Posted by Anne Phelps, Principal, US Health Care Regulatory Leader on May 27, 2015.
In June 2015, the Supreme Court is expected to issue a ruling in King v. Burwell, a case that challenges an important coverage provision of the Affordable Care Act (ACA). The ACA makes federal tax credits available to certain individuals to help them offset their premiums when they purchase health coverage on an insurance Exchange established by a state. If the state does not elect to establish an Exchange, the ACA charges the Secretary of Health and Human Services with establishing and operating one within the state. To date, 34 states have elected not to run insurance Exchanges of their own and have fallen back to the federal government. The Department of the Treasury, through a regulation issued by the Internal Revenue Service, has made the federal tax credits available to individuals who purchase health insurance on both state-run and federally-facilitated Exchanges.
The major issue the Supreme Court will determine is whether it was an allowable interpretation of the ACA for the IRS to make federal tax credits available to individuals who purchase coverage through the federally-facilitated Exchanges. If the Supreme Court invalidates the IRS rule, millions of Americans who are receiving tax credits through the federally-facilitated Exchanges would lose these subsidies. Many in the health care community are extremely worried about the fallout from such a decision as it could result in individuals no longer being able to afford their coverage, a rise in premiums, and disruption in the insurance markets. But it is worth reminding ourselves that it is not the job of the Supreme Court to make health policy decisions. The Supreme Court will be evaluating the case based on a reading of the statute and an examination of the Obama Administration’s regulatory interpretation of the statute.
What are the various scenarios to look for in the Supreme Court decision?
While it is difficult to predict what the Supreme Court will decide in any given case, we can look to the questions raised before the Court and think through various decision scenarios to help prepare for the outcome. The King v Burwell case is a bit more straightforward as it does lend itself to a more “up or down” decision. Are the tax credits upheld or are they struck down? But the Supreme Court may render a decision with some unexpected twists as it did in its 2012 ruling on the individual mandate and state Medicaid expansion.
As the US Health Care Regulatory leader at Deloitte, I am looking at four possible scenarios when the decision is handed down next month.
Ruling in favor of the Administration based on the statutory language. In this scenario, the Supreme Court would rule that, based on a reading of the plain language of the ACA statute, the tax credits are intended to be made available to individuals who receive coverage in a federally-facilitated Exchange. In essence, the Court may find that the language and intent of the statute make it clear that if a state has chosen not to establish an Exchange, then the federally-facilitated Exchange that the law directs the Secretary of HHS to step in and establish, is for all intents and purposes under the ACA, an “Exchange established by the state,” and that tax credits should be available to individuals in those states. This would be the most clear cut decision in favor of the Administration. I often call this scenario “the period at the end of the sentence” as it resolves the underlying issue in the statute.
Ruling in favor of the Administration based on the Department of the Treasury’s regulatory authority. Under this scenario, the Supreme Court would rule in favor of the Administration’s position, but it may conclude that the plain reading of the statute is not clear. The Court would then need to look at the Administration’s interpretation of the statute and Treasury’s rule making authority. The Court will determine whether or not deference should be given to the Administration’s interpretation in the IRS rule that allows tax credits to be made available to individuals buying coverage in federally-facilitated Exchanges. The Court may give deference to the Administration’s interpretation and broad rule-making authority. However, an interesting twist in this scenario – while upholding the Administration’s position – it does leave the door open to a future Administration revisiting the regulatory rule and issuing its own or a different interpretation of the statute. So, it is more like an ellipsis…we may have to stay tuned for the possibility of further action down the road.
Ruling against the Administration, Court does not stay the decision. In this scenario, the Supreme Court would rule against the Administration either because the statute does not allow for the tax credits to be made available through the federally-facilitated Exchanges or the Court does not defer to the Administration’s interpretation of the statute in the IRS rule. Either way, in this scenario, the Administration’s position would be struck down. If the Supreme Court determines the tax credits to be unlawful, and they do not provide any further instructions or “stay” the decision, the tax credits (which are issued on a month by month basis) may cease to be made available as soon as the decision is rendered and final.
Ruling against the Administration, Court stays the decision. In part because there has been much discussion about the fallout of a ruling against the Administration, including by the Justices themselves in the March oral arguments, many have questioned whether the Supreme Court could “stay” its decision striking down the IRS rule for a period of time or provide instructions for a transition period, e.g., allow currently covered individuals to continue to receive tax credits until the end of the coverage or tax year (December 2015). This may be possible, but seems unlikely. The role of the Supreme Court is to read and interpret the statute and the Administration’s regulatory authority. It is not to set or make health policy decisions. How would they decide what was the best policy outcome here? Thus, if they determine the tax credits are unlawful, this scenario may tie their hands and prevent them from providing transition relief.
I, like many of the health care clients we serve, are waiting with anticipation for the Court’s decision and the determination of the next steps on the ACA’s historical path. Many of us know that change is the only constant in our dynamic health care system. In light of the high stakes of the Court’s decision, companies must be prepared to react, respond, and re-prioritize in short order.