The Right to Subsidies – the State vs. Federal Exchange Divide

In a 6-3 decision, the U.S. Supreme Court ruled in June of 2015 that the core component of President Obama’s health care law that allows the federal government to provide tax subsidies through federal exchanges was valid. In King vs. Burwell, the plaintiffs sought to invalidate the federal exchanges based on a literal wording of a key phrase in the Affordable Care Act [26 U. S. C. §5000A]. Justice Roberts and five other Supreme Court Justices held that the intent of the entire law should be considered and not just the literal reading of the key phrase. The ruling was the second U.S. Supreme Court ruling to validate the Affordable Care Act in three years.

The Affordable Care Act provides for exchanges, also known as marketplaces, which allows people who did not have insurance through their employer or some other entity the right to buy health insurance through the exchanges. The states were invited to set up their own state exchanges. Sixteen states and the District of Columbia created their own exchanges. Residents of the other states purchased their insurance through exchanges that were created by the federal government.

A second component of the insurance purchase was eligibility for a federal tax subsidy which significantly reduced the cost of health insurance. The subsidies allow many low-income families the ability to buy health insurance at affordable prices.

Massachusetts Health Care Lawyers Review the Legal Dispute

The issue in King vs. Burwell was a legal phrase that seemed to indicate that only people who bought their insurance through a state exchange, not a federal exchange, would be eligible for the tax subsidy. The key phrase was “an exchange established by the State.” If the literal interpretation was applied, then the insurance subsidies for those who purchased through the federal exchange would be terminated which would cause millions of people to lose their insurance. This loss of insurance could affect the entire Affordable Care Act since the premiums of the remaining people with insurance would likely increase due to the millions who lost their insurance.

The desired outcome was largely split along political lines. Democrats favored allowing the federal exchanges to provide the subsidies, while Republicans wanted to limit the subsidies. A literal outcome would have created the question of what to do with the people who lost their insurance because they could not afford the non-subsidy rates.

Justice Roberts and Justice Kennedy joined the three liberal Judges in ruling that the intent of the larger statutory plan controlled over the literal interpretation.  Justice Roberts’ decision was stronger than finding an ambiguity. His interpretation directly validated the federal exchange and the federal tax subsidies. If the phrase was ambiguous, then the Internal Revenue Service, a federal government agency subject to control by the political party in power, could resolve the ambiguity.

Justice Scalia’s dissenting opinion, joined by the two other conservative Justices, criticized Roberts’ reasoning. Justice Scalia asserts that the literal interpretation was clear. While he agreed that context matters, he said that did not give the majority the authority to rewrite the law.

Massachusetts Health Care Lawyers at Michelman & Bricker, P.C. Know How Judicial Decisions Impact Health Laws

Hospitals, nursing homes, medical practices, physicians, and other health care participants need to know the effect legal cases have on the medical care system. This includes health care providers, insurance companies and patients. If you have any questions about the practical and legal effects of the Affordable Care Act or any other health care law, please contact Massachusetts health care lawyers at Michelman & Bricker, P.C. Call 215-557-9440, or complete an online form to schedule an appointment at one of our offices in Longmeadow, Massachusetts, Cherry Hill, New Jersey, or Philadelphia, Pennsylvania.