US Supreme CourtIn a 6-3 decision credited with saving Obamacare, the Supreme Court ruled on Thursday that the premium subsidies offered to qualifying enrollees of insurance plans offered on federal exchanges, which help more than 6 million Americans pay for their health plans under Obamacare, are legal. The Court declined to apply Chevron [i] deference to an IRS regulation authorizing such subsidies, and instead took on the task of determining the correct reading of the statute for itself. In doing so, the Court made it virtually impossible for future administrations to issue any agency regulations that would take the federal subsidies away from people enrolled in health insurance through state or federal exchanges.

Many analysts were convinced that, were the Court to disallow the subsidies, the cost of individual plans would have skyrocketed and Obamacare would have collapsed. Chief Justice Roberts recognized this potential outcome in his majority opinion, writing “Congress passed the Affordable Care Act to improve health insurance markets, not to destroy them.” Chief Justice John G. Roberts Jr. was joined in the majority by Justices Anthony Kennedy, Ruth Bader Ginsburg, Stephen Breyer, Elena Kagan and Sonia Sotomayor. As a result of the ruling, President Obama was able to announce that “the Affordable Care Act is here to stay,” at a press conference Thursday morning. Shares of hospital company stocks surged after the ruling was announced.

Now that federal subsidies are conclusively available to individuals purchasing insurance through the federal exchange and state exchanges alike, those states that are struggling to manage their state-based exchanges may decide to hand over exchange operations to the federal government. Given the Washington Post’s report that nearly half of the states running state-based exchanges are suffering from financial difficulties, there could potentially be a gradual transition to a single federal exchange.

Political pundits have also noted that the decision may spur a change in position by those states that have yet to opt into the Medicaid expansion afforded as an option under the ACA. While there is no direct connection between the Court’s decision and the potential for expansion of Medicaid, the news that the health insurance subsidies have been decisively protected by the Court, as well as the extensive media coverage on the decision, could serve as motivation for politicians and citizens in hold-out states, such as Virginia, Florida and Texas, to more loudly demand access to the federal matching funds that come with Medicaid expansion.

Case Background

Under the ACA, individuals are exempt from the requirement to maintain health insurance coverage if the cost of buying insurance would exceed 8% of that individual’s income. However, the ACA also establishes federal subsidies, in the form of tax credits issued by the IRS to individuals with household incomes between 100 percent and 400 percent of the poverty line. These subsidies are meant to prevent anyone from being in the position where the out-of-pocket cost of health insurance would be greater than 8% of his or her income.

Petitioners in David King et al. v. Sylvia Mathews Burwell et al., case number 14-114, four individuals who live in Virginia, argued that they did not wish to purchase health insurance, which would have cost over 8% of their annual income. These individuals challenged the IRS rule that would have provided them subsidies, arguing that the federal exchange operating in Virginia does not qualify as “an Exchange established by the State” under section 36B of the ACA, and that therefore they should not receive tax credits. A decision in their favor would have therefore exempted them from maintaining health insurance.

Court Analysis

The case ultimately focused on just six words of Section 36B of the ACA, which stipulates that for those people who cannot afford health coverage, subsidies are available through “an exchange established by the state.” The court’s decision turns on whether individuals who are enrolled in health insurance through the Federal exchange qualified for tax credits.

Notably, the court decided that the Chevron two-step analytical framework was not appropriate in this case. Chevron deference requires courts to defer to interpretations of statutes made by those government agencies charged with enforcing them, unless such interpretations are unreasonable, and is typically applied when the Court is analyzing an agency’s interpretation of an ambiguous statute. In this case, however, Justice Roberts decisively wrote that the tax credits are one of the Act’s key reforms and whether they are available on Federal Exchanges is a question of such “deep economic and political significance . . .[that] had Congress wished to assign that question to an agency, it surely would have done so expressly.”

The Court instead determined that it was its task to determine the correct reading of the statute. After first determining that the text is ambiguous, the Court looked “to the broader structure of the Act.” It is the court’s analysis of the language establishing tax credits, read within the Act’s context and structure, that lead to the Court’s conclusion “that Section 36B allows tax credits for insurance purchased on any Exchange created under the Act. Those credits are necessary for the Federal Exchanges to function like their State Exchange counterparts, and to avoid the type of calamitous result that Congress plainly meant to avoid.”

Justice Scalia authored the scathing dissent – writing “who would ever have dreamt that “Exchange established by the State” means “Exchange established by the State or the Federal Government”? Emphasizing the definition of state, and noting that the Secretary of Health and Human Services is decidedly not one, Justice Scalia decries the majority opinion as “pure applesauce” and the logic behind the ruling as “interpretive jiggery-pokery.” Claiming that, under the majority opinion, “words no longer have meaning,” Justice Scalia writes that the majority “rewrites the law to make tax credits available everywhere. We should start calling this law SCOTUScare.” Justice Scalia was joined in his dissent by Justices Clarence Thomas and Samuel A. Alito Jr.

[i] Chevron U.S.A., Inc. v. NRDC, 467 U.S. 837 (1984)