Supreme Court agrees to hear new challenge to Obamacare

The Supreme Court agreed Friday to consider whether the IRS overstepped its authority when it permitted the agency to award tax credits to people who signed up for the ACA on a federal health exchange. Without that provision, the president's health-care reform effort would likely collapse.

Carolyn Kaster/AP
On Friday, the US Supreme Court agreed to hear a new challenge to the Affordable Care Act.

The US Supreme Court has agreed to wade back into the contentious national debate over President Obama’s health-care reform law, once again examining a dispute that poses a threat to the very survival of Obamacare.

The action came in a one-line order issued Friday. The justices offered no further explanation. It comes 2-1/2 years after the high court upheld the Affordable Care Act in a 5 to 4 vote, in a challenge to the law's individual mandate.

Friday's order means the court will take up a potential landmark case testing whether the Internal Revenue Service usurped the powers of Congress when it passed a regulation permitting the awarding of billions of dollars in tax subsidies to Americans signing up for health-care plans under the ACA.

Specifically at issue is a controversial and disputed provision within the ACA that appears to restrict the awarding of tax subsidies to only those consumers who purchase health-care policies on a health-care exchange established by a state.

Such tax subsidies are intended to help low- and moderate-income consumers buy health insurance.

Critics of the ACA have sued to force the Obama administration to adhere to the apparent restriction limiting subsidies to state-established exchanges.

These critics say the restrictive provision was apparently designed as an incentive to induce all 50 states to participate in the health-care reform effort by threatening them with the loss of billions in federal health care subsidies. It was intended as an offer the states couldn’t refuse, ACA opponents say.

Here’s the problem: Only 16 states agreed to set up their own health care exchanges. Thirty-four states declined.

The Obama administration moved to fill the resulting vacuum by setting up federal exchanges in every state that refused to do so. 

But that didn’t solve the entire problem.

Aware of the ACA’s apparent restriction on tax subsidies, administration officials at the IRS enacted a rule permitting the agency to award tax credits to qualified applicants who sign up for Obamacare at a federally established exchange, just as they already could through state-established exchanges.

The IRS rule is critical to the success of the ACA because without the subsidies and related enforcement provisions analysts say the president’s health-care reform effort would likely collapse.

Here’s why. 

Of the 7.3 million people who signed up for insurance through a health-care exchange, 5.4 million of them (roughly 74 percent) signed up on an exchange established by the federal government, according to a government brief filed in the case.

Of those consumers, 9 out of 10 who signed up for coverage on a federal exchange would be unable to afford the insurance premium without government help. The average tax credit paid out covers 76 percent of the cost of the premium, according to the government.

 In the most basic terms, what that means is that if tax credits are only available through state-established health care exchanges (as critics say the ACA requires), 74 percent of existing enrollees will no longer be able to afford health care coverage. And that, in turn, would likely trigger the demise of Obamacare.

The central legal question before the Supreme Court is whether the ACA provision linking tax credits to state-established health exchanges also works as a prohibition on awarding such credits under federal exchanges.

In addition, the case tests whether the IRS has the authority to act on its own to award billions of dollars in tax credits, or whether that is a power the Constitution reserves exclusively to Congress.

Confronted with the tax credit issue, the Obama administration could have returned to Democratic allies in Congress and requested a clarifying amendment to the ACA. But by then control of the House of Representatives had shifted to the Republicans who want to repeal the health care reform law, not improve it.

Republicans accuse the administration of using IRS rulemaking power to bypass required congressional approval to amend the ACA.

The administration and Democratic supporters insist the connection between state exchanges and tax credits is being blown out of proportion by Republicans and other ACA critics. They argue that each federal exchange has been set up within a particular state and, as such, qualify as state exchanges for purposes of the provision of tax credits.

They add that in the broader context of the ACA, it makes no sense to withhold tax subsidies based on whether an exchange was established by a state or the federal government.

In his brief to the court, US Solicitor General Donald Verrilli told the justices there was no reason for the high court to take up the tax subsidy case.

“Congress determined that the tax credits at issue here are essential to the Affordable Care Act’s goals of making affordable health coverage available to all Americans and ensuring functional insurance markets,” Mr. Verrilli wrote in his brief.

“Petitioners’ argument that the [ACA] denies those credits to millions of people in 34 states is contrary to the act’s text and structure and would render the act unrecognizable to the Congress that passed it,” he said.

Federal appeals courts have issued conflicting rulings on the issue. A three-judge panel in Washington struck down the IRS rule in a 2 to 1 vote in July. Later that same day, an appeals court panel in Richmond, Va., voted 3 to 0 to uphold the IRS rule.

Such a split heightens the chances of the Supreme Court granting review of a case. But the full appeals court in Washington later voted to rehear the case, an action that could take up to a year.

In a third case, a federal judge in Oklahoma struck down the IRS rule. That decision is being appealed to the federal appeals court in Denver.

Washington appellate lawyer Michael Carvin argued in his petition to the court that the justices should take up the case now to give clarity to the status of the health-care reform law and prevent further damage to the nation.

 “The subsidies that the IRS has illegally expanded have already begun to flow, meaning billions of taxpayer dollars are pouring out of the Treasury absent congressional authorization and millions of Americans are ordering their lives around an impugned regulation,” Mr. Carvin wrote.

 “Yet the government is content to leave the spigots of cash open and the nation in limbo,” he said.

The case is King v. Burwell (14-114).

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