The King v. Burwell case, now before the Supreme Court, challenges the payment of subsidies to people who buy health insurance on the federal exchange established by the Affordable Care Act. The plaintiffs argue the subsidies are illegal because the law refers to exchanges “established by the state.” Supporters of the law say it clearly intended to allow the federal government to establish an exchange.
Thirty-four states, including Indiana, chose not to establish their own insurance exchanges. If the court sides with the plaintiffs, 7.5 million people in those states could lose their subsidies, making health care coverage unaffordable.
Concern about ‘death spiral’
If the court were to rule the federal exchange isn’t authorized, states might act quickly to create their own exchanges, said Kosali Simon, a professor of health economics and policy in the School of Public and Environmental Affairs at IU Bloomington. But that wouldn’t necessarily avert any problems.
“We are concerned not only that the size of the federal marketplaces would shrink if they lose subsidy status, but also that those remaining in the insurance pools would have high expenses and cause premiums to rise,” she said. “Because marketplaces have to charge the same premium to the sick and the healthy, this means that even those healthy customers currently buying coverage without subsidies will see their premiums rise through the adverse selection ‘death spirals’ that result when insurance markets disproportionately include the sickest, most expensive customers.”
Simon said, however, that interesting parallels can be drawn between the Affordable Care Act exchanges and Medicare Part D, the drug benefit plan that took effect in 2006.
“Drug coverage for seniors is thought to be another example of a market that could not exist on its own because of adverse selection,” she said, “but its large subsidy -- approximately 75 percent -- through Medicare Part D financing makes it possible to have what is thought to be a fairly well-functioning market, adverse selection-wise.”
Simon’s research involves applying economic analysis in the context of health insurance and health care policy. She has published research on the impact of the Affordable Care Act on insurance coverage, labor markets and health care use, including mental health treatment and emergency department visits. To speak with her, contact Jim Hanchett at 812-856-5490 or [email protected].
Federalism, revisited
Ironically, the emphasis on states’ rights that helped ACA opponents win a victory against aspects of the law in 2012 may end up defeating this latest challenge, said Beth Cate, a professor of law and public affairs at IU Bloomington.
“In 2012, ACA opponents persuaded a majority of justices -- including Chief Justice Roberts and Justice Kennedy, the two votes likely in play with this current challenge -- that letting Congress condition existing Medicaid funds on greatly expanding eligibility would gut federalism and unlawfully coerce states to do what the federal government wants,” Cate said.
She said a majority of justices may conclude that it would be similarly coercive -- and unconstitutional -- for Congress to effectively force states into establishing their own exchanges by withholding subsidies from federally run exchanges and sending those states’ insurance markets into "death spirals."
“Justice Kennedy emphasized this concern at oral argument, and it could lead him and others to interpret the statute to authorize subsidies on the federally run exchanges and avoid this Constitutional problem,” Cate said.
"Constitutional avoidance" is a basic rule of statutory interpretation; Roberts invoked it in 2012 when voting to uphold the Affordable Care Act’s individual mandate as a tax.
Cate said such an outcome would be ironic for states like Indiana which have argued that subsidizing insurance on the federally run exchanges undermines federalism by eliminating a state’s ability to choose whether to expose its employers to ACA penalties. Those penalties kick in if an employer doesn’t offer relevant coverage and an employee buys subsidized insurance on the exchange.
Cate is an associate professor in the School of Public and Environmental Affairs. Her expertise includes intellectual property law, data privacy and security, research regulation and constitutional law. To speak with her, contact Jim Hanchett at 812-856-5490 or [email protected].
‘Whole text’ vs. legislative purpose
Justices are on record as insisting that the whole text must be read to interpret a statute, said William Popkin, a scholar on tax policy and legislation at the Maurer School of Law. But the trouble is, no one knows exactly what that means, in part because a “whole text” approach may require looking at evidence beyond the text to understand the purpose of the legislation.
“King v. Burwell will be a textbook example of drawing the line between relying on the whole text versus relying on legislative purpose,” he said. “Those of us who teach statutory interpretation will be looking closely at how Justice Scalia and the other justices who are generally considered textualists will draw that line.”
Popkin, the Walter W. Foskett Emeritus Professor of Law, is the author of the widely used texts “Fundamentals of Federal Income Tax Law” and “Materials Legislation: Political Language and the Political Process.” To speak with him, contact Ken Turchi at 812-856-4044 or [email protected] or James Boyd at 812-855-0156 or [email protected].
Congress could fix problem
A Supreme Court ruling to invalidate federal exchange subsidies under the Affordable Care Act would put the ball back in Congress’ court, according to David Orentlicher, a health law expert at the McKinney School of Law. And he doubts Congress would let the subsidies expire.
Even though Republicans who control Congress don’t like the program they call Obamacare, he said, they're already talking about extending the subsidies for up to two years, creating time to find a solution.
“They understand that it’s not workable to pull these subsidies from people in two-thirds of the country who are going to lose their ability to buy insurance,” he told Indiana Public Media. “That’s a catastrophic outcome.”
The simple approach, he said, would be to convert the existing federal exchanges into state exchanges, with the federal government continuing to operate the exchanges under contract with the states. Indeed, a few state exchanges already follow that kind of model. Orentlicher said the outcry against letting 7.5 million people lose access to health insurance would be too great for Congress to ignore.
Orentlicher is the Samuel R. Rosen Professor of Law and co-director of the William S. and Christine S. Hall Center for Law and Health at the McKinney School. He can be reached at 317-658-1674 or [email protected].
RSS