A contingency plan for King v. Burwell and related cases

Key Points

• King v. Burwell and three other cases before the Supreme Court concern whether individuals purchasing health insurance under the Affordable Care Act in states with no state insurance exchange should receive subsidies from the federal government.
• If the Supreme Court overturns the subsidies, Congress will be under pressure to protect Americans who signed up for coverage on the assumption that it would be subsidized from the cost increases associated with this withdrawal of the federal funds.
• Congress should enact a short-term subsidy plan to ease the transition and solve the problems created under the ACA by granting states the ability to opt into a better approach to reform.

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If the Supreme Court sides with the plaintiffs in King v. Burwell and related cases, and thus invalidates the payment of premium subsidies in states that have relied on the federal government to build and run the Affordable Care Act (ACA) insurance exchange, Congress will come under great pressure to enact a remedy to stabilize insurance markets and coverage. Congress should enact such a remedy, including a temporary extension of the existing subsidy program. But it should also allow states to opt into an alternative reform structure, with a simplified tax credit plan and elimination of the ACA’s federal insurance rules. In this alternative, there would be no individual or employer mandate, but individuals who stayed continuously insured would be protected from higher premiums or restricted coverage based on their health status.

Four linked cases before the Supreme Court (the most prominent being King v. Burwell) could affect how millions of Americans get their health care—and necessitate the most significant congressional action on health care since the passage of the Affordable Care Act (ACA) in 2010. If the Supreme Court rules in favor of the plaintiffs this June, Congress has the opportunity to advance health care policies that expand consumer choice, increase coverage, deliver better value for the dollar, and allow state governments more say over health care policy. The purpose of this paper is to lay out a series of policy recommendations to advance these goals in the event of such a ruling.

The court cases concern the health insurance exchanges and federal subsidies that are at the heart of the ACA, also known as Obamacare. The plaintiffs in the case contend that the subsidies can be paid only in states that established their own exchanges, not in states that relied on the federal government to build and run them.

In fact, most state governments—34 of them—chose not to establish exchanges for the 2014 plan year. (Several other states failed to maintain fully functioning exchanges for 2015, so the federal government is operating exchanges for 37 states this year.)

Nonetheless, the Internal Revenue Service (IRS) decided to offer premium subsidies in these states. The availability of those subsidies triggers other provisions of the act. The subsidies make coverage “affordable” for many individuals under the terms of the act, and thus expose those individuals to a tax if they decline to enroll in a qualified insurance plan. Employers can be subject to a penalty if some or all of their workers receive subsidies through an exchange. The Supreme Court is considering whether the subsidies can be legally paid through the federal exchanges and thus also whether the triggered mandates apply in the affected states.

If the court sides with the plaintiffs in King and the other cases, the subsidies will be ruled illegal in states that have not established their own exchanges and relied instead on federal exchanges. Assuming no further legislative action at either the state or federal level, as many as an estimated 9.3 million people in those states will lose their subsidies by 2016 (Blumberg, Buettgens, and Holohan 2015). They would not necessarily lose these subsidies immediately, since it can take weeks for a Supreme Court ruling to be fully enforced. The court, or the IRS, might take the unusual step of delaying the cutoff further—perhaps even until the end of 2015. Even after the subsidies disappear, exchange participants who would have difficulty paying the full premium without them arguably could retain access to their insurance benefits a while longer, since current federal regulations require their insurance to continue for a month after nonpayment of premiums (US Department of Health and Human Services 2012).

Before too long, however, we could expect many exchange participants to drop their coverage because the costs to them would be too high without subsidies. Insurers could find that they have to substantially raise the next year’s premiums for their remaining customers on federal exchanges or withdraw from participation in those exchanges.

We can also expect widespread demands for action to protect those covered under the federal exchanges from losing their plans or seeing major cost increases—and to keep the affected states from losing access to federal dollars. Such demands would come from affected citizens, supporters of Obamacare, state officials, insurance companies, and hospitals and almost certainly from some members of both parties. Congress will be urged to pass a short-term bill to allow subsidies for people who buy insurance on federal exchanges. States will also be urged to set up their own exchanges, although some states are unlikely to consider such action.

Merely resuming the subsidies for participants in the federal exchanges, however, would be an unattractive option. Majorities in both chambers of Congress strongly believe that Obamacare is too prescriptive and moves too much authority over the health system to the federal government. Bringing back the subsidies (and linked mandates) in the affected states would entrench—and, for a time, give a bipartisan imprimatur to—that flawed and misguided model of health care policy. It could fairly be described as more expansive legislation than the ACA, since it would authorize subsidies in circumstances that the court would have just ruled that law did not cover.

On balance, the political pressure would probably make it impossible for Congress to do nothing—and it would be wrong for Congress to do nothing. Millions of Americans would be exposed to hardship through no fault of their own. Congress should do what it can to protect these Americans while also improving health policy.

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