The Beginning of the End for Obamacare?

Obamacare is headed back to the Supreme Court.

The U.S. Supreme Court has agreed to consider hearing a legal challenge to Obamacare. While this challenge would not entirely undo Obamacare, it would significantly undo the health-insurance law in the 34 states that have not established state-based health-insurance exchanges.

At issue is what the plain text of Section 1401 of the Affordable Care Act means. Even though the text of the law states that the subsidies are available only “through an Exchange established by the State under 1311 of the Patient Protection and Affordable Care Act,” the IRS, without congressional authorization, allowed federal subsidies to flow into states participating in the federal exchange when it implemented the law.

A Supreme Court ruling striking down the IRS subsidies in states that have not established a state-based exchange would provide much-needed relief to employers and employees. If the plaintiffs in these cases were to ultimately prevail, the IRS would not have the ability to subject more than 250,000 employers (employing 57 million Americans) and 8.3 million individuals to IRS penalties under the ACA.

The Supreme Court announced that it would review the decision in King v. Burwell. The plaintiffs in this case challenged the IRS’s rule that made insurance subsidies available in all states, contrary to the text of the Affordable Care Act. The 4th U.S. Circuit Court of Appeals upheld the legality of the IRS subsidies in July. An attorney for the King plaintiffs wrote in the petition to the Supreme Court:

“In short, the Court may either resolve this issue before tens of billions of dollars are lost, before employers restructure their workforces to avoid the employer mandate, before individuals rely on subsidies in making health-care decisions, before insurers revamp their offerings to account for new risk pools, and before more States default to the HHS Exchange assuming no consequences follow— or delay until after that reliance, on the Government’s baseless assertion that this matter of extraordinary national importance and heated jurisprudential debate will go away on its own.”

That the Supreme Court is willing to take up this challenge is great news. The multiple, similar legal challenges to the health-care overhaul, as well as the complications of prolonging a resolution, may have ultimately encouraged the Supreme Court to accept the case.

In addition to the King case, there are also three similar cases making their way through the federal courts. In State of Indiana v. IRS, oral arguments were heard in federal district court earlier this month.

The Halbig v. Burwell challenge is currently being reheard by the full D.C. Circuit Court with oral arguments scheduled for December. The court originally upheld the legality of the IRS subsidies, but the Appeals Court for the D.C. Circuit ruled that the IRS subsidies were not legal in states that did not establish their own exchanges. The Obama administration petitioned the D.C. Circuit for an en banc review, and were granted one, meaning the case will be reheard and a new ruling will be issued.

A recent ruling in September on Oklahoma Attorney General Scott Pruitt’s legal challenge to the law, Pruitt v. Burwell, stated that the law should be applied as written. This case will eventually be heard by the 7th U.S. Circuit Court of Appeals.

It is interesting to note that the same health-insurance industry that pushed for this health-care scheme is already preparing to bail on it should the IRS subsidies be ruled illegal in states without state-based exchanges. According to a recent health industry news story, insurers – who are already receiving a taxpayer-funded bailout should they lose money in the exchange – added a clause to their federal exchange contract that serves as an escape clause should the IRS subsidies cease. That the insurers were already preparing for a possible Supreme Court challenge is telling.

Congressional lawmakers, as well as state lawmakers in the 34 states that did not establish a state-based Obamacare exchange, would have the opportunity to pass meaningful health-care reform in a way that respects taxpayers, provides for the truly needy and addresses health-care costs – delivering on the original Obamacare promises.

Naomi Lopez Bauman in the director of health policy at the Illinois Policy Institute (illinoispolicy.org). She can be followed at @LopezBauman.

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