The U.S. Supreme Court agreed to consider a challenge to the subsidies that are a linchpin of President Barack Obama’s health-care plan, accepting a case that suddenly puts the landmark law under a new legal cloud.
The decision to hear the case helps transform what had been a low-profile Supreme Court term into a likely blockbuster. The court also might take up gay marriage after a federal appeals court this week upheld bans in Michigan and Kentucky.
Two years after upholding much of the Affordable Care Act by a single vote, the justices yesterday said they will hear a Republican-backed appeal targeting tax credits that have helped more than 4 million people afford health insurance.
A ruling blocking those credits might unravel the Affordable Care Act, making other provisions ineffective and potentially destabilizing insurance markets in much of the U.S. The high court’s decision to hear the case comes days before the start of the law’s second open-enrollment season.
A decision will come by June.
“It’s hard to avoid the thought that the four justices who tried to get rid of the Affordable Care Act the first time around are taking a second crack at it,” said Timothy Jost, a supporter of the measure who teaches at Washington and Lee University School of Law in Lexington, Virginia.
Health insurers, which have gained millions of new customers through the law, sank lower in New York trading. Hospitals, which must absorb costs when patients are uninsured, also dropped.
The court probably will hear arguments during the first week of March.
The justices will consider an appeal by four Virginia residents seeking to block the subsidies in 36 states. The appeal says the Obama administration is engaging in a “gross distortion” of the law’s wording by granting billions of dollars in tax credits to people in those states.
The appeal, filed by Washington lawyer Michael Carvin, said immediate review was “imperative” given the money at stake and the steps being taken by employers, consumers and insurers to comply with the measure.
At the White House, Obama administration spokesman Josh Earnest defended the Affordable Care Act.
“This is a law that is working and has generated significant benefits for working families and small-business owners all across the country, and that’s why you’re going to see a vigorous defense” by the administration, Earnest said.
The law, intended to provide coverage to tens of millions of uninsured Americans, has been attacked by Republicans since it was passed on a party-line vote in 2010.
More than 100,000 anti-Obamacare ads aired before the Nov. 4 election as Republicans sought to exploit what they saw as a Democratic liability. While many provisions are popular, a majority of Americans say they disapprove of the law, polls show.
Enrollment for the second year of coverage under Affordable Care Act plans begins on Nov. 15 and closes Feb. 15. The Congressional Budget Office has estimated that 13 million people will be signed up next year.
A month ago, the high court refused to rule on gay marriage, rejecting seven appeals without comment and clearing the way for gay weddings in as many as 11 new states. At the time, every federal appeals court to have ruled on the issue had backed gay marriage.
That changed Nov. 6, when a federal appeals court in Cincinnati ruled against gay-marriage rights in a 2-1 decision. Writing for the majority, Judge Jeffrey Sutton said the issue should be resolved through the democratic process, not the courts.
Gay marriage advocates say they will file a quick appeal, giving the court a chance to rule on the issue before the nine-month term ends in late June.
The justices endured a divisive Obamacare clash when they upheld most of the law in 2012. The fight was punctuated by reports that Chief Justice John Roberts switched sides late in the court’s deliberations to provide the decisive vote.
Roberts joined the court’s four Democratic appointees -- Justices Ruth Bader Ginsburg, Stephen Breyer, Sonia Sotomayor and Elena Kagan -- in the majority.
The latest health-care dispute centers on a four-word statutory phrase. The law says people qualify for tax credits when they buy insurance on an online marketplace “established by the state.”
Those words are significant because only 14 states have set up their own marketplaces, known as exchanges. The rest have left the job to the federal government, as the law permits. The question is whether people can collect the subsidies even if they buy policies on the federal exchange.
Under a rule issued by the Internal Revenue Service, consumers can claim tax credits no matter where they live. The Obama administration says the IRS approach is consistent with the law’s aims.
“Congress determined that the tax credits at issue here are essential to the Affordable Care Act’s goals of making affordable health coverage available to all Americans and ensuring functional insurance markets,” U.S. Solicitor General Donald Verrilli argued in court papers.
Critics say Obama has adopted an interpretation that flies in the face of clear statutory language.
“Nothing in the ACA supports the notion that Congress meant to create the legal fiction that the federal government acts on behalf of a state when it establishes an exchange,” five Republican senators led by John Cornyn of Texas argued in support of the appeal.
In the case in front of the justices, a federal appeals court based in Richmond, Virginia, upheld the IRS regulation in July on a 3-0 vote.
The justices agreed to hear the case even in the absence of a divide among federal appeals courts -- something that typically is an important factor in deciding whether to take up a case.
Although a federal appeals court in Washington rejected the administration’s approach, a larger panel of judges on that court has since agreed to reconsider its case, effectively eliminating the division.
“That they even accepted it is not a good harbinger of what’s to come,” John Gorman, chairman of the Gorman Health Group, a Washington consulting firm, said in a phone interview.
A Supreme Court ruling against the administration would open a new period of uncertainty about the future of U.S. health care. It would mean that more than half of the 7.3 million people who have bought Obamacare policies aren’t entitled to the subsidies they are receiving.
The ripple effects might be even more dramatic. Without the tax credits, many of those people would find insurance so expensive that they would qualify for the law’s hardship exemption and no longer have to obtain a policy.
That would potentially leave only the sickest and most desperate seeking insurance through the individual market. That could increase coverage costs for insurers, forcing them to raise rates. Hospitals would be left to foot the bills for more uninsured patients.
The question would then become how lawmakers would respond. States without exchanges would probably face new calls to set up their own marketplaces. One potential option is that a state could “establish” its own exchange and authorize the federal government to run it.
States might also invoke an Obamacare provision that lets them propose alternatives to the exchanges and get waivers from the federal rules starting in 2017. Some Republicans have urged that the law be amended to let states seek waivers sooner.
“If the Supreme Court rules against the Obama administration, it will most likely lead to some negotiations on how to continue the subsidies,” said Paul Heldman, a health-policy analyst at Potomac Research Group in Washington. Even so, “this creates a higher degree of uncertainty about the outlook for these subsidies than people had anticipated.”
The case is King v. Burwell, 14-114.