For the moment, people who have affordable coverage as a result of tax subsidies—including an estimated 39,000 Mainers—have nothing to fear. But two federal appellate court decisions have set the stage for the U.S. Supreme Court to hear a challenge to the subsidies.
Yesterday, the U.S. Court of Appeals for the District of Columbia Circuit ruled to drastically limit the number of Americans who could qualify for federal subsidies when purchasing a private healthcare plan. Just hours later, the U.S. Court of Appeals for the Fourth Circuit, upheld the subsidies for all purchasers. Both decisions will have to make their way through lengthy appeals processes.
If the subsidies ultimately fall, it could be a major impediment to implementing the Affordable Care Act (ACA). It would also hurt Maine’s economy, leaving large swaths of Mainers unable to afford coverage.
Here’s what the rulings say, the potential impact for Mainers, and what is likely to happen next.
The ACA aimed to broadly expand access to health insurance in two ways.
First, it sought to expand Medicaid access to anyone making less than 138% of the federal poverty level (FPL). In its 2012 decision upholding the law, the U.S. Supreme Court ruled that Congress had overstepped its Constitutional authority in mandating the expansion, leaving the decision to expand Medicaid to the individual states. Maine is the only state in New England to not expand Medicaid – guaranteeing that at least 32,000 Mainers have no affordable coverage option and that the state is missing out on almost $1,000,000 in federal funds every day.
Second, the ACA established subsidies—by way of tax credits—to anyone making less than 400% of the FPL who purchased a health plan on exchanges “established by the State.” Both opinions focus on those four words. The IRS had broadly interpreted the words to apply to any person who had purchased a plan on a healthcare exchange—regardless of whether it was run by a state or the federal government.
The D.C. Circuit disagreed, ruling that the subsidies would only be available to those who had purchased their plan on an exchange literally “established” by their state. The Fourth Circuit, on the other hand, found the broad IRS interpretation “permissible.”
The potential implications for Maine
Currently, only 14 states have established their own exchange, and Maine is not one of them. This means that if the subsidies are ultimately struck, many Mainers would be left paying the full cost of their premiums.
According to the Department of Health and Human Services, 89% of the 44,000 Mainers who purchased plans on healthcare.gov—or more than 39,000 people—would no longer qualify for the subsidies. This would, on average, raise premiums from $99 a month to $443, resulting in an average premium increase of 78%.
And the gap would only grow. Estimates from the Robert Wood Johnson Foundation’s Urban Institute suggest that the number of Mainers qualifying for subsidies will grow to 55,000 by the beginning of 2016. The loss of subsidies would cost the Maine economy nearly $280 million dollars per year.
If the subsidies are ultimately cut (and Maine does not create its own exchange), many families may lose the health insurance they were just recently able to afford and could potentially be forced to pay a penalty for not having coverage. In this light, these cases have the potential to be a double whammy for some Maine families just as new evidence suggests the law has helped to alleviate inequality nationwide.
Both opinions rest on statutory interpretation. Thus, the simplest solution would be for Congress to amend the ACA to make clear that the subsidies apply to all states, regardless of exchange system. However, given the partisan divide over this issue, it is almost impossible to imagine the Republican-controlled House of Representatives—a body that has repeatedly voted to repeal the law—passing a law that would shore up the ACA.
Instead, the case will likely find resolution in the courts. Before the Fourth Circuit announced its decision, the White House has said that it will appeal the earlier decision, asking the entire D.C. Circuit—instead of just the 3-judge panel—to rehear the case. Until recently, the D.C. Circuit and the Fourth Circuit were famously conservative. But in a showdown last year, Senate Democrats amended the filibuster rules in order to confirm three of President Obama’s appointees to the D.C. Circuit. Only active judges may rehear cases, and currently, the tally on the D.C. Circuit stands at 7 Democratic appointees to 4 Republican; the Fourth Circuit has 9 Democratic active appointees and 5 Republicans.
While political affiliation is not a perfect indicator of how a judge will rule on this issue, yesterday’s opinions—two Republican votes to strike the subsidies and 4 Democratic votes to uphold—suggests a potential correlation.
As of this posting, the White House has yet to say whether it would change its legal strategy given the Fourth Circuit’s opinion. However, the U.S. Supreme Court—which has discretion on which appeals to hear—almost always takes cases where federal Courts of Appeal have reached opposite conclusions. Predicting the outcome of Supreme Court cases is always tricky, but some legal scholars argue that the Fourth Circuit’s reasoning is more sound.
The bottom line is that at this moment, nothing has changed with regard to subsidies for health insurance. And at least for the foreseeable future, that will remain the case.