King v. Burwell: What the Supreme Court Ruling Could Mean

February 26, 2015

The Affordable Care Act (ACA) has helped millions of individuals gain access to health care. The law addressed three of the major factors in a dysfunctional health care system—cost, quality and access. As of February 2015 over 19 million people have signed up for health insurance plans made available by the ACA. However, the Supreme Court could potentially risk dismantling this new health care system through the case, King V. Burwell.

What is King v. Burwell?
King v. Burwell is a case that will be heard before the United States Supreme Court on March 4, 2015. According to Scotusblog, the challenge this time isn’t whether the ACA violates the Constitution (which it was determined not to do so three years ago in National Federation of Independent Business v. Sebelius) but rather how to interpret the Act. The case centers on the argument that tax credits and cost sharing reductions are prohibited for individuals residing in specific states. This means that individuals that sign-up for ACA must pay the full premiums if he/she resides in particular states. Further, it hinges upon a literal reading of the law versus an understanding of health care reform based on “intent.”

Read more details about the case below.

Mandates: Keeping Insurance Affordable for All
The ACA requires that everyone has to be covered under some form of health insurance, or they will have to pay a penalty. In order to help achieve this mandate, the government provides financial assistance in the form of tax subsidies/credits to low- and middle-income individuals to help them cover the cost of their new plans. Further, health care plans provided through the new exchanges (which are the health care marketplaces where individuals can purchase coverage) cannot discriminate by charging higher rates or denying coverage to individuals, such as those living with cancer.

Subsidies: A Critical Component of the ACA
The subsidies noted above are critically important because they help the whole health care system run effectively. Subsidies are available to individuals with incomes up to four times the federal poverty level, which is $46,680 for a single adult and $95,400 for a family of four in 2015. The average subsidy is $268 a month, which lowers premiums by 72 percent. Subsidies help to ensure that everyone—healthy or sick, young or older—can purchase health insurance. If people cannot afford coverage in many states, only sick people who will need to heavily utilize health care services will sign up due to extreme need for services. This will cause premiums to increase because the pool is no longer balanced. Further, enrollment could continue to fall due to these increased costs.

Exchanges: Health Care Marketplaces
Individuals in need of insurance shop for a new plan on health care exchanges. Once the ACA was implemented, each individual state had the option to set up such an exchange. If states, for a variety of reasons, chose not to set up their own exchange, the federal government took over and created the exchange for them, ensuring that individuals in that state had access to coverage. Currently 34 state exchanges are operated by the federal government.

The Challenge: “Established by the State”
The ACA legislative language directed states to create exchanges. Again, if they failed to do so, the federal government created it for them. Per the language of the ACA, the subsidies which help individuals pay for their health insurance plans, are to be available to individuals “enrolled in through an Exchange established by the State.” The challenge outlined in King v. Burwell is that subsidies, therefore, should only be available to individuals enrolled in only those states which set up their own exchanges. Supporters of this challenge argue that the language was intentional as an effort to incentivize states to create their own exchanges. Opponents assert that the law’s intent was for individuals in any state to be able to receive subsidies.

King v. Burwell threatens financial assistance to approximately 13 million Americans. This means that many Americans could no longer afford health insurance. The Robert Wood Johnson Foundation estimates that the case could result in an increase of 8.2 million uninsured individuals in 34 states.

What Is Next?
The Supreme Court is expected to issue their ruling by June. The Obama Administration has not announced contingency plans if the Supreme Court rules to strike down the subsidies. Congressional Republicans have pressured the Administration to prepare for such an outcome and discussed potential solutions of their own. Governors have indicated their concern for chaos if the subsidies are revoked.

More Information
The Kaiser Family Foundation created an interactive map to show how many Americans could lose coverage through King v. Burwell.

The Urban Institute simulated a model of the potential impact of King v. Burwell.

The New York Times Upshot created a video: King v. Burwell: a Quick Take on a Crucial Case

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