Supreme Court Upholds ACA Subsidies in All States

June 25, 2015

The Affordable Care Act (ACA) avoided a potential death blow today when the Supreme Court ruled that citizens in 34 states that did not establish their own insurance marketplaces, or exchanges, are eligible for premium subsidies under the 2010 law.

The decision offers relief to 6.4 million Americans in those 34 states who have purchased private coverage with the help of subsidies.

For the second time now, the ACA has survived Supreme Court scrutiny. In 2012, the high court upheld the law's individual mandate to purchase coverage, but made Medicaid expansion optional for states.

"The Affordable Care Act is here to stay," said President Barack Obama, commenting on the court's decision from the White House. "All of America has protections it didn't have before. As the law's provisions have gradually taken effect, more than 16 million uninsured Americans have gained coverage so far."

The challenge to the subsidies centered on Section 36B of the law, which said that this assistance was intended for individuals buying a health plan through an exchange "established by the state." Only 16 states opted for their own exchange. The remaining 34 states — mostly Republican — defaulted to a federally established exchange that uses the enrollment website called healthcare.gov.

In 2012, the Internal Revenue Service (IRS) interpreted the law as a whole to mean that qualifying citizens in those 34 hold-out states also could receive subsidies, which take the form of a tax credit. ACA critics challenged that policy in several federal lawsuits, saying that the government should follow the letter of the law and limit subsidies to people obtaining coverage through an exchange "established by the state." When the Obama administration defended the IRS ruling in those cases, it said that the law treated federally established exchanges as proxies for those created by states.

Two federal appellate courts rendered conflicting decisions on the legality of the subsidies, prompting the Supreme Court to hear one of the cases, King v. Burwell. It was filed by four residents of Virginia, a state that had exercised its right not to form its own exchange.

In today's ruling, the high court said that Section 36B and its "established by the state" wording was ambiguous, forcing it to interpret that bit of text in light of the entire law. It concluded that Congress had intended premium subsidies for citizens of all states. It was "implausible," the court said, that Congress would have written the law to deny subsidies to individuals in states with federally established exchanges, which would have doomed them to failure.

"We must respect the role of the legislature and take care not to undo what it is has done," the court said. "A fair reading of legislation demands a fair understanding of the legislative plan.

"Congress passed the Affordable Care Act to improve health insurance markets, not to destroy them. If at all possible, we must interpret the act in a way that is consistent with the former, and avoids the latter."

Chief Justice John Roberts Jr wrote the opinion, with Associate Justices Anthony Kennedy, Ruth Bader Ginsburg, Stephen Breyer, Sonia Sotomayor, and Elena Kagan concurring. Associate Justices Samuel Alito Jr and Clarence Thomas signed on to a dissenting opinion by Associate Justice Antonin Scalia, who wrote that the majority's ruling amounted to one more example of "somersaults of statutory interpretation" of the ACA.

"Words have no meaning if an exchange that is not established by the state is 'established by the state,' " wrote Scalia, the court's champion for sticking to the literal meaning of a law's text.

Medical Societies Praise Ruling Despite Deep Divisions About Law

Much of the healthcare provider community — at least at an organizational level — praised the Supreme Court for preserving insurance coverage, and hence access to care for millions of Americans. Kudos came in from the American Hospital Association, the American Nurses Association, and other large medical societies.

Steven Stack, MD, president of the American Medical Association, said the court's decision left him "relieved."

"Physicians know that the uninsured live sicker and die younger," Dr Stack said in a news release. "The subsidies upheld today help patients afford health insurance so they can see a doctor when they need one and not have to wait until a small health problem becomes a crisis."

Likewise, Wayne Riley, MD, MPH, president of the American College of Physicians, said his group was "thrilled." The ACA "is now more than ever the law of the land," Dr Riley said in a statement.

"What great news for my patients," said Robert Wergin, MD, president of the American Academy of Family Physicians (AAFP), in an interview with Medscape Medical News. Premium subsidies were at stake in his home state of Nebraska, which has a federally operated exchange, and Dr Wergin said they have made a big difference for the working poor who bought an ACA health plan. He recalls one patient with post-polio syndrome telling him, "The ACA has been a life changer for me and a weight off my back."

For all the celebration by organized medicine, grassroots medicine is deeply divided on the merits of the ACA. Fifty-two percent of primary care physicians have a negative view of the law compared with 48% who like it, according to a recent survey by the Kaiser Family Foundation and the Commonwealth Fund.

Anders Gilberg, senior vice president of government affairs at the Medical Group Management Association, said his members fall in both camps. Accordingly, Gilberg is not framing his response to the Supreme Court subsidy ruling as either positive or negative. "It reinforces the status quo," he told Medscape Medical News. "That's our message to the membership."

"The challenges that exist with the ACA remain," said Gilberg, whose members work in 18,000 organizations with 385,000 physicians. One is the difficulty of collecting from patients with high-deductible plans purchased on ACA exchanges. Another is a shortage of physicians who are willing to see Medicaid patients in states that expanded that program under the law. Medicaid reimbursement rates are too low to attract enough physicians to participate, he said.

The AAFP's Dr Wergin also knows that some of his members dislike — if not hate — the ACA.

"Their position reflects frustration with the law's complexity, paperwork, and bureaucracy," he said. "But the heart of the law is about the patients. Just look at the numbers [for the newly insured]. The law aligns with the principles we have about healthcare access for all."

Plan B's No Longer Needed

Much was at stake in the case just decided by the Supreme Court. As of March 31, 2015, a total of 10.2 million Americans had active coverage under an ACA exchange plan, according to the US Department of Health and Human Services. Of this group, almost 8.7 million nationwide and 6.4 million in states with a federally established exchange had received a premium tax credit averaging $272 a month.

The subsidy case has kept the healthcare industry and the political world at a low boil of anxiety since the Supreme Court agreed to hear it last November. Some experts predicted that defeat for the Obama administration would not only deprive millions of Americans of health insurance but also wreck the law through an insidious chain reaction, an argument that wasn't lost on the Supreme Court.

Without the availability of subsidies in the 34 states, individuals there who otherwise could not afford insurance coverage would not come under the law's mandate to buy a policy. Without the individual mandate, not enough young healthy adults would be forced into the exchanges, leaving insurance risk pools composed mostly of older, sicker individuals whose preexisting conditions, thanks to the law, no longer bar them from the coverage they need.

Faced with a preponderance of enrollees needing lots of healthcare, insurers would have had no choice but to raise premiums, making coverage less affordable and the risk pools smaller and sicklier, according to these predictions. Premiums would have continued to increase, sending the exchanges into a "death spiral."

The waiting period also spawned contingency plans. President Barack Obama said that if the court struck down the subsidies, Congress could restore them simply by deleting the words "established by the state" from the ACA. A GOP-controlled Congress would have been loath to do that. However, some Republicans proposed extending invalidated subsidies temporarily, while others favored a new set of tax credits as part of an ACA replacement bill. Another option was for hold-out states with federally established exchanges to create their own so they could qualify for subsidies, a plan some states were starting to pursue. Earlier this month, the Department of Health and Human Services approved plans by three such states — Arkansas, Delaware, and Pennsylvania — to proceed with the switchover.

A Plan B is no longer necessary, though, now that the Supreme Court has preserved the status quo.

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