SCOTUS Will Rule on Obamacare Subsidies

The Supreme Court will decide the fate of Obamacare subsides and with them the fate of the law itself. Today the Court agreed to hear a case which will determine whether states without their own state-based insurance exchanges can grant subsidies to buyers.

The Court will hear an appeal to a 4th Circuit decision, King v. Burwell. In that decision, the Court ruled against the plaintiffs and in favor of the government. The case was appealed to the Supreme Court by the plaintiffs in July. A decision in the case should be issued by next July.

The underlying issue in the case is federal subsidies for people buying insurance on an exchange. According to the wording of the law, these subsidies are only available in states that set up a state-based exchange. Plaintiffs argue that states that use the federal exchange (that’s 36 states) may not disburse federal subsidies.

The Obama administration was aware of the tight language in the law but chose to circumvent it by issuing a ruling through the IRS. The IRS ruling essentially says that the federal exchange will be deemed equivalent to a state-exchange for the purpose of granting subsidies. Plaintiffs in the case say that is overstepping, that the IRS can not fix legislation drafted by Congress if that language is clear. The government position is that the law is ambiguous and therefore the IRS is acting within its scope to clarify it.

This summer two separate Circuit Courts issued contradictory rulings on the same day. In King v Burwell, the 4th Circuit Court ruled in favor of the government’s position. In Halbig, the D.C. Circuit ruled in favor of the plaintiffs. This seemed to set up the kind of Circuit Court split that often precedes the Supreme Court stepping in.

But there was a wrinkle in the case which observers expected to remove the split. The D.C. ruling had been made by a 3-judge panel, not by the full D.C. Circuit. That meant the Court had the option to vacate the previous order and issue a new ruling. And since the D.C. Circuit had been stacked with liberal judges (thanks to Sen. Reid’s use of the “nuclear option”), most observers expected the initial ruling would be overturned. The D.C. Circuit did, as expected, vacate the prior ruling and announce that it would re-hear the case en banc; however, today’s move by the Supreme Court means their decision will be moot.

If the Supreme Court were to rule in favor of plaintiffs, subsidies would be cut off to people buying insurance in most states making them pay the full cost for their plans. Since most people using the exchanges thus far receive subsidies and since the subsidies are often a significant percentage of the monthly premium, chances are many or most would drop their Obamacare coverage. Additionally, other aspects of the law, including the individual mandate are tied to subsidies. Without the mandate there would be no incentive, no stick, forcing people into the program.

The Court put off a decision on the case just last week but some observers said that move actually meant they were more likely to take the case this week.