Benefits and Compensation

High Court Sees Problems in King Petitioners’ Arguments

Petitioners in King v. Burwell could run up against the same logic that brought down Medicaid expansion under health care reform: it could be unconstitutional for the federal government to use draconian coercion to force states to set up exchanges. Justice Anthony Kennedy emerged as a potential swing vote when he raised that Constitutional balance-of-powers question, which could weaken a key element of the King plaintiffs’ argument.

In King v. Burwell, 135 S. Ct. 475 (cert. granted Nov. 7, 2014), the plaintiffs are trying to invalidate subsidies in states where individuals only have access to federal health insurance exchanges. The case was argued before the U.S. Supreme Court on March 4.

The question before the court was whether the IRS had authority to issue rules that gave subsidies for health insurance coverage bought through exchanges established by the federal government as opposed to states under the Affordable Care Act.

The plaintiffs said the literal text of the law defined subsidies as going to recipients in “state-established” exchanges. The plaintiffs held that meant the states that did not establish their own exchanges and allowed the federal government to do so on their behalf could not distribute federal subsidies to individuals buying health insurance. The plaintiffs contended it was Congress’ intent for the federal government to coerce states into setting up exchanges, by presenting draconian consequences if they failed to do so.

The Arguments

Petitioner’s attorney Michael Carvin faced questioning from the more liberal Justices. Justice Elena Kagan forced him to concede that context, rather than just the literal text of the statute, is important to understanding it.

I have three clerks …. Their names are Will and Elizabeth and Amanda. So, to my first clerk, I say, Will, I’d like you to write me a memo , and I say, Elizabeth, I want you to edit Will’s memo once he’s done. And then I say, Amanda, listen, if Will A is too busy to write the memo, I want you to write such memo.  Now my question is: If Will is too busy to write the memo and Amanda has to write such memo, should Elizabeth edit the memo?

Kagan said Elizabeth should edit the memo whether Will or Amanda wrote it, and that was much like the situation with the exchanges: the federal government should dispense subsidy money whether an exchange is established by the state or feds. Carvin’s statement that the statute was not indifferent only underscored Kagan’s point that context plus the plain statutory language determines the ultimate meaning of the law, she said.

Justice Steven Breyer agreed that reliance on context was essential. While the words “established by the state” was in the text, the statute also delegated the authority to set up exchanges that arguably had all the attributes of exchanges set up by states, He said the statute defines exchanges as state-created entities but also that the statute directs the federal government to establish “such an exchange” when the state fails to do so.

The Constitutional Issue

As noted above, Kennedy remarked that if King prevailed, an impermissible coercion could result, with the federal government conditioning a major benefit on a state insurance-market action — the same logic that negated the ACA’s Medicaid expansion in in NFIB v. Sibelius 132 S. Ct. 2566 (2012).

Let me say that from the standpoint of the dynamics of Federalism, it does seem to me that there is something very powerful to the point that if your argument is accepted, the States are being told either create your own Exchange, or we’ll send your insurance market into a death spiral.

Justices Ruth Bader Ginsburg said it was common for Congress to leave important work to states, and have a federal fallback in the event that a given state will not or cannot do that work. She also said she had never seen Congress draft a statute that creates “disastrous consequences” for using the federal fallback option.

The government’s lawyer, Solicitor General Donald Verrilli Jr., first attempted to argue that since no penalties had been levied on any of the plaintiffs, that they might not have standing to bring suit. The justices rejected this, saying they would assume standing so they could proceed to the merits of the case.

Congress could not have intended for the literal reading proffered by King, Verrilli said, because it would prevent the law from performing as intended. The government’s reading was compelled by the structure and design of the statute; that is, to ensure state flexibility in setting up exchanges, to avert death spirals, and to get coverage to the previously uninsured.

Note: By death spiral, one alludes to the prediction that if subsidies are stricken, healthy people will evacuate the exchanges and only the sickest people will remain in exchanges, paying nonsubsidized premiums. As a result of the riskier pool, premiums for policies bought on exchanges will increase, more healthy lives will be driven out and the pool will become increasingly sicker and more expensive to insure.

If a King verdict rules out subsidies, the first result will be people who lose the subsidy will pay the full amount on exchanges. That could lead many individuals who enrolled in exchange coverage to drop coverage altogether. But Carvin argued that that effect would be not so draconian as to drive the exchanges out of existence completely.

He also said the statute’s method of pushing states to expand Medicaid programs as per the law (denying expanded federal funding) was reflected clearly in his interpretation of the exchanges.

The government agrees that the purpose of this provision was to freeze Medicaid payments until you had an Exchange with subsidies, which makes sense, right?  You want to coordinate the two. And that’s exactly what this provision means under our interpretation.  Until you have an Exchange with subsidies, the States will be frozen.

Impacts on Employers

If the verdict favors King, the employer mandate will not be able to operate: if workers cannot get subsidies, the employer penalties cannot be triggered under the ACA.

The ACA caused some employers to shift costs to workers, according to various accounts and surveys. For example, to avoid the Cadillac tax, some employers ended lavish coverage and instituted much higher deductibles. Other employers responded by making workers pay a higher share of their health premiums.