The fate of Obamacare will again be in the hands of the U.S. Supreme Court next year — and if the conservative justices rule to invalidate tax credits offered through the federal HealthCare.gov, dealing a punishing blow to the law, it isn’t at all clear that the White House will have the legal and practical leeway to save it.
That was the conclusion of three academics in a new analysis published in the New England Journal of Medicine which outlined the challenges that the Obama administration would face in that worst-case Supreme Court scenario. The most obvious solution to an adverse Supreme Court ruling is to turn every exchange into a state exchange, allowing the law’s tax credits to flow again — but how easy will it be for the administration to do that?
“We’re quite pessimistic. The operational, legal and political challenges here are immense,” Nicholas Bagley, a University of Michigan law professor who co-authored the article, told TPM in a phone interview on Thursday. “The more I’ve looked at this, the more alarmed I’ve grown.”
The problem is three-pronged: Legal, because the Affordable Care Act sets some very specific requirements for state-based exchanges; practical, because states might not have time or authority to act after the Court ruling comes down in June, as expected; and political, because Republican intransigence against Obamacare is currently one of the defining elements of American politics.
An adverse Court ruling in the King vs. Burwell case would invalidate the law’s tax credits, received by nearly 90 percent of Obamacare enrollees in 2014, in at least 34 states that are using the federal website. Health coverage would likely then become unaffordable for many enrollees, and those who choose to keep paying the higher price are more likely to be sick and more costly, potentially sending the law into a dreaded death spiral.
That is why, as TPM reported in the past, health policy wonks expect the administration will do anything it can and exercise any discretion to keep the law afloat. But, as NEJM’s legal scholars laid out in their new analysis, that won’t be as easy as it might sound. Here are the three problems the administration would face.
This is really the central question: What leeway does the ACA itself give the administration? It seems self-evident that the states currently using the federal exchange would be required to do something — to “establish” their own exchanges — and the Health and Human Services Department therefore couldn’t just decree that all exchanges are state-based. States also probably need to do more than, say, sign a piece of paper declaring their exchange state-based.
“Now you could perhaps define the word ‘established’ down. HHS might be tempted to do so,” Bagley said. “But at the minimum, that kind of move from the administration would be sure to provoke a prompt legal response.”
The ACA’s text outlines some specific requirements for an exchange: It must be a non-profit or governmental entity. It must have a board. It must consult with stakeholders. That kind of thing. There is also a question of funding: The federal grants to pay for state exchanges expire after this year. How are any operations of these newly formed state exchanges, however minimal, going to be paid for?
“The question might be: How many of those functions could the exchange delegate to federal contractors?” Bagley explained. “The answer is: We don’t know. … It’s not at all clear that an exchange could be an empty shell.”
The administration has taken an expansive view of its discretion before — the employer mandate delay being the most prominent example — but Bagley said that any action to work around an adverse Court decision is likely to be met with yet another legal challenge.
“I would say that the administration will certainly evaluate any legal risks,” he said.
The legal questions are paramount, but the practical issues are just as vexing, the authors of the NEJM analysis wrote. States would undoubtedly have to do something in order to “establish” a state exchange under whatever workaround HHS might be able to come up with.
But by the time a Court decision would take effect, likely mid- to late June, the state legislatures in 26 of the 34 states using HealthCare.gov would already be out of session, according to the NEJM authors. HHS also currently requires that exchanges be approved more than six months before they launch.
That deadline could probably be adjusted, but the legislative calendar still presents a problem. On top of that, even if some governors were inclined to act on their own, some state legislatures have actually prohibited their governors from doing so. Missouri and North Carolina are two states where legislatures have passed bills that prevent their governors from establishing exchanges.
David Jones, a Boston University health policy professor who also helped write the NEJM analysis, pointed to the example of the 2012 legal challenge to the law’s individual mandate as precedent. Then, states could have preemptively chose to set up an exchange, in case the Court upheld the law, but they largely decided not to, waited for the Court ruling and defaulted to HealthCare.gov.
“As at that time, either a lot of states are going to realize they have to preemptively do something or they’re going to just double-down and gamble,” Jones told TPM on Thursday. “That time, almost all of them gambled.”
“What makes me even more skeptical that states will do anything preemptively is that the same political factors, the conservative leadership, that led a state to reject an exchange in the first place has in most places intensified really,” Jones added.
That then leads into the final challenge: politics. HHS would likely enter explosive territory if it unilaterally deemed all exchanges to be state-based in order to get around SCOTUS. So they’ll likely need some kind of state buy-in to implement a workaround.
Almost every using HealthCare.gov has at least one branch of government controlled by Republicans. As has been well covered, more than 20 states have refused to participate thus far in Obamacare’s Medicaid expansion, even though they wouldn’t have to contribute any funding until 2017. Republican opposition to Obamacare is deeply entrenched, and it is far from certain that the pressure to keep tax credits flowing would overcome that.
That also extends to Congress, which as Bagley and Jones both noted, could correct the problem with ease by amending the law to allow tax credits on the federal exchanges. “Congress could fix this with a stroke of the pen,” Bagley said. “I could write the statute in a single sentence.”
But nobody is really expecting that. Incoming Senate Majority Leader Mitch McConnell said earlier this month that SCOTUS could “take down” Obamacare in the King case and that would open up the opportunity for “a major do-over.”
“If that were to be the case, I would assume that you could have a mulligan here, a major do-over of the whole thing,” he said, in comments flagged by the Washington Post’s Greg Sargent.
While the administration might be willing to do a lot to save the law, an emboldened Republican Congress seems unlikely to settle for anything less than major concessions, as McConnell suggests. So a fix in Washington doesn’t appear in the cards.
That, combined with the legal uncertainties and potential resistance among the states, explains the authors’ pessimism about what could actually be done if the Court rules against Obamacare.
“I think we are way past the point of do-overs. That’s what so troubling about this,” Jones said. “We are a year and a half deep into the real implementation.
People actually have benefits that are being taken away.”