King v. Burwell: No “Death Spirals”

Health Care   |   June 25, 2015

"Death spirals" were avoided today when the U.S. Supreme Court released its long awaited opinion in King v. Burwell, holding that tax credits are available to subsidize coverage for qualified individuals in all states, including those utilizing a Federal Exchange. The case, which again upholds key provisions in the Affordable Care Act, was decided by a 6-3 majority of the Court. Chief Justice Roberts delivered the opinion, in which Justices Kennedy, Ginsburg, Breyer, Sotomayor, and Kagan joined. Justice Scalia filed a dissenting opinion joined by Justices Thomas and Alito.

While the Court acknowledged that Petitioners’ argument was strong, it nonetheless found the words “an Exchange established by the State” ambiguous when placed “in their context and with a view to their place in the overall statutory scheme.” The Court then looked to the structure of the Act to reconcile the meaning of this phrase in the context of the entire legislation. The Court concluded, “Congress passed the Affordable Care Act to improve health insurance markets, not to destroy them. If at all possible, we must interpret the Act in a way that is consistent with the former, and avoids the latter.”

As expected, the Court’s decision was grounded in statutory construction principles, but looked beyond the standard Chevron analysis, noting that its duty was “to construe statutes, not isolated provisions.” And the Court carefully considered the ramifications of adopting the Petitioners’ arguments: “Here, the statutory scheme compels us to reject petitioners’ interpretation because it would destabilize the individual insurance market in any State with a Federal Exchange, and likely create the very ‘death spirals’ that Congress designed the Act to avoid.” The Court highlighted studies that predicted without the tax credits, individual health insurance premiums were likely to rise by between 35- 47 percent and enrollment would likely decrease by up to 70 percent. It also noted that in 2014, nearly “87 percent of people who bought insurance on a Federal Exchange did so with tax credits.” While scholars may not agree with the Court considering the practical ramifications of an adverse decision, the Court was aware of the far-reaching consequences to both the people of the United States and the health care industry.

“A fair reading of legislation demands a fair understanding of the legislative plan.” The U.S. Supreme Court illustrated that it understood Congress’s intent when adopting the Affordable Care Act in 2010 was to provide a framework to make health insurance more affordable through a multi-prong approach. As the Court noted, the combination of the guaranteed-issue and community-ratings requirements, the individual mandate to purchase insurance, and tax credits for those earning between 100 and 400 percent of the federal poverty level all must be preserved in order for Congress’s intent to be realized.

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