A lawsuit with the potential to fundamentally cripple the Affordable Care Act was dealt a major blow this week, with a federal judge upholding the legality of the premium assistance that the law offers low-income Americans. While the Halbig v. Sebelius hasn’t received much press, this ruling is a huge victory for proponents of the law, and low-income Americans in general. Had the judge taken the other side, Americans who bought health insurance via HealthCare.gov would no longer be eligible for any of the subsidies they were promised when enrolling in health plans, and would potentially have to give that money back.
What, exactly, is going on here? It’s a bit complicated, but the stakes for the law are very high, and so it’s worth understanding.
One of the biggest components of the Affordable Care Act — the “affordable” part, if you will — is the subsidies (also known as “premium assistance”) it offers low- and middle-income Americans looking to buy insurance. HealthCare.gov and the state-run exchanges tell customers which subsidies they qualify for, and then factor this information into the final price of various health plans. The end result, at least in theory, is that the exchanges are a one-stop-shop for comparing the prices of different plans.
As you’ll recall, the federal exchange was created because several states, primarily those with Republican Governors, refused to set up statewide exchanges, and so the federal government had to step in. That’s what HealthCare.gov is: A place for people whose states didn’t set up exchanges to buy health insurance.
And this brings us to the crux of the lawsuit: Should the subsidies, which come in the form of tax credits, be available to people who are buying insurance on the federal exchange, or only to those shopping on state-run exchanges? The people who brought the lawsuit are arguing the latter, because the text of the Affordable Care Act makes no mention of a federal exchange. Here’s the relevant section the law:
Sec. 1401.The premium assistance amount determined under this subsection with respect to any coverage month is the amount equal to the lesser of—(A) the monthly premiums for such month for 1 or more qualified health plans offered in the individual market within a State which cover the taxpayer, the taxpayer’s spouse, or any dependent (as defined in section 152) of the taxpayer and which were enrolled in through an Exchange established by the State under 1311 of the Patient Protection and Affordable Care Act...
That bolded part is the basis of this lawsuit. The people who brought this lawsuit* argue that “established by the State” refers only to state-run exchanges; the Obama administration contends that it refers to the federal government as well.
Why does this matter so much? For one, 34 states didn’t set up their own exchanges, so this has the capacity to affect a lot of people. Secondly, the subsidies the law offers are, in some cases, very generous, and if they’re repealed, the two million people who bought insurance via the exchanges have to give those subsidies back.
For example, with Obamacare functioning as it does now, a single parent in Florida earning $41,000 a year would pay roughly $2,700 a year for their own insurance. But that’s including the premium assistance they’re getting via the federal exchange; take that subsidy away, and this same person is now paying $5,700 a year. If this lawsuit is successful, that person would have to pay back an extra $3,000 to their insurance companies.
The good news is that, for now, the lawsuit hasn’t been successful. In a ruling Wednesday, Judge Paul L. Friedman of the U.S. District Court for the District of Columbia sided with the administration, writing that the federal exchanges “would have no customers, and no purpose" if they couldn’t offer subsidies.
"Plaintiffs' proposed construction in this case – that tax credits are available only for those purchasing insurance from state-run Exchanges – runs counter to this central purpose of the ACA: to provide affordable health care to virtually all Americans," Friedman wrote in his decision. "Such an interpretation would violate the basic rule of statutory construction that a court must interpret a statute in light of its history and purpose."
It’s good news for now. But the lawsuit is already being appealed, and if it makes its way to the Supreme Court, it could represent a bigger existential threat to Obamacare than even the previous SCOTUS case surrounding the law’s individual mandate.
Again, the case is Halbig v. Sebelius. Keep an eye on it.
*The individuals who filed this lawsuit, in case you were wondering, are primarily small business owners who will have to pay slightly more in taxes — in one plaintiff’s case, $20 per year — if the law continues to function as it is now.