What Happens If the Supreme Court Guts Obamacare?

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King v. Burwell Rally
Cassie Boyle, 8, and her sister Helena Roberts, 11, of Pittsburgh, hold a picture of their father Ray Roberts and grandmother Hannah Brown, at a rally outside of the Supreme Court during arguments in the King v. Burwell case.Photo: Tom Williams/2015 CQ-Roll Call, Inc.

Within the next week — SCOTUSblog predicts Friday — the Supreme Court will rule in King v. Burwell, a.k.a. the case that could destroy Obamacare, create chaos across the nation, and send the entire U.S. health-care system into the proverbial “death spiral.” The question at hand is whether it’s legal for people in the 34 states that use the federal marketplace to receive health-insurance subsidies. Those subsidies are a key part of the Affordable Care Act, since they ensure that people who can’t afford health insurance will still be able to comply with the individual mandate. It’s generally accepted that those who drafted the law wanted subsidies to be available to all Americans, even if their state refused to set up its own exchange, but the lawsuit argues that four words included in the law — “established by the state” — mean that only people using state-run exchanges qualify for assistance. 

If the Supreme Court rules in favor of the Obama administration, nothing happens (aside from Obamacare proponents celebrating another sign that the law is here to stay). If the court sides with the plaintiffs, 6.4 million people will lose their subsidies. The law would likely go into effect in 25 days, which, according to the New York Times, would mean customers who could not pay the full rate would be uninsured by October. This could have consequences even for those who don’t receive Obamacare subsidies, since rates will increase if healthy people leave the insurance market.

Many believe our politicians won’t let it come to that. (Though the Supremes are ostensibly above such considerations, New York’s Jonathan Chait says Chief Justice John Roberts will not “spend down his political capital to land a temporary, partial blow against Obamacare.”) Here’s an overview of the various scenarios that may play out if the Supreme Court deals a new blow to Obamacare.

EACH STATE CREATES ITS OWN EXCHANGE
The ruling would only affect people who buy insurance on the federal exchange, and some predict that states will set up their own exchanges rather than allowing millions to lose coverage. However, these states declined to participate in Obamacare for a reason, and in the New England Journal of Medicine professors Nicholas Bagley, David K. Jones, and Timothy Stoltzfus Jost note that it wouldn’t be the first time Republican state leaders refused a federal program that would benefit the uninsured in their state:

Unquestionably, state officials would face enormous pressure — from taxpayers, health plans, and hospitals — to set up exchanges. In a volatile political environment, some states might well do so. But ACA opponents’ commitment to resisting the temptation of federal money should not be underestimated: witness the refusal of nearly two dozen states to expand Medicaid even though the federal government would cover almost all the costs.

Nine states were considering bills that would allow them to set up their own exchanges this spring, and some are mulling other workarounds in preparation for the King v. Burwell decision. But the vast majority of states appear to have no plan in place, and even states that want exchanges may have a hard time setting them up. It took years to establish exchanges in 13 states and the District of Columbia, and they took advantage of federal grants that are no longer available.

Technology isn’t the issue. Three states — Nevada, New Mexico and Oregon — tried to set up their own exchanges but wound up partnering with the federal government when they ran into problems. Bagley, Jones, and Stoltzfus write:

An exchange is not just a website, and setting one up requires a sizable investment of time and resources. Under the ACA, an exchange must be a government or nonprofit entity with the capacity, among other responsibilities, to consult with stakeholders, grant exemptions from the individual mandate to obtain health insurance coverage, operate a program that helps people navigate the system, and certify, recertify, and decertify qualified health plans.

Trying to set up an exchange in a matter of months would violate various stipulations in the Affordable Care Act. Some hope that the federal government would be able to waive those requirements, but that raises other questions 

THE WHITE HOUSE ISSUES AN ADMINISTRATIVE FIX
Some claim that if SCOTUS rules against the federal government, the executive-action-happy Obama administration would just implement some tweaks to magically turn the federal exchange into separate state exchanges. Josh Blackman described this scenario in a paper for the Federalist Society:

HHS could determine that the fourteen states that declined to establish an exchange, but continued to perform certain regulatory activities that overlap with the ACA [what is known as “plan management”] have in effect established an exchange. As a result, consumers in these states could continue to receive subsidies. This approach would be inconsistent with the ACA, and disregard the choices the sovereign states made not to establish an exchange. If HHS issued such regulations—likely without notice and comment—it would amount to an end-run around an adverse ruling in King v. Burwell, and open the door to future litigation.

Or HHS could just expedite the process for establishing a state exchange:

Under the current regime, it is impossible for a state to establish an exchange this quickly [before the end of 2015]. However, HHS may alter the guidelines in the Blueprint to expedite the process. As a report for the National Academy of State Health Policy observed, “It is possible that HHS might revisit, allow for phased compliance, or otherwise adapt these requirements in light of King to allow for state exigencies.” Because the states are attempting to work with HHS, the federal government would have more leeway to streamline the establishment of exchanges. Though at bottom, the state still must take specific actions to actually establish an exchange, rather than just deeming the federal exchange as a state-based exchange.

Blackman concluded that any administrative fix would face tremendous legal opposition, and the Obama administration claims it doesn’t have anything up its sleeve (though it’s possible they’re playing up the dire consequences). Health and Human Services secretary Sylvia Mathews Burwell said the administration is willing to work with the states, but she told Congress, “The question of having a plan — we don’t have an administrative action that we believe can undo the damage.” Obama claims there’s only one simple solution: “Congress could fix this whole thing with a one-sentence provision.”

