Will the Courts Save (or Dismantle) Obamacare?

Probably not.

Two highly-anticipated Obamacare legal decisions were released on July 22. At issue was the legality of federal dollars (“subsidies”) flowing from the federally run health exchanges to individuals who need help affording health insurance.

States were originally expected to run their own exchanges, but as Republican governors refused to implement the health law, and some Democratic states couldn’t handle the complexity of a state exchange, most opted to let operate their state’s exchange instead. There are 36 federal exchanges today.

Going into these two Affordable Care Act (ACA) court decisions, the outlook for the Obama administration looked grim: that is, the ACA never explicitly stated that federal exchange subsidies should be allowed. However, the Internal Revenue Service (IRS), via regulation, allowed tax credits to be awarded to low income uninsured individuals seeking insurance.

In the end, the Halbig vs. Burwell (US Court of Appeals for the DC Circuit) decision went to the anti-Obamacare plaintiff, who argued that the Administration purposely omitted federal exchange subsidy wording to incentivize states to set up their own exchange. Hours later, the King vs. Burwell (in neighboring VA 4th Circuit) decision was released, but this time in favor of the Administration. The cases brought to the two courts were identical.

Practically speaking, however, nothing changes for now.

8 million individuals have enrolled in qualified health plans through state-based and federal exchanges this year.  Of those, 5.4 million came through the federal exchange. 6.7 million have enrolled in Medicaid. While the exchanges (aka “marketplaces”) are in hibernation until November 15 – the start of 2015 open enrollment season – Medicaid eligible individuals may enroll throughout the year.

As we move into 2015 open enrollment, subsidies will flow until the appeals process plays out. However, consumer confusion will ensue as the courts duke it out and politicians craft new messages about the health law into their mid-term election campaigns. The clash will likely reverberate through the entire election season.

So what do the July 22 court decisions mean, and what’s next?

Between the two, the Halbig ruling is considered more significant by legal scholars, as the DC court typically considers more questions of administrative law than the Virginia court does. It’s worth noting that identical cases are pending in Oklahoma and Indiana, but these are at much earlier stages in the legal process.

After Halbig was released on Tuesday, the Department of Justice immediately announced that it will request en banc review, which means sending the case to the entire DC federal appeals court.  It was an obvious move for the Administration given the largely Democratic balance of the DC appeals court (7 Democratic appointees and 4 Republican appointees). Conversely, the plaintiff in the King case will likely petition the Supreme Court to take up the case.

What now? Simply put: a race to the courts.

The Administration has every reason to rush the process en banc so that the issue does not wind up at the Supreme Court (SCOTUS) for a long-drawn out decision process that threatens to drastically alter Obama’s signature domestic achievement. The White House is hoping for a favorable en banc ruling ASAP, which would create a situation where the two lower court decisions are no longer split. Identical lower court decisions mean that the Supreme Court would have no reason to take up the case. Split circuit court opinions increase the chance of SCOTUS review, and therefore a longer period of ACA subsidy uncertainty.

Some pundits have suggested that Chief Justice Roberts would likely uphold the ACA’s federal subsidies given his controversial deciding vote in support of the ACA in a 2012 case brought to the Supreme Court. However, this is an entirely different legal principle, one that is not Constitutional in nature.  It’s a fool’s errand to guess what the Supreme Court may or may not decide on the subsidy issue in a year or two.

Could negating subsidies in federally run exchanges gut Obamacare?  Yes it could.  After all, upholding the Halbig decision would make the employer and individual mandates unworkable. Mandates only work when insurance is affordable, and without subsidies a majority of exchange enrollees would not be able to purchase care.

While GOP governors and members of Congress may like for Halbig to be upheld, the reality is that their own constituents – large numbers of them in many states – have now used the exchanges to buy health insurance. They expect the exchanges and their subsidies to be around in 2015 and beyond. It will be very difficult for public officials to turn their backs on the approximately 4.7 M individuals who have received and used federal subsidies to date.

A more likely outcome of these legal challenges is the conversion of fed-run exchanges to state-run exchanges or some other work-around, so that individuals can continue to receive health care coverage and politicians can score points without alienating their own constituents.

The bottom line is that despite the opposing Halbig and King rulings, along with whatever legal decisions come next, subsidies are still available for qualified consumers. And Obamacare isn’t going away anytime soon.


Ipsita Smolinski is Managing Director for Capitol Street, a healthcare research and consulting firm in Washington, DC. 

Morning Consult