“Established by the State”: Four Words that Could Upend Obamacare

Obamacare controversy is back in the headlines. This time the issue centers around the wording of the law, and which government entity gets to interpret that ruling. 

According to the Supreme Court blog, the issue is, “whether the program of tax credits applies only in the consumer marketplaces set up by sixteen states, and not at federally operated sites in thirty-four states.” 

The Supreme Court has decided and announced that it will rule on King vs. Burrell before the end of the court’s current term.

So what is at issue in King vs. Burrell and how will four words potentially decide the fate of the Affordable Care Act? According to the Supreme Court blog, “Since the health care exchanges have been in operation, nearly five million individuals have received federal subsidies to help them afford health insurance on an exchange run by the federal government. The average subsidy has been about $4,700 per person.   The fate of those subsidies apparently will now depend upon how the Court interprets four words in the Affordable Care Act.  In setting up the subsidy scheme, Congress said it would apply to exchanges ‘established by the State.'”

What happens if the Supreme Court sides with the appellant (King)? “If it decides to limit the subsidies to the state-run ‘exchanges,’ it is widely understood that that outcome would crash the ACA’s carefully balanced economic arrangements,” write Lyle Denniston for the Supreme Court Blog.

What is the appellant’s, also referred to as the challenger’s, argument? “The challengers to subsidies for those who shop for insurance on a federal exchange have argued that those words limit the availability to the tax benefits solely to state-run exchanges,” writes Denniston.

“The challengers take the ‘literal interpretation’ approach, although they also have policy reasons for reading the ACA as they do.  The Obama administration takes the “broader purpose” approach, contending that Congress would not have set up the insurance program on a basis that is as limited as the challengers contend.  There are Justices on the Court on both sides of that debate over interpreting federal laws.”

What is the respondent’s- in this case Burwell (the United States Secretary of Health and Human Services) who is representing the government- argument? According to the Fiscal Times, “The government argues that the Affordable Care Act does not limit subsidies to state exchanges. Rather, it says that Congress intended subsidies to apply to people in all exchanges, both federal and state. The term “exchanges established by HHS” is in reality a “term of art” that includes all exchanges, argues the government.”

Is the rest of the language in the Affordable Care Act consistent with being writing in “terms of art?” The appellant does not believe so. According to Diana Furchtgott-Roth with the Fiscal Times, “The problem is that the language of the ACA does not bear this out. According to section 36B of the law, subsidies are available to those who get their health insurance ‘through an Exchange established by the State under section 1311 of the Patient Protection and Affordable Care Act.'”

“Carvin, Roth, and Berry argue in their Reply Brief that ‘Section 36B’s text is unambiguous and consistent with the rest of the ACA, and concededly is not objectively absurd.’ They continue: ‘It would certainly be convenient, for an agency seeking to rewrite a statute, if an English phrase can become a term of art on the Government’s mere say-so. It cannot.'”

In March the Supreme Court will begin to hear the arguments, and by the end of the term, we will know what “established by the state” really means. According to the Supreme Court Blog, the question before the Supreme Court is“Whether the Internal Revenue Service may permissibly promulgate regulations to extend tax-credit subsidies to coverage purchased through exchanges established by the federal government under section 1321 of the ACA.”


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