King v. Burwell – what just happened?

Yesterday, we released a very timely white paper entitled “King v. Burwell: What’s About to Happen?” In it, we discussed the different ways the Supreme Court case could be decided and the possible implications of a ruling in favor of the plaintiffs. We now have a ruling, so in this post we just want to give a quick overview of what the Court said. There’s so much information out there that it’s easy to miss the main points. Here they are…

The 6-3 ruling upheld the Affordable Care Act’s premium tax credits in states that chose not to develop their own health insurance exchange and instead opted to use the federal government’s website, Healthcare.gov.

Chief Justice John Roberts wrote the majority opinion in this case. He was joined by Justices Kennedy, Ginsburg, Breyer, Sotomayor, and Kagan. The dissent was written by Justice Antonin Scalia. He was joined by Justices Thomas and Alito.

The Court decided that, despite the words “an exchange established by the State,” which appear in the portion of the law describing who’s eligible for the premium tax credits, Congressional intent was actually to make the government subsidies available in all states, whether the state established its own exchange or not.

Even though the wording was a bit ambiguous, the Court chose not to defer to the Internal Revenue Service to interpret the statute, saying instead that Congress certainly didn’t expect the IRS to make the decision about whether or not the subsidies would be available nationwide. Therefore, the Court claimed it had no choice but to try to figure out what Congress wanted.

In the Opinion of the Court, Justice Roberts points out that “the power to make the law rests with those chosen by the people” and that the job of the Court is simply “to say what the law is.” He also notes that figuring out the law “is easier in some cases than in others.”

In trying to determine Congressional intent, the Court looked beyond the four words “established by the State” and instead focused on what Congress was hoping to accomplish: a major goal of the Affordable Care Act was to reduce the number of uninsured people significantly, and the health reform law adopts three strategies that all work together to accomplish that goal. First, all individual health plans are guaranteed issue and community rated, meaning that insurance companies cannot turn people down or charge them more for pre-existing medical conditions. Second, there’s an individual mandate which requires most Americans to have health insurance or pay a tax penalty, a provision that was upheld by the Court three years ago. And third, there are government subsidies available to help people pay for health coverage.

Without the subsidies, the Court explained, health insurance would be considered unaffordable for millions of Americans (the cost of coverage would exceed 8% of the household income), so eliminating the subsidies in states that did not develop their own exchange would also exempt most people from the individual mandate. Guaranteed issue and community rating, however, would remain intact in those states, which could send the individual market into a death spiral as millions of healthy people would drop coverage. It’s not reasonable, the Court concluded, that Congress would design the law in such a way – it would be contrary to their goal of extending coverage to millions of uninsured Americans.

In short, the Court sided with the Obama administration and the subsidies will continue as is. They are available nationwide, whether or not the state established its own exchange website.

What this means for brokers

The answer to this one is simple – it’s business as usual. The subsidies will continue, and this ruling will only draw more attention to the premium tax credits. And that means that any broker who doesn’t have a strategy to sell individual policies quickly and efficiently could be missing out on a huge income opportunity. For those of you already selling in the individual market, you can breathe a sigh of relief… crisis averted.

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