King v. Burwell: Heads You Lose, Tails You Lose

The U.S. Supreme Court will hear oral arguments on King v. Burwell, the latest challenge to Obamacare. Extensive legal briefs have already been submitted, reviewed and considered by the judges.

Case Summary

The case is fairly straightforward, until the lawyers start parsing the words and the spin masters really get going. According to Section 1311 of Obamacare, insurance subsidies can be distributed only through an exchange “established by a State.” Architects of Obamacare readily admit that they inserted the limitation on subsidies so there would be a powerful incentive for states to create their own exchanges.

Thirty-seven states chose not to create their own exchanges. Therefore, the Obama administration had to create a Federal Exchange. This federal facility interfaces with the public through the infamous healthcare.gov. Washington, D.C. clearly understood the language they put into Obamacare. In order to allow the Federal Exchange to offer insurance subsidies, the IRS wrote a ruling saying that the Federal Exchange could do so, in apparent contravention of the law.

A jogger runs pasts the Supreme Court, January 16, 2015 in Washington, D.C. (Drew Angerer/Getty Images) 

Simply put, King v. Burwell is about whether Obamacare should be implemented as written or as altered by the IRS. It does have much deeper, constitutional implications, as you will see.

Truly Ironic

Note the irony. The plaintiffs oppose Obamacare, yet they are the ones demanding that the law be implemented as written. The defendant in the case – the Federal Government and thus ardent supporter of Obamacare – doesn’t want the law as written, but as modified by the IRS.

Two Scenarios and Immediate Effects on You

Scenario No. 1: The Supreme Court can hold for the defendant, saying the IRS ruling is legal. In which case, their decision will not effect the implementation of Obamacare and therefore should have no immediate effect on you and me. What Obamacare would have done to us or for us remains unchanged. However, holding for the defendant will make a mockery of the “separation of powers” in the Constitution.

Scenario No. 2: The Supreme Court could hold for the plaintiff. This will strike down the IRS ruling and thus instantly impact the 34 states without their own state-based exchanges. This has three immediate effects that profoundly change the financing structure of Obamacare.

The Healthcare.gov website is displayed on a laptop computer arranged for a photograph in Washington, D.C., U.S., on Monday, Nov. 4, 2013. Photographer: Andrew Harrer/Bloomberg via Getty Images 

First, the effect on subsidies. People who get subsidized insurance through healthcare.gov will now have to pay the true cost of their insurance rather than the subsidized price. A typical difference would be $50 a month with subsidy and $450 a month without. The American consumer will suddenly feel the pain, directly in the “pocket nerve.”

What was unaffordable before President Barack Obama is now even more unaffordable with Obamacare. The huge price increases for insurance that Obamacare created were being masked by the subsidies. Someone (else) was paying for your health insurance. Now, it will be you.

The number of people affected is a guess, but a reasonable estimate is five million. This is confusing because 26 million are eligible for subsidies.

Second, there is an effect on Obamacare employer penalties imposed on those who fail to offer Obamacare-compliant insurance to their employees. The law states that the penalty is triggered only when the employee obtains a subsidy for his insurance. If subsidies cease in 34 states, employers in those states would no longer be subject to Obamacare penalties.

Third, there is also an effect on the individual penalty tax. Starting next year, the penalty for individuals who fail to purchase insurance will be $695 or 2.5 percent of income, whichever is greater, up to a maximum of $2,085. This will apply to an estimated six million Americans. The law also states that there is no penalty if the cheapest Obamacare insurance is more than 8 percent of one’s income.

If subsidies go away, the price you pay for insurance goes way up, to the true market cost, not the artificially low, subsidized price. If you do the math – I did and it is quite difficult – the bottom line is this: If the Supreme Court eliminates subsidies, the individual penalty ceases to apply to those individuals making up to $26,700 a year, or roughly 33 percent of the U.S. population.

Predicting the Court

You can be sure of two things.

1. Lots of talking heads will intently listen to the arguments in Supreme Court. After dissecting every word, question, and nuance, they will intone gravely what they “are confident” the Supreme Court will do.
2. Half will be right and half will be wrong. Do not believe anyone’s prediction. Don’t try to predict yourself. I certainly won’t. Wait till June–that is when the Supreme Court will announce its decision.

We should learn the lesson from the 5-4 Supreme Court decision in National Federation of Independent Businesses v. Sibelius in 2012. The Court will do what it chooses; it has its reasons and its decisions are not predictable.

We can only hope that they will do their real job, which was expressed succinctly by Chief Justice John Roberts in the NFIB Case. He first wrote that it isn’t the Supreme Court’s role to “express any opinion on the wisdom of the Affordable Care Act,” and then, more fundamentally, “the Framers created a Federal Government of limited power, and assigned to this Court the duty of enforcing those limits.”

Head, You Lose. Tails, You Lose

If the Supreme Court stays true to its purpose, it will hold for the plaintiffs. In that case, you lose subsidies and the other effects in scenario No. 2. Maybe, just maybe, you lose in the short-term but win in the long run.

If the Supreme Court plays politics, it will hold for the defendant - the government. You lose several ways: you are still stuck with unaffordable healthcare spending; you can’t get in to see a doctor; and the separation of powers enshrined in our Constitution will become a quaint historical note, no longer being any constraint whatsoever on the power of the Executive Branch.

President Barack Obama (Getty Images) 

There is a potential long-term “win” if the Supreme Court strikes down subsidies. The American people will see the wizard behind the screen. We will begin to experience the true costs of Obamacare both in money and in lack of care. We will start to understand that Washington, D.C. is stealing our health CARE dollars to pay its own healthcare bureaucracy.

If the Supreme Court holds for King, two outcomes are likely and one is remotely possible.

The first predictable results will be a further loss of credibility for the high court. The second will be a great public outcry because free money will be taken away. Neither the White House nor the Republican-led Congress has a plan to lessen the financial suffering that will occur. That pain could be our best teacher.

We The People might finally accept why Healthcare is so sick – cancer of the federal bureaucracy. We might recognize that Obamacare is making it sicker, and just maybe, we might tell Congress who should be control our health care – We The People – not Washington, D.C.

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