Supreme Court Upholds Key Provision of the Affordable Care Act: Nationwide Subsidies Are Lawful

By | Published On: June 29, 2015

By: Edward T. Waters, Managing Partner and Jacqueline Mabatah, Summer Associate

Last week the Supreme Court ruled 6-3 that the Affordable Care Act (“ACA”) allowed the subsidization of premium payments for low and middle-income individuals enrolled in the so-called “federal exchanges.” This decision was crucial to preserving subsidies for the 6.4 million Americans who receive health insurance through the federal exchange.

The central issue in the case, King v. Burwell, No. 14-114 (2015), involved how to interpret the phrase by stating that subsidies are available in “an exchange established by the state” (Section 36B of the ACA).  Underlying the case is an Internal Revenue Service (“IRS”) regulation that interpreted the ACA as providing subsidies for eligible Americans regardless of whether the federal government or a state ran the exchange.  Plaintiffs challenged the IRS regulation, arguing that it clashed with the ACA because the disputed phrase did not authorize the federal government to provide subsidies in states that did not establish their own health insurance exchanges.

In its decision, the Court starts by detailing the “long history of failed health insurance reform” in this country and explains how past reforms, with the exception of Massachusetts, failed because healthy individuals would not buy health insurance until they got sick. It is this history that is central to the Court’s decision.  Specifically, writing for the majority, Chief Justice Roberts stated that despite the poorly drafted provisions of the ACA, the goal of Congress was clear: “Congress passed the ACA to improve health insurance markets, not to destroy them.”

Following this logic, the Court reasoned that the arguments of the Petitioners (individuals challenging the legality of the subsidies on the federal exchanges) simply did not make sense.  As Chief Justice Roberts explained, the Petitioners interpretation would result in “destabiliz[ing] the individual insurance markets in any State with a Federal Exchange, and likely create the very ‘death spirals’ that Congress designed the Act to avoid.”

Therefore, the Court found, based on the purpose and language of the Act, that the federal exchanges and the resulting subsidies to low and middle-income Americans were lawful.

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