On March 4, 2015, the Supreme Court heard arguments in King v. Burwell, a case that challenges an important coverage provision of the Affordable Care Act (ACA). The ACA makes federal tax credits available to certain individuals to help them offset their premiums when they purchase coverage on an insurance Exchange established by a state. If the state does not elect to establish an Exchange, the ACA charges the HHS Secretary with establishing and operating one within the state. The IRS has made the federal tax credits available to certain individuals who purchase health insurance on both state-run and federally facilitated Exchanges through regulatory rules.
The major issue that the Supreme Court will determine is whether the IRS has the authority to make federal tax credits available to individuals who purchase coverage through the federally facilitated Exchanges. To date, 34 states have elected not to run insurance Exchanges of their own and have defaulted to the federal government. If the Supreme Court invalidates the IRS rule, millions of Americans who are receiving tax credits through the federally facilitated Exchanges would lose these subsidies.
While this outcome would likely be a major disruptor to the insurance markets, it is important to note that it would not dismantle the ACA. The structure of the law would remain intact.
If the Supreme Court invalidates the availability of tax credits through the federally facilitated Exchanges, the pivotal issue will be whether the current administration, the states, and/or the Congress will step in to keep them flowing. Even if the Supreme Court upholds the credits in the federally facilitated Exchanges, states may interpret that as nearly a “final word” on the permanence of the law—and decide to take the ACA back into their own hands and work toward establishing their own state-based Exchanges.
Will the Supreme Court decision spur states to action?
While many stakeholders fret over what the Supreme Court will decide, other keen observers view the Burwell case as a catalyst for action no matter what the Supreme Court says. Ultimately, the responsibility to act may fall primarily to the states.
In a February 24, 2015 letter to Senate Finance Committee Chair Orrin Hatch, HHS Secretary Sylvia Burwell wrote, “We know of no administrative actions that could, and therefore we have no plans that would, undo the massive damage to our health care system that would be caused by an adverse decision.” In other words, the administration is indicating it does not have the regulatory authority to restore the tax credits. Congress may wish to step in to restore the tax credits to the affected individuals, but the ensuing budget and political battles may weigh them down. There is no guarantee the President would sign legislation that stops short of permanently restoring tax credits through the federally-facilitated Exchanges.
Thus, it may be up to the states to determine what is in the best interest of their citizens who are at risk of losing subsidized coverage—and to weigh the impact on their local insurance markets and health care providers.
Some states have been opening conversations with their legislatures about moving forward with the establishment of their own Exchanges. Others are waiting to see how the Supreme Court rules. Moving forward with state-run Exchanges may invite budget and political battles, but there are also opportunities for states that step in now and build insurance Exchanges or coverage models that best suit their needs while applying the lessons others have learned from the past five years of ACA implementation.
The law’s Democratic architects always intended for states to establish their own Exchanges. Many Republicans have expressed the view that states should govern their own insurance markets. Health care stakeholders need certainty. The Supreme Court may not only be the final arbiter on the law’s standing, but it may also be the catalyst that moves the debate and the resolution forward.
This post originally appeared on the Deloitte Center for Regulatory Strategies Reg Pulse blog.