Supreme Court Takes Obamacare Case

Published November 13, 2014

The U.S. Supreme Court has agreed to hear a case challenging the IRS decision to authorize payment of tax credits through federally established insurance exchanges under the Affordable Care Act.

The case, King v. Burwell, could upend the Affordable Care Act, also known as Obamacare, by limiting subsidies to people who buy health insurance on exchanges established by states, not federal exchanges. The plaintiffs are taxpayers who argue illegal tax credits given through the federal exchange imposes taxes on them.

“Obamacare is in legal and political trouble again,” said Thomas Miller, a resident fellow at the American Enterprise Institute and an expert in insurance and health policy. “The law’s many policy mistakes and poorly drafted provisions never held together as a Democratic Congress pushed them out the door over four years ago.”

Miller concluded the “tangled arrangements for tax subsidies” in Obamacare could end up eliminating or diluting several key insurance coverage provisions.

Language of the Law

The legal dispute revolves around sections of Obamacare regarding exchanges and tax credits used to help subsidize the purchase of individual insurance.

Section 1311 of ACA describes the process by which a state creates a health care exchange, and Section 1321 requires the federal government to establish an exchange if states do not. Section 1401 provides tax credits for individuals who purchase insurance on “exchanges established by the State under Section 1311.”

Because Section 1401 says tax credits are available only through exchanges set up under Section 1311, a plain reading suggests tax credits are not available through federal exchanges set up under Section 1321.

In May 2012 the IRS issued regulations permitting tax credits to be awarded to people purchasing health insurance on federally created exchanges.

Recently unearthed comments by MIT professor Jonathan Gruber, one of the chief architects of Obamacare, indicate tax credits were not intended to be available through federal exchanges.

Asked at an event sponsored by the Noblis Innovation and Collaboration Center on January 18, 2012, whether tax credits were available through federal exchanges, Gruber replied, “…if you’re a state and you don’t set up an exchange, that means your citizens don’t get their tax credits… I hope that that’s a blatant enough political reality that states will get their act together and realize there are billions of dollars at stake here in setting up these exchanges.”

Accuracy Versus Workability

The plaintiffs in King v. Burwell argue the IRS acted arbitrarily in issuing those regulations, because Obamacare provides no congressional authority for them.

Key to their position is that traditional, simple rules of statutory construction forbid the IRS from imposing such a dramatic change on the underlying statutory scheme just because the law, as written, may not be workable in practice.

Supporting this argument, Oklahoma Solicitor General Patrick Wyrick explained in a post on SCOTUSBlog, “The phrase ‘Exchange established by a state under Section 1311’ ​leaves nothing to the IRS’s imagination​.​” Wyrick is counsel in Oklahoma v. Burwell, another case challenging the decision to make tax credits available through federal exchanges.

King v. Burwell is not expected to be heard until late winter or early spring of 2015, with a ruling likely in June.

William Todd ([email protected]) is an attorney practicing in Columbus, Ohio.