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Legal arguments that could sway Supreme Court on Affordable Care Act

President Obama discusses the Affordable Care Act during the Catholic Hospital Association Conference in Washington earlier this month.

President Obama discusses the Affordable Care Act during the Catholic Hospital Association Conference in Washington earlier this month.

(Saul Loeb / AFP/Getty Images)
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The Supreme Court will decide a seemingly simple question this month in the latest challenge to the Affordable Care Act: Does the law limit subsidies for low- and moderate-income consumers to insurance purchased through an exchange “established by the state.”

The phrase at issue is found in a section of the law that outlines how subsidies should be calculated. It has taken on enormous importance because only 13 states and the District of Columbia operate their own exchange, or marketplace. Three more states established marketplaces, but rely on the federal HealthCare.gov online market. The remaining 34 states declined to establish a marketplace, leaving the job to the federal government, an option provided by the law.

The challengers argue that the four words mean that no one in these 34 states should get assistance.

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The Obama administration, which points to other parts of the law that make clear subsidies are meant to be available everywhere, has been providing aid in all 50 states for the last two years.

Today, an estimated 6.3 million people have subsidized health insurance in states that did not “establish” their own marketplaces.

Here are three ways the justices may answer the question posed in King vs. Burwell and the potential impact of what they decide:

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Plain text

Lawyers are fond of claiming the words of a complex law can have only one meaning. In this case, both the conservative challengers and the administration lawyers insist the plain text of the law supports their view.

Michael Carvin, the lawyer for the challengers, relies on the words “established by the state.” This is “extraordinarily straightforward,” he said. “Any English speaker would immediately understand” that no subsidies are allowed in states without their own marketplaces.

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Such an argument may resonate with the court’s conservatives. “Our job is to follow the text even if doing so will supposedly undercut a basic objective of the statute,” Justice Clarence Thomas wrote in a June 15 bankruptcy decision. Justice Antonin Scalia said during the oral argument the court would not “twist the words as necessary” for the law to make sense.

But in defending the law, U.S. Solicitor Gen. Donald Verrilli pointed to other passages that say subsidies “shall be allowed” for any “applicable taxpayer” who qualifies based on his or her income.

The law also gives states “flexibility” to establish a marketplace, or “exchange.” If a state chose not to, federal officials shall “establish and operate such exchange within the state,” the law states.

Verrilli argued this text plainly means a federally run marketplace serves as a state marketplace, so all eligible taxpayers may receive subsidies.

Defer to government

The high court has often decided that a complex regulatory law can be read in more than one way.

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In such cases, the justices have often deferred to the federal agency that administers the law, so long as its interpretation fits reasonably with the words of the law. This reasoning is known as “Chevron deference,” in reference to a 1984 case in which the court backed federal regulators’ interpretation of the Clean Air Act.

This is a fallback argument for the Obama administration lawyers. In 2012, the Treasury Department decided that while law was not entirely clear, the tax subsidies for health insurance should be available through any marketplace.

Last year, the 4th Circuit Court of Appeals also used this reasoning to support the government in the current legal challenge. Because the law itself was “ambiguous,” the government’s reasonable interpretation should prevail, the judges said.

States’ rights

Justice Anthony M. Kennedy and Chief Justice John G. Roberts may be swayed to the government’s side because of the potentially disastrous impact on the states.

In the past, the high court has said states must be given “clear notice” when Congress imposes new laws and requirements.

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The healthcare law did not clearly tell state officials that their failure to establish their own marketplace would deprive their residents of insurance subsidies. Lawyers for 22 states raised this argument in a friend-of-the-court brief and argued it would be unfair and unconstitutional to punish their residents.

Kennedy took note of that claim. “There’s a serious constitutional problem if we adopt your argument,” he warned the lawyer for the challengers during the oral argument in March.

The impact of the court’s decision will vary depending upon which argument they embrace.

A plain-text ruling that invalidates the subsidies in 34 states would have the most dramatic impact, stripping aid from more than 6 million people and likely throwing insurance markets in these states into chaos.

Insurance companies warn they will raise premiums dramatically, as only sick consumers are likely to maintain coverage without government assistance.

And with a bulging population of uninsured people, hospitals and other medical providers are expected to be swamped with patients who cannot pay their bills.

Another possibility, raised by Justice Samuel A. Alito during the oral argument, would be to declare the subsidies illegal in states without an exchange, but delay the effectiveness of the decision until the end of the year. This could avoid a sudden disruption and give state and federal officials time to devise a “fix.”

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But few people believe congressional Republicans, who still demand repeal of the law, and the president, could reach an agreement to restore the subsidies in states that don’t operate their own marketplaces.

And while some states may move to establish their own marketplaces to maintain aid, many GOP state leaders, particularly in the South, remain deeply hostile to the health law and are unlikely to act.

If the Supreme Court rules for the administration, consumers would see little change and the health law is unlikely to be substantially changed, at least until 2017 after a new president takes office.

On Twitter: @DavidGSavage

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