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There's another case concerning the Affordable Care Act that's hitting the Supreme Court, and it's a big deal. It has the potential to strip subsidies that help buy health insurance from millions of people across the country. The case is known as King v. Burwell, and it's the topic of this week's Healthcare Triage.

For those of you who want to read more, go here: http://theincidentaleconomist.com/wordpress/?p=61672

John Green -- Executive Producer
Stan Muller -- Director, Producer
Aaron Carroll -- Writer
Mark Olsen - Graphics

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There's another case concerning the Affordable Care Act that's hitting the Supreme Court, and it's a big deal. It has the potential to strip subsidies that help millions of Americans buy health insurance. The case is known as King v. Burwell, and it's the topic of this week's Healthcare Triage.

[intro music]

As you may remember from our previous episodes on Obamacare, about half the people who gain insurance with the program get it through insurance exchanges. These are marketplaces where people who don't get government insurance, and who don't get insurance from their jobs, can buy private insurance with guaranteed issue and community ratings.

The law offered states the option of setting up individual exchanges in states, or letting the federal government do it for them. Most liberal-leaning states set up their own exchanges, and most conservative-leaning states defaulted to the federal exchange.

No matter where the exchanges lie, however, about 85% of those going to them have qualified for subsidies to help them buy insurance. Everyone making between 138% and 400% of the federal poverty line get those subsidies, and it's a lot of people.

The case, and the problem, focuses on the fact that one part of the law --one tiny section-- says that subsidies go, and I quote, "through an Exchange established by the State."

The plaintiffs are arguing that this means that only a state-run exchange, and not a federally run one, can give out subsidies. The defense, which is the Obama Administration, argues that this is not what anyone intended. It's just legalese-speak. They argue that the intent of those writing the law was that everyone would get the subsidies. They also argue that many other parts of the law show that Congress did mean for subsidies to go to everyone in all states, not just those with local exchanges.

Full disclosure: I'm sympathetic to the arguments of the administration. I was around and writing prolifically about the creation and passage of the ACA. And I don't remember anything at all about people thinking that only state-based exchanges would get subsidies.

And it's not like the people who wrote the law exist only in the long, long ago. They're almost all still around; we could ask them. And when people do, almost no one endorses the idea that they meant subsidies would go only to some states.

But there's a more critical component, as my blog colleague, law professor Nicholas Bagley, has pointed out-- and you should go read his post-- "When there's a question of ambiguity in the law, the Supreme Court has ruled in the past that when Congress isn't clear, then the interpretation defaults to those implementing it. In this case, the IRS."

But the plaintiffs are arguing that the IRS shouldn't even be allowed to interpret it on their own. They want the court to tell the IRS that they have to interpret the law a certain way.

I've read the arguments on both sides, and again, full disclosure, I find the arguments of those who don't support the plaintiffs to be much more convincing. But I'm not a lawyer, and it's not up to me. It's up to the Supreme Court. And I've heard enough to know that this could go either way.

Should the court rule against the plaintiffs, then nothing really happens. The Affordable Care Act continues to function as it has for the last year or so. No changes.

If, however, the plaintiffs win, then there's a lot that can happen. The gist would be that, absent any changes, everyone who gets a subsidy from a state that hasn't set up their own exchange would lose it. Depending on the specifics of the ruling, it's even possible that they could be forced to pay back what they've received.

Even people who didn't get subsidies in those states would be affected, though. Without subsidies, it's likely that sicker people will be the only ones paying for insurance. That will make the cost of insurance go up for everyone. In other words, this would be a serious blow to the entire private insurance market in many states.

On top of the 6 million people who could lose subsidies, it's estimated that more than a million additional people might find insurance premiums suddenly out of reach, even though they were paying for insurance without subsidies before. That's more uninsured people.

And as more healthy people drop out, the price of insurance goes up. Then more healthy people drop out. Prices go up again. And so on and so forth, until almost no one, except the very sick, are paying the exorbitant prices of insurance. It's called a death spiral.

But don't take my word for it. Let's look at data. In New York State, before the Affordable Care Act was passed, they had guaranteed issue and community ratings, but no subsidies or mandates. Basically, they had what will happen in many states if the Supreme Court rules for the plaintiffs.

In 2014, after the ACA went into full effect, they average monthly premium for individual insurance in New York was just over $500. In 2013 though, the year before, the average premium was almost $1,400. That's what could happen in states without subsidies.

So what could happen next? Well, first, any state with a federal exchange which switch [sic] to a state-run exchange, would immediately get subsidies back for its citizens. And I've got to imagine that many states, especially those that have accepted the Medicaid expansion, would make some sort of fix.

There are also likely ways that the federal government could work on regulations to allow states to fix things quite quickly. Quoting Nick, "A state could, for example, establish an exchange and appoint a state-incorporated entity to oversee and manage it. That state-incorporated entity could then contract with HealthCare.gov to operate the exchange."

Or, you know, Congress could just work together and fix the problem... don't think that's gonna happen.

Anyway. This is a big deal. But no matter how it turns out, it's likely not the death knell for Obamacare that some think it to be. What we'll have is two different healthcare systems. In some states, people will get massive subsidies from the federal government to help them buy relatively cheap insurance. In other states, people will get nothing, and insurance will be much more expensive.

But don't panic. All of this has happened before, and will happen again. Medicare was, at one time, called the death of freedom. No one talks that way anymore. Medicaid was first passed in 1965. Not all states went along with it. Arizona was the last state to accept Medicaid, and it did so in 1982.

Between 1965 and 1982, we also had a country with two healthcare systems. One had a program which existed to cover all poor children, all poor pregnant women, the poor elderly, and many poor parents. But only in some states. The other system had nothing. The earth continued to spin on its axis; the country survived. It was ridiculously unfair for some people who lived in states that refused to accept Medicaid, but eventually, all of them did.

The same could be said of the United States if the Supreme Court finds for the plaintiffs. But as with Medicaid, I think it's likely the Affordable Care Act will survive. I also believe someday, that the Supreme Court will view the removal of the ACA as coercive, as it viewed the removal of traditional Medicaid just a few years ago.

It's hard to see how creating a two-tiered system is a winning proposition for those states that are getting left out. And I'm not sure how long elected officials will be able to pretend that there's nothing they can do about it.

[outro music]