In the five years since the Affordable Care Act (aka “Obamacare”) became law it has survived some 60 recall attempts by the House of Representatives and one major U.S. Supreme Court challenge. Most of the House votes were little more than opportunities to burnish GOP credentials but the latest legal challenge could be a game-changer for the 2010 law designed to help millions of uninsured Americans get health insurance and lower health care costs.

At issue is something seemingly insignificant: tax subsidies. Virginia limo driver David King and three other Virginia residents filed a lawsuit that challenges the federal government’s approach to tax subsidies created under the Affordable Care Act (ACA). The government, officially represented by U.S. Secretary of Health and Human Services Sylvia Burwell in the court case’s name, maintains that the law allows for individuals who purchase health insurance through any health insurance marketplace created by the law—regardless of whether Washington or a state runs it—to be eligible for tax subsidies to pay for that insurance. (The marketplaces are health insurance price comparison Web sites that consumers can use to find the best plan for themselves—somewhat like the Expedia travel site only for insurance.) But the challengers argue the 2010 law only permits individuals from states that have their own state-run health exchanges—rather than the majority of states, which rely on federal exchanges—to apply for those subsidies. And so, for the second time in three years, the Supreme Court is effectively considering how the law helps to cover the insurance needs of millions of Americans with modest incomes. The nine Supreme Court justices are expected to release their decision in the King v. Burwell case later this month.

What’s at stake
Under Obamacare, millions of Americans with modest means have been able to obtain health insurance with the assistance of tax subsidies that help blunt its cost. Those subsidies have helped both sicker and healthier people to buy insurance, which helps keep costs for consumers low because not everyone in the insurance pool racks up high bills. Without the subsidies it is likely that only the sickest low-income individuals would continue to buy insurance. Such a shift would raise health care premiums because healthier persons would no longer be helping to offset the costs of sicker ones.

As a result, the subsidies have become the Achilles’ heel of the ACA. Only 16 states and the District of Columbia have set up their own health marketplaces (or marketplaces partially supported by the federal government); the remaining 34 states rely on the federal exchange to provide that service instead. Now the King v. Burwell Supreme Court case will decide whether people who purchase health insurance via the federal exchanges are still eligible for the subsidies.

How could a scuffle over subsidies be a significant blow to the health care law? If the court rules against the federal government, then individuals in those 34 states relying on federal exchanges will still need to adhere to the law’s individual mandate, which stipulates that Americans must buy health insurance or face a penalty fine. But they will no longer qualify for federal tax subsidies that would help make the insurance more affordable. Instead, they will have to pay more of that insurance cost out-of-pocket. If they cannot pay, then they will be fined for not buying health insurance. And because they will be uninsured they will also have to pay higher fees at the doctor’s office or hospital when they seek care, unraveling the ACA’s provisions to minimize health care costs.

Under Obamacare, subsidies may be offered to people earning between 100 and 400 percent of the federal poverty line who are shopping for health insurance in marketplaces "established by the state,” according to the law’s language. Those four words are at the center of the case, because if “state” is tightly defined as one of the 50 states (as the plaintiffs argue), then states using the federal exchange would not be eligible to utilize the subsidies. If “state” is interpreted more broadly—as the federal state, for example—then states on the federal exchanges would be eligible for the subsidies.

 

Map of Health Exchanges
Source: Henry J. Kaiser Family Foundation

Individuals in the 34 states relying on a federally facilitated health exchange would lose access to tax subsidies that help buy insurance if the Supreme Court rules against Secretary Burwell and the federal government this month.

What happens if the Supreme Court rules against the administration?
If the Supreme Court rules against the administration, then the subsidies in those 34 states could be eliminated within weeks of the decision. Such a move would have ripple effects for health care costs because the low-income people most likely to continue buying insurance (and shouldering that cost out-of-pocket) would be the sickest individuals. Consequently, insurance premiums would then probably jump in the coming years for other people shopping on the exchanges—including those whose insurance was never subsidized. A study conducted by the RAND Corp., a nonprofit, nonpartisan research group, found that if the Supreme Court rules against the federal government (eliminating the subsidies), then insurance enrollment in affected states could drop by some 70 percent, leaving more than nine million people uninsured. Moreover, premium costs for an unsubsidized individual in those states would rise 47 percent, according to their analysis.

Making matters worse, many of the states that rely on the federal exchanges are also the same ones that did not expand Medicaid to cover more low-income people (as the ACA would have allowed). That means that more low-income people were buying policies in the insurance marketplaces than they might have otherwise.

Who will fix the problem?
If the subsidies are eliminated, Congress will need to take legislative action to help uninsured Americans still obtain insurance. Because Republicans control both the House and the Senate they will need to take the lead in passing legislation to mitigate the fallout of the Court’s decision. One option would be to simply pass a legislative fix that would expand the 2010 Affordable Care Act to allow “state” to refer to the federal exchanges as well—allowing individuals in all states to be eligible for the subsidies. Then everything could proceed as before. Alternatively, in the House plans have been proposed that would replace subsidies with tax credits to help people in affected states purchase insurance. Other options would phase out the subsidies over time. One offering from Sen. Ron Johnson (R–Wis.) and 29 co-sponsors would keep the subsidies in place until August 2017 while dropping the ACA mandates that require individuals and employers to buy insurance in the first place—centerpieces of the act. But without mandates for everyone to buy health insurance, prices for it would be expected to jump because healthier people may not choose to buy insurance.

What if the administration wins?
If the Supreme Court rules for the administration—keeping the subsidies in place for states getting services via federal exchanges—then everything will stay as is.

If they lose, do affected states have contingency plans?
Health officials in the 34 affected states must brace themselves for whatever decision comes down from the Court. Yet by the end of June, many states’ legislative sessions will have adjourned so special sessions would most likely have to be convened to address the fallout of losing the subsidies. Ahead of the Court’s decision some states preemptively introduced new bills this year that would either prohibit the establishment of a state-based exchange (like the Arkansas law enacted this year) or create one if the Court rules against the federal government (for example, the Florida bill that died in committee in May 2015). As the National Academy for State Health Policy suggests, “With only four months between the decision and the next open enrollment period for exchange health insurance coverage on November 1, 2015, states seeking to offer new coverage options will need to act quickly to provide options for the 2016 plan year.”

Which way is the Court likely to lean?
It is hard to predict how the Court will rule. Justices Elena Kagan, Sonia Sotomayor, Stephen Breyer and Ruth Bader Ginsburg are expected to back the federal government subsidies. Justices Samuel Alito, Antonin Scalia and Clarence Thomas are likely to oppose them. But Chief Justice John Roberts and Justice Anthony Kennedy are wild cards. Kennedy seemed to offer a glimmer of support for the federal government when he said to the challengers’ lawyer during oral arguments in March that “there’s a serious constitutional problem if we adopt your argument.” Still, the justice also dismissed some arguments put forward by the federal government, too. For his part, Roberts said almost nothing during arguments, leaving his views basically unknown. In the end, either Kennedy or Roberts need to vote in favor of the federal government in order to uphold the subsidies.

Why wasn’t the 2012 Supreme Court decision on ACA the final word on the law?
Both the 2012 and 2015 cases hinge on how to pay for the ACA. A major legal question in the 2012 case centered on whether it was legal to require everyone to buy insurance—the individual mandate question. This 2015 case is instead considering the legality of subsidies used to pay for insurance. The same lawyer, Michael Carvin, who represented the plaintiffs in the 2012 case is representing the plaintiffs in the 2015 challenge to the health care law.