What the Supreme Court's Obamacare Ruling Means for States

The 6-3 decision protects health subsidies for millions of Americans and spurs states to rethink the future of insurance marketplaces.

After months of speculation about the impact of a U.S. Supreme Court case on the Affordable Care Act (ACA), the justices sided 6-3 with the Obama administration, upholding the federal subsidies that make the health plans affordable for millions and likely sparking a debate among states about the insurance marketplaces.

Chief Justice John Roberts, who issued the deciding vote in favor of the law in a more existential challenge in 2012, again joined a majority in saving Obama’s signature domestic achievement.

"Congress passed the Affordable Care Act to improve health insurance markets, not to destroy them," wrote Roberts.

He was joined by Justice Anthony M. Kennedy, a conservative appointee whom many observers pegged as the potential deciding vote, and the court’s liberal wing -- Elena Kagan, Ruth Bader Ginsburg, Stephen G. Breyer and Sonia Sotomayor.

“There’s still a dozen cases pending [related to the ACA],” said Timothy Jost, a health law professor at Washington and Lee University, “but this decision closes the curtain on Obamacare opposition. I think the SCOTUS is sending the message that it’s time to shut this down” and stop trying to find loopholes that would undo the law.

The challengers in King v. Burwell, four Virginia residents who oppose the ACA, argued the health law’s wording prohibited federal subsidies in the 34 states that didn’t create their own online marketplaces. If successful, they would have cut off financial support for an estimated 6.4 million people who have purchased policies under the ACA. Without that support, those people would likely have received exemptions from requirements that they purchase insurance, potentially leading to massive dropouts from the market, destabilization and soaring premiums for those who remained, making the law unworkable in some states. Many states would have been unprepared to maintain subsidies by creating their own exchanges, as only a few had even filed paperwork to begin the process.

The administration argued that the challengers’ interpretation contradicted how the law actually worked, narrowly focusing on just a handful of words without respect to context. The justices were apparently sympathetic to that. In cases where the wording of a statute is ambiguous, the court looks to the framework of the law to see whether the administration’s interpretation is compatible. “Here, the statutory scheme compels the Court to reject [challengers’] interpretation because it would destabilize the individual insurance market in any State with a Federal Exchange, and likely create the very ‘death spirals’ that Congress designed the Act to avoid,” Roberts wrote for the majority.

But proponents of the health law now have to contend with the unintended consequences of King v. Burwell. The court's interpretation guarantees that people in all states, not just states that run their own health exchanges, are eligible for federal subsidies. More than a dozen states plus the District of Columbia operate their own exchanges, but many have struggled financially.

States used federal grants to develop their exchanges but are no longer allowed to depend on federal money to fund them, which has proved particularly burdensome for smaller states like Rhode Island and Vermont. Without any financial incentives tied to state-run exchanges, Jost foresees many opting for the federally run alternative in the near future.

"We are going to be seeing more exchanges switching over," Jost said. "Oregon has already done so, and I believe Hawaii will be doing so."

The ruling also gives the administration another reason to celebrate. During oral arguments, it appeared the court could potentially have upheld ACA under legal reasoning that could have been more troublesome the federal government. Some Democratic attorneys general previously raised questions about the challengers’ arguments on constitutional grounds. A 1984 Supreme Court case established what’s known as the Pennhurst Doctrine, which says the Constitution forbids the government from setting conditions on federal funding without making those rules clear. Those attorneys general say Congress never mentioned the possibility of losing federal subsidies if their states didn't create an exchange, meaning Congress would be violating Pennhurst by not making that possibility clear.

The administration was reluctant to take up that line of reasoning in its defense, though, because it could make it easier for states challenge the federal government on policies they didn’t like, argued Jonathan Adler. Kennedy in particular appeared partial to that reasoning, said Adler, a law professor at Case Western Reserve School of Law who helped lead the challenge, in an interview with Governing after oral arguments earlier this year.

In his dissent, Justice Antonin Scalia wrote an at times scathing critique. He took the view that the framework itself was flawed, and that the administration meant exactly what it said when it wrote subsidies would be available in an exchange “established by the state.”

But he went further, arguing the court’s King decision and its previous ACA cases rely on “somersaults of statutory interpretation" that cloud the meaning of terms as fundamental as "tax" and "fee."

Jost, however, expected the court to uphold the law. "After the oral argument it became clear that the government was going to win and that the challengers only had 2 or 3 solid votes on their side." He was not at all surprised by the ruling: "This is a case that should never have been brought to the Supreme Court. It’s just too simple.”