CONGRESS PASSES A LAW CLARIFYING THE ACA
If the whole case hinges on what’s essentially a typo, couldn’t Congress just pass legislation that revises the ACA? Sure, but as Jonathan Chait explained, they would never do that:

From the standpoint of Republicans in Congress, of course, this would represent the opposite of a solution. The party remains doctrinally committed to the complete destruction of Obamacare. In the past, conservatives have rejected even partial changes to the law on the grounds that anything making Obamacare less onerous amounts to collaboration. This doctrine will now put Republicans in the position of endangering the lives of sick Americans who will lose access to their medical treatment.

Or, as Republican senator John Barrasso put it, his party will not pass “a so called ‘one-sentence’ fake fix,” and “Instead of bullying the Supreme Court, the president should spend his time preparing for the reality that the court may soon rule against his decision to illegally issue tax penalties and subsidies on Americans in two-thirds of the country.”

CONGRESS ISSUES AN EXTENSION
Since it’s unlikely that the Republican-controlled Congress will accept a simple fix, if the Supremes side with King we’re likely to see some kind of government-shutdown-esque crisis unfold. In the National Review, David Harsanyi argues that since Republicans didn’t vote for Obamacare, it’s “not their problem to fix.” On the other hand, the GOP is expected to take the blame when we begin seeing reports of sick people losing their coverage. Harsanyi writes:

So predictably, a number of Republicans are working on plans. Senator Ron Johnson’s scheme would allow exchange participants to keep their Obamacare subsidies until August 2017 (which, I’ve argued before, needlessly confers the GOP with ownership of a problem it didn’t create). The thought is that Obamacare will be on life support until a Republican president takes office and the legislation can be repealed and replaced. Johnson, as you can see, exhibits completely unwarranted faith in his party.

Jesse Lee, a White House spokesman, told the New York Times that “would result in a in catastrophe for the health care system by slow motion.” Johnson’s bill, which has 31 co-sponsors, would also end the individual mandate and the employer mandate. It’s hard to imagine President Obama signing such a bill, but Senator John Barrasso, who’s leading the Senate GOP’s response to King v. Burwell, said he’ll have to make concessions. “Is the president going to say, ‘Tough, I’m going to veto that?’” Barrasso said. “There will be, as part of that [deal], things we want to have happen.”

Getting Obama to veto the bill, and thus shifting the blame from Republicans, may be the entire point of that scenario. Bloomberg’s Jonathan Bernstein wonders what would happen post-veto:

The question then becomes whether Republicans would prefer to back off and pass a “clean” subsidies extension – one allowing subsidies to continue in all states and doing nothing else – or to hold on and try to blame Obama for the chaos.

The outcome comes down to a simple question: Will Republicans consider a subsidies fix a “must-pass” bill? If so, they’ll back off and allow a simple fix through the 2016 election to pass, probably with mostly Democratic votes. That is, plenty of Republicans might be happy to have subsidies restored as long as they don’t have to vote for it.

Then again, Republicans may prefer to hold off and see what happens. They probably would lose the public opinion battle – after all, the president (who always has the bigger microphone) can wave around a one-page bill that would save the insurance of millions of people, while Republicans would have to argue that it’s the president’s fault because he wouldn’t sign their more complicated bill. They might not care, though.

It’s also possible that this convoluted strategy would never get off the ground, since some Republicans consider an extension as a betrayal of their principals. “I think, politically, the worst move of all for Republicans is to help extend Obamacare and save it,” House Republican Tim Huelskamp said. “If we squander this opportunity, I think we squander the whole reason for our majority.”

CONGRESS OFFERS A PLAN TO DISMANTLE OBAMACARE
Several other Republican members of Congress have proposed measures that aim to aid those affected by King v. Burwell while chipping away at the ACA. Senator Ben Sasse introduced the Winding Down Obamacare Act, which would replace Obamacare subsidies with a tax credit that covers 65 percent of insurance costs for six months, then declines over 18 months. He wrote in the National Review:

We can adapt the COBRA law, signed by President Reagan in 1985, to help those who are in danger of losing their insurance through no fault of their own. As those who have used COBRA know, it can be quite expensive, because the individual is expected to pick up the whole cost. In a post-King moment, Congress can provide some help in the immediate wake of a correctly decided but disruptive Supreme Court case. Much like the tax credit Senator Jim DeMint (R., S.C.) proposed in 2009, and that’s been used with COBRA before, we can provide a tax credit that offsets 65 percent of the costs of an individual’s current plans. Using that mechanism, the Winding Down Obamacare Act provides temporary assistance of 65 percent of the cost of Obamacare policies for six months. Because we cannot allow this to be a new permanent subsidy or to be extended repeatedly (like the so-called “doc fix”) it must start winding down gradually and end altogether by the end of 18 months.

House Republicans John Kline, Paul Ryan, and Fred Upton offered an “off-ramp from Obamacare,” which would allow states to “opt out of ObamaCare’s insurance mandates,” let people buy insurance across state lines, and a tax credit to purchase health insurance. Edwin Park of the Center on Budget and Policy Priorities wrote that the plan is “very vague, but what we know about it strongly suggests that it would make coverage much less affordable, particularly for people who are older or in poorer health.”

Ryan said the House GOP’s full plan wouldn’t be released until after the ruling, but he offered some more detail last week. He said that in 2016, states would be given the opportunity to keep Obamacare subsidies or take block grants of an equal size. “It block-grants the money to states that opt in to our state program, and then they can set up their own exchange; they can give tax credits; they can set up health savings accounts; they can do whatever they want,” said Representative John Fleming.

States could opt out of Obamacare’s various mandates, and the deal would sunset in 2017. That would force the next president to come up with an entirely new health-care-reform law and repeat the hellish process of getting it through Congress. “The key is to get into 2017,” Ryan said. “That’s why the court ruling is so devastating to [Obama]. It will expose this law, and make it certain that Congress will be rewriting this law fully once he’s gone.”