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Supreme Court Hears Challenge to ACA Tax Credits

Supreme Court Hears Challenge to ACA Tax Credits

March 5, 2015 — The Supreme Court justices on Wednesday appeared divided largely along ideological lines as they heard oral arguments in King v. Burwell, which challenges tax credits to help U.S. residents purchase coverage through the Affordable Care Act's (PL 111-148) federal health insurance marketplace, the New York Times reports.

According to the Times, the court's four liberal members "voiced strong support" for the Obama administration's position that the tax credits should be upheld and sharply questioned its challengers' lawyer, while conservative Justices Samuel Alito and Antonin Scalia seemed critical of the administration's arguments (Liptak, New York Times, 3/4).

The case's outcome -- and the availability of the tax credits for millions of Americans with coverage through the federal marketplace -- could hinge on the position of Chief Justice John Roberts, according to the Washington Post (Barnes, Washington Post, 3/4). Roberts, who cast the deciding vote to uphold the ACA's constitutionality in 2012, was largely quiet on Wednesday and did not indicate where he stands on the current challenge. Meanwhile, Justice Anthony Kennedy -- who sided against the administration in 2012 -- seemed less swayed by the plaintiffs' arguments in the latest case (New York Times, 3/4).

Case Details

At issue in the case is a sentence in the statute that says the tax credits are available to help certain U.S. residents purchase coverage offered through a marketplace, also known as an exchange, that is "established by the State." The plaintiffs argue that the clause should be interpreted literally, meaning that the tax credits are not available to individuals purchasing coverage through the federal marketplace and can only be used in states that have established their own exchanges (Washington Post, 3/4).

A ruling in favor of the plaintiffs would mean low- and middle-income residents in the roughly three dozen states that use the federal marketplace would no longer be eligible for tax credits to purchase coverage. As a result, their coverage would become unaffordable and the health insurance markets in those states would become untenable, the Times reports (New York Times, 3/4).

The administration argues that congressional lawmakers intended for the tax credits to be available in all exchanges and that the ACA would not function as designed otherwise. An IRS rule released as part of the law's implementation follows this interpretation (Totenberg, "Morning Edition," NPR, 3/3).

Liberal Justices Say Meaning is Clear, Question Standing

During their questioning, Justices Stephen Breyer and Elena Kagan said that the law when read as a whole is clear that the tax credits should be available to individuals purchasing coverage through the federal marketplace (New York Times, 3/4). Breyer said that even a "person from Mars" would realize that the law intended to allow federal exchange tax credits (Bravin/Kendall, Wall Street Journal, 3/4).

Further, Justice Sonia Sotomayor warned that a ruling striking down the tax credits could cause a "death spiral" in the individual market that the ACA "was enacted to avoid" (New York Times, 3/4).

Justice Ruth Bader Ginsburg questioned whether the plaintiffs in the case have the standing to bring the tax credits challenge because they might be eligible for health coverage through other means or otherwise not affected by the law's rules (Bravin/Kendall, Wall Street Journal, 3/4). She noted that the court should know whether any of the plaintiffs have a "concrete stake" in the case's outcome.

The plaintiffs' lawyer argued that only one of the plaintiffs needs to have standing to bring the challenge. Meanwhile, Justice Samuel Alito and Chief Justice John Roberts seemed skeptical that the standing issue was important (Radnofsky, Wall Street Journal, 3/4).

Kennedy, Roberts Could be Swing Votes

Meanwhile, Justice Anthony Kennedy made statements indicating he could be swayed to both sides of the case. For example, Kennedy said that the plaintiffs could "prevail" based on "the plain words of the statute," but he also said there would be "a serious constitutional problem" if the justices "adopt [the plaintiffs'] argument." Kennedy repeatedly questioned whether Congress holds the constitutional power to force states to choose between creating their own marketplaces or allowing their residents to lose out on the tax credits (New York Times, 3/4).

However, Kennedy also noted that it would be a "drastic step" for the court to rule that the IRS "and its director can make this call one way or the other when there are ... billions of dollars of subsidies involved" (Howell, Washington Times, 3/4). Roberts noted that in such an instance, "a subsequent administration could change that interpretation" of the law to no longer allow the tax credits for coverage sold through the federal marketplace (Haberkorn, Politico, 3/4).

Conservative Justices Look To Text

Alito and Scalia focused mostly on the ACA's text and seemed critical of the Obama administration's arguments. Scalia noted that the ACA "means what it says," even if that means "disastrous consequences" (New York Times, 3/4). He continued, "I mean, it may not be the statute [Congress] intended," but "[t]he question is whether it's the statute that they wrote" (Washington Times, 3/4).

Alito and Scalia added that Congress or the affected states could act to remedy the issue if the tax credits are ruled illegal (New York Times, 3/4). Further, Alito said the court could delay its ruling's effective date to the end of the tax year if the tax credits are struck down to allow states to create their own exchanges so that "[g]oing forward, there would be no harm." According to Reuters, Justice Clarence Thomas did not ask any questions during the arguments, which is usual for him (Hurley, Reuters, 3/4).

Law's Backers Warn of Consequences if Tax Credits End

Former HHS Secretary Kathleen Sebelius said that a ruling ending the tax credits would lead to "absurd results," because other ACA provisions would remain in place. She said, "You would have in place a national rule that says no company could ban people with a pre-existing condition; you would have a national rule that says everybody has to have coverage; and then you would have millions of people who would have no affordable way to get that coverage" ("Morning Edition," NPR, 3/3).

Debra Ness, president of the National Partnership for Women & Families, said in a statement that women account for 55% of individuals buying on the federal marketplace, adding that the challenge to the law was "politically motivated and utterly irresponsible" (Wheaton, "Afternoon Pulse," Politico, 3/4).

Separately, Jessica González Rojas, executive director of the National Latina Institute for Reproductive Health, noted in a statement that implications for Latinas' reproductive health could be especially drastic. "Latinas already face higher rates of cervical cancer incidence and death and unintended pregnancy. By denying affordable coverage, the court would be sentencing untold numbers of Latinas to needless suffering and struggle," she said (Gamboa, NBC News, 3/5).

Meanwhile, White House press secretary Josh Earnest warned that it is "unwise" to make assumptions on the case's fate based on the justices' questions, which could produce "some erroneous predictions about the likely outcome" (New York Times, 3/4). Still, he reiterated that the administration believes there are "no contingency plans that could be implemented that would prevent the catastrophic damage" that would come from a ruling invalidating the tax credits. Further, Earnest said he doubted that Congress would act to remedy the issue if the tax credits are struck down because conservatives have fought "tooth and nail" to dismantle the ACA (Reuters, 3/4).