After years of political fighting and legal maneuvering, President Barack Obama’s signature health care law could collapse over the interpretation of four simple words, “established by the state.”
The clause, tucked into the 906-page law, is at the center of a Supreme Court case seeking to derail federal tax subsidies in 34 states, including Florida, that opted not to create a health insurance marketplace.
Without those subsidies, much of the infrastructure of the Affordable Care Act could be in jeopardy. A decision is expected this month.
So why are the words “established by the state” so critical? And what is at stake?
Our PolitiFact Sheet on the case, King vs. Burwell, explains.
Health insurance subsidies for millions of Americans hang in the balance.
The 2010 Affordable Care Act requires most Americans to have health insurance as a way to drive down health care costs.
The law envisioned making health insurance more affordable by, in part, allowing consumers to shop for plans in an online marketplace, allowing them to compare rates for plans offered by several private companies in one place. Sixteen states decided to set up their own health insurance marketplaces. The majority did not, and by default, were placed into a federally run marketplace, Healthcare.gov.
Not everyone who received a plan from the marketplace (or sometimes called exchange) has to pay the full cost of their health insurance. Roughly 6.4 million on the federal exchange in 34 states qualified for subsidies based on their income from the government to offset the cost.
Those subsidies are being challenged as illegal based on the wording of the Affordable Care Act.
Under one model by the Rand Corporation, about 8 million people could end up losing health insurance if the court agrees that the subsidies are illegal, even more than the number of people who currently receive federal subsidies.
The latest legal controversy comes down to one phrase in the law.
The argument pursued by plaintiffs in King vs. Burwell is simple: It is illegal for the government to award subsidies to people who bought plans through federal exchanges — because the law doesn’t allow it.
The law states that the subsidies can be awarded in marketplaces “established by the state” (page 61).
Supporters of the Affordable Care Act say no one intended for subsidies to be limited to the state exchanges. Obama said this should be “an easy case” for the Supreme Court, and the federal government has argued that the rules developed for marketplace subsidies should clearly apply to residents whose states chose for the federal government to operate their exchange. In that way, the Department of Health and Human Services acts as a stand-in for the state.
But the petitioners in King vs. Burwell — Virginia residents led by David King — disagree. (Burwell refers to Sylvia Burwell, the current secretary of Health and Human Services.)
As part of the health care law, people who would have to spend more than 8 percent of their income on health insurance are exempt. That exemption would cover King, if not for the tax subsidies provided in the federal marketplace that make him eligible.
EFFECT ON YOU
If the Supreme Court decides the subsidies for plans purchased through the federal exchanges are illegal, the financial consequences could extend beyond the buyers who receive subsidies.
Rand health economist Christine Eibner says two more groups would see increased costs: federal exchange planholders who do not receive subsidies and people who purchase ACA-compliant, private insurance through the individual market.
These groups share a single risk pool that balances costs for people of various ages and health conditions. The pool benefits from younger, healthier recipients that help to lower prices, many of whom receive subsidies, like the rest of Healthcare.gov buyers. But the younger users may decide health insurance is not worth it for them without the subsidies and leave the pool.
“If you’re in a state with its own exchange, you’re likely protected either way,” Eibner said.
The individual mandate could lose its teeth.
This decision could reduce the power of the individual mandate, the health care law’s centerpiece that requires most people to carry health insurance and survived a court challenge of its own in 2012, in the states using the federal exchange.
The collapse of the federal subsidy structure could increase premiums nationwide. That, in turn, would send insurance costs beyond the 8 percent income threshold and exempt millions more from having to purchase insurance.
The decision could also weaken the employer mandate, which hits businesses with a tax penalty when employees receive subsidies for coverage on a government-run exchange.
The employer mandate only comes into place for workers who receive subsidies through the exchanges. “So if there is no ability to receive a credit, the (employer) mandate can’t be triggered,” Eibner said.
Politifact Florida is a partnership between The Tampa Bay Times and the Miami Herald to check out truth in politics.