King v. Burwell Explained

There’s been a lot of talk about the Affordable Care Act (ACA) case King v. Burwell here at the International Foundation headquarters—When will the Supreme Court issue a ruling, what impact will it have on the benefits industry, what twists and turns might this take? My Twitter feed is loaded with news stories, speculation, analysis . . . but what I really wanted is a summary, so I went to our Director of Research Julie Stich and Director of Information Services Kelli Kolsrud to hear them explain the case. Here is their conversation . . . after you’ve read, please share your thoughts in the King v. Burwell quick poll at the end!

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Kelli Kolsrud, CEBS
Kelli Kolsrud, CEBS
Director, Information Services and Publications at the International Foundation

Julie Stich, CEBS
Julie Stich, CEBS
Director, Research at the International Foundation

Kelli: It’s an interesting topic. Let’s start by outlining what the case is about. Basically, you could say it’s all about tax credits, also known as subsidies . . .

Julie: (interrupting) Or, you could say it’s about four words.

Kelli: Yes, it’s about four words related to subsidies! The four words are “established by the state.” They sound harmless enough. But we both know that phrase is the bone of contention. The Affordable Care Act (ACA) originally intended that each state would set up its own health insurance exchange (also called a health insurance marketplace), but fewer than half of the states actually set one up by the deadline. Most states used the fallback option, which was to offer their citizens access to the federally run health insurance exchange. King is claiming that people who get coverage through a federally run exchange shouldn’t get subsidies. This is because the law says subsidies are available to individuals who are enrolled in an exchange “established by the state.” The other side, Burwell, representing the federal government (a.k.a. the Obama administration), says the law intended the subsidies to be available in all the states.

Julie: And the District of Columbia.

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ACA Update: King v. Burwell—Now What?

Kelli: Yes, of course. OK, let’s say they rule for King. Then what happens?

Julie: It could be one big mess. If people lose access to the subsidies, most won’t be able to afford health insurance through the exchanges and they’ll drop their coverage. Experts are predicting 7.5 million people could become uninsured.

Kelli: That’s a lot of people.

Julie: Plus, those who manage to keep coverage will likely be those who are sick and need more care, leading to higher claims costs. That will result in higher insurance premium rates, making coverage even more unaffordable.

Kelli: Yes, you need healthy people to buy coverage too, to spread the risk. Many are predicting the exchanges would collapse entirely.

Julie: How is this going to affect the individual mandate? Won’t more people be subject to the penalty if they’re not buying coverage through the exchanges?

Kelli: That seems logical but actually, without the subsidies, I think more individuals would qualify for hardship and income-related exemptions to the individual mandate because the cost of coverage would be so high. Of course, International Foundation members will see more direct impact because of how the employer mandate will be affected.

Julie: One part of the employer mandate requires large employers to offer coverage to almost all of their full-time employees. The penalty for not offering coverage is triggered when any employee buys coverage through the exchange and gets a subsidy.

Kelli: And that penalty is substantial. If even one employee gets a subsidy, the employer must pay $2,000 per full-time employee (minus the first 30 employees). So if the Supreme Court rules in favor of King and disallows subsidies for people in states with federally run exchanges, the employer mandate penalties will never be triggered. I wonder if employers in those states would be exempt from some of the Form 1094 and 1095 reporting?

Julie: Good question. Of course, in the states with their own exchanges, the employer mandate penalties could still be triggered because subsidies will be available there.

Kelli: That’s definitely a mess, especially for employers with employees in multiple states. Do you really think it will come to that?

Julie: Hard to know for sure. Supreme Court decisions are known for being top-secret until announced. In the oral arguments in March, Justice Alito hinted that even if they ruled for King, the Court would have the option to delay the effective date of the decision so that subsidies wouldn’t disappear immediately in the affected states.

Kelli: If the Court rules in favor of King, members of Congress on both sides of the aisle are floating various proposals to deal with the ramifications. I would guess that Democrats would introduce a bill to remove the “four words” or at least clarify that subsidies were intended for all the states. Of course, such a bill wouldn’t be passed in the current Congress.

Julie: Some Republicans have said they’d be willing to pass legislation to continue the subsidies until the presidential election in 2016 if the Democrats will agree to repeal the employer and individual mandates.

