How the Supreme Court Case Could Affect the Health Law

By Brent Kendall, March 2, 2015 6:21 p.m. ET

High Court to interpret meaning of subsidy language in latest Affordable Care Act case

The blockbuster case before the Supreme Court is version 2.0 of a legal battle that could cripple the Affordable Care Act overhaul of the nation's health care system. But in important ways, the new case is different from what came before the court three years ago.

The case, King v. Burwell, leaves the Constitution aside and focuses instead on interpreting small snippets of language contained in the sprawling health-care law. The justices, who will hear argument on Wednesday, are deciding the meaning of words Congress chose when authorizing the government to provide tax credits for insurance purchases by middle- and low-income individuals. The subsidies are considered a crucial pillar of the law because they make health coverage more affordable for millions of Americans.

In 2012, the federal health law largely survived a constitutional challenge. A divided court, with Chief Justice John Roberts as the crucial vote, in that case ruled the Constitution gave Congress the authority to impose the controversial mandate for citizens to obtain health insurance or pay a penalty. The court also ruled Congress went too far in pressuring the states into accepting the health law's expansion of the Medicaid insurance program for the poor.

Because the court in the current case is interpreting the meaning of a statute instead of testing the bounds of the Constitution, it doesn't have the same sweeping legal stakes as the first go-round, said University of Oklahoma law professor Joseph Thai. “But the political stakes—those are just as high,� he said.

The health law says the subsidies are available for coverage purchased on an insurance-exchange “established by the state.� But most states chose not to establish their own exchanges, leaving the federal government to run them instead. The Internal Revenue Service issued regulations implementing the subsidy provisions, saying the law meant for subsidies to be available nationwide, not just in the states that established their own exchanges.

The challengers in the case, four residents from Virginia, argue such an interpretation is unlawful because the law's language allows subsides only for insurance purchases on state-established exchanges.

Technically, the Supreme Court will be passing judgment not on the health law but on the legal soundness of the IRS subsidy regulations. Each side argues the Affordable Care Act's actual language is clear and supports its position.

If the Supreme Court finds the health law's wording on subsidies is ambiguous, it will have to consider whether the IRS regulations are a reasonable approach for interpreting an unclear statute.

The eventual ruling could affect the availability of subsidies in more than 30 states, mostly under Republican control, that haven't established their own exchanges. For the 2015 enrollment period, more than 6 million individuals in those states have received subsidies on exchanges run by the federal government. The federal tax credits consumers received last year covered, on average, 76% of the cost of their insurance policies. If the Supreme Court invalidates the subsidies, those consumers could see their monthly insurance premiums balloon within weeks.

There is another key difference between the current health-care case and the earlier battle: the Supreme Court this time doesn't necessarily get the final word. If the justices in 2012 had ruled the Constitution barred Congress from imposing the individual insurance mandate, that decision only could have been overruled by a constitutional amendment or a change of heart by the justices.

Here, if lawmakers don't like how the court interprets the subsidy provision of the health law, they could change the language, potentially in as little as one sentence, to give it the meaning they want. But given deep partisan divisions over the health law, the odds of a legislative response could be long.

Individual states also could take the subsidy issue off the table by creating their own insurance exchanges.