Burwell, which will determine the viability of a central mechanism of the Affordable Care Act (ACA)-tax credit subsidies for economically eligible citizens.

Read: Oral Arguments in King V. Burwell

Stuart M. GersonAt issue is whether the program of tax credits applies only in exchanges set up by 16 states, and not at federally run sites in 34 states. The Obama administration’s economic model for the ACA depends upon the tax subsidies being generally available, and therein lays the significance of the case which puts a keystone element of the ACA at risk.

All pending cases on the subject of the ACA tax credits are contingent on what the Supreme Court decides in King v. Burwell. A ruling is expected before the month’s end. 

The likely decision

Justices Scalia, Thomas and Alito are highly likely to vote to reverse, believing that, at best, it is the job of Congress, not the Court, to fix a defective legislative regime.

Similarly, there can be little doubt that Justices Ginsburg, Breyer, Sotomayor and Kagan will vote to affirm, seemingly believing that the authorship of a particular exchange does not matter in the total context of the ACA. 

Justice Kennedy was particularly interested in whether the onus that the regime places on the states rises to the level of compulsion that the Court held violates federalism when it held that the ACA was constitutional, but that the federal government could not make the states expand Medicaid.

This creates a possible fifth vote to affirm and it is not improbable that Chief Justice Roberts will join Justice Kennedy. I thus think it more probable than not that the Fourth Circuit will be affirmed and the ACA tax credit subsidies upheld.   

The potential legal implications

If King is upheld the primary legal implication is that it will be a victory for a contextual reading of a statute and a defeat for the textualist justices who believe that a statutory provision should be read literally, i.e., when it says State, it means State.

Next: The implications for the healthcare industry

The implications for the healthcare industry

Affirmance does not really present implications. It simply means that the industry can move ahead on what has been its prevailing assumption (i.e., that the credits will be upheld) and continue writing policies for the lower-income individuals who qualify for subsidies.  

If the case is reversed and the credits are held unlawful, there will be a sudden and profound effect on the ability of persons who do not qualify for Medicaid but do not earn enough to buy a typical health insurance policy to enter or stay in the insurance market. Given that such people are relatively healthy on average, the composition of risk pools could be adversely affected by their absence and rates would rise.

Additionally, if the case is reversed, there would be substantial pressure on Congress to legislate to fix the problem.  The Republican majority, however, would only do so if it received concessions on other issues from the administration. 

It is possible that, if the Court reverses, it could stay its order for a period of time to allow this to take place.  Alternatively, some states and the U.S. Department of Health & Human Services are considering various stop-gap fixes. 

Another problem is that the Internal Revenue Service has continued to allow the tax credit subsidies.  If they are held to have been improper, there will be an uproar as to taxation issues.

Stuart M. Gerson is a member of Epstein Becker Green’s Litigation and Health Care & Life Sciences practices.