Kelli: Yes, I’ve read about several different proposals. The big question: Would any of these proposals actually pass both houses of Congress and get signed by the president?

Julie: On the flip side, what happens if the Supreme Court rules against King, in favor of the government?

Kelli: That answer is certainly simpler. The exchanges and subsidies would continue as they are now. Employers can then turn their attention back to the variety of complicated ACA requirements, such as reporting on Forms 1094 and 1095 and the Cadillac tax.

Julie: Ah, the fun in benefits never ends. So when will the suspense end?

Kelli: The justices will let us know at the end of June. Stay tuned!

Share your thoughts on King v. Burwell in a quick poll:

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Comments (3)

  1. AvatarJeff Gingold

    Like most other legal issues, King v Burwell turns on how you define the issue. In my view, the issue is not 4 words or subsidies, it is agency overreach in rewriting what the statute enacted by Congress says. Over the past couple of years the Supreme Court seems to have increasingly expressed concern over the “agency overreach” issue, largely in other substantive areas. I am curious to see how, if at all, that issue is addressed in King v Burwell.
    I would like to see the Court reverse based on an analysis that narrows the Chevron Doctrine in cases like this one where the plain language of the statute appears to be very clear but the agency has circumvented it. However, because it is essentially a tax-related issue (the basis upon which the ACA was upheld), I would hope it would not apply to the current tax year or be applied retrospectively, and that would presumably avoid kicking subsidized people out of coverage while providing Congress with a reasonable amount of time to “fix” the problem — if it chooses to do so.
    I recognize that if you define the issue as a loss of subsidies question, or as an unenforceable intent to coerce states, the decision likely goes in favor of Burwell.

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  2. AvatarSteve B

    I would like to see much more focus on what the law actually says, as written, in black and white, and less focus on “what happens if they overturn it”. As citizens, we should care very much whether or not those who implement and regulate our laws actually do so as the laws are written. If we start picking-and-choosing what parts of laws we enforce, or “interpret” other than what the words actually say, then it’s a slippery slope. This question is focused on the PPACA but the fundamental question would exist on any topic or law.

    And the argument of “it’s only four words” has no merit to me since those four words were used many times in the legislation, not just once. It is not as if a one-time mistake was made or a casual use of words was used once in a gargantuan document. These words, and the media events that followed, were clearly meant to exert pressure on states to build their own Exchanges much in the same way that seat belt laws and motorcycle helmet laws are state issues, but very few states deviate from the Federal government’s wishes and attached funding.

    I hope the SCOTUS decides this based on what the law actually says, many times, not in the context revisionist history on what they meant to say or what they intended to achieve. The drafters wrote these words specifically and thoughtfully. We should execute this law (or any law) as it’s written. If it needs improvements, there is a process for that.

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  3. AvatarBill Sokol

    Let’s stay focused on what actually may happen — if the Court upholds the Federal government, we go on as we have. If the Court decides for Mr. King and the plaintiffs and eliminates subsidies in 34 states, about 7.5 to 12.5 people will not be able to afford insurance in those states. So in those States, primarily Republican and primarily in the South and the Great Plains, there will be some real havoc – people searching for insurance and Congress probably gridlocked, so in those States, I think we go back to pre-ACA: lots of people without health insurance. And keep in mind that 2/3 of them are working white males according to studies, so the political pressure in those states will be interesting. Meanwhile, in the 16 states with exchanges/marketplaces, there probably won’t be much changed – life will go on as before, with affordable health care and the same array of options at the Exchanges. And Taft Hartley Plans won’t be affected except perhaps with higher renewal rates next year, and the same will be true for all the employers who continue to offer health care. So let’s be clear: ruling for King and plaintiffs will hurt most in the South and the Great Plains (and Wisconsin, Maine, Alaska, etc) and the political noise factor will be high – but I don’t think that noise will break the Congressional deadlock — Republicans try to extend subsidies and kill the ACA, Democrats say ‘if you want subsidies, set up a State Exchange”, and millions lose healthcare. Frankly, we now know that none of the 4 plaintiffs has “STANDING” (King is VA, 2 are Medicare, and 1 disappeared), so I hope the Court just ducks the whole issue based on lack of standing, and leaves final resolution where it belongs – with the American people and their elected representatives, and not with the 9 in robes…..

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