In a decision termed "interpretive jiggery-pokery" and "pure applesauce" in the dissent, the Supreme Court on Thursday ruled 6-3 to uphold federal subsidies in King v. Burwell. The decision will allow low- and moderate-income Americans to continue to access tax credits regardless of whether their state operates its own exchange or relies on Healthcare.gov—determining that the context of the fatal four words "established by the state" outweighed the letter of the law.
"In every case we must respect the role of the Legislature, and take care not to undo what it has done," Chief Justice Roberts wrote in the majority opinion. "A fair reading of legislation demands a fair understanding of the legislative plan. Congress passed the Affordable Care Act to improve health insurance markets, not destroy them. If at all possible, we must interpret the Act in a way that is consistent with the former, and avoids the latter."
In his dissent, Scalia stood by a literal interpretation of the law, writing: "Words no longer have meaning if an Exchange that is not established by a State is 'established by the state.'"
Of the approximately 10.2 million consumers who had effectuated Marketplace enrollments at the end of March 2015, 85% or about 8.7 million consumers were receiving an advanced premium tax credit to make their premiums more affordable. Had the decision gone to the plaintiffs, according to Kaiser, the loss of subsidies would have destabilized the individual insurance markets in states with federal exchanges because insurers would have still been required to guarantee access to coverage regardless of health status. They would also still have been prohibited from charging sick people more than healthy people, resulting in substantial premium increases.
Although this was the decision that preserves "business as usual" for both hospitals and payers, it will send a ripple effect reverberating through the industry in several directions. Here are four key takeaways for providers.
1. Apocalyptic 'death spiral' in insurance market averted; hospital stocks soar
Had the Court gone the other way, it would have eliminated subsidies for those living in the 34 states that operate their exchange on the federally-run Healthcare.gov—causing what many analysts believe would have been a "death spiral" for the exchanges. Monthly premiums would likely have skyrocketed, increasing bad debt for hospital operators.
With that catastrophe averted, hospitals—and by extension Wall Street—let out a big sigh of relief. Trinity Health CEO Rick Gilfillan told Reuters that "there was a 'Yahoo!' and a big round of applause" when the ruling hit. Stocks immediately spiked: Community Health Systems jumped 13.3%, HCA rose 8.5% and Tenet rose 12.2%. Three different operators—HCA, Universal Health Services and LifePoint Health—hit lifetime highs.
Notably, the decision protected subsidies from the meddling of later administrations. The ruling was not decided on Chevron deference, which is a principle of administrative law that requires courts to "defer to interpretations of statutes made by those government agencies charged with enforcing them, unless such interpretations are unreasonable." What this means for King v. Burwell is that later adminstrations can't reinterpret the law to outlaw subsidies—Congress would have to intervene.
2. State-based exchanges may shut down; big payer mergers may be on the horizon
The ruling cleared up a lot of uncertainty for both payers and states.
Some industry experts are positing that now that subsidies are guaranteed for states that use Healthcare.gov, more states will move away from the expense and difficulty of running their own marketplaces. "There may be a little bit of buyers' remorse going on in some state capitals right now," Sabrina Corlette, the director of the Center on Health Insurance Reforms at Georgetown University told Margot Sanger-Katz.
"The court's decision is likely to encourage some states that have had trouble operating state exchanges to either abandon their state exchange altogether, or more likely to move to a 'supported state exchange,' using the Healthcare.gov website to carry out eligibility and enrollment functions while maintaining a state exchange for other functions," writes Washington and Lee's Timothy Jost. "The Supreme Court's judgment leaves the decision as to whether to have a state or federally facilitated exchange with the states—where Congress intended it to reside."
"It's becoming clear that more of those states will revert to a federal system for enrolling people in health insurance," Sanger-Katz wrote.
The ruling may also pave the way for Big-Five insurance deals that have potentially been on hold until the landscape was clearer. Leerink Partners analyst Ana Gupte told Reuters that the ruling could remove the uncertainty that may have been keeping these deals from reaching fruition—deals like a reported acquisition of Humana by Cigna or Aetna. Bloomberg reported this week that an Aetna-Humana deal could be reached as soon as this weekend.
3. Increased provider exposure to False Claims liability
Health economists have pegged the amount of healthcare spending at risk in this decision at between $15 billion and $22 billion—a huge amount of federal dollars that Epstein, Becker & Green attorney George Breen says should serve as a reminder to providers of the enforcement mechanisms available to government through the exchanges.
"The ACA provides that the False Claims Act applies to payments by, through or in connection to an exchange if the payments involve federal funds," Breen told Healthcare Dive. Because federal dollars are now indelibly connected to the exchanges through tax credits, there is an "increased risk of enforcement to the provider community," he says. And under the ACA, the damages that providers could be subjected to in a False Claims case connected to an exchange increases to not less than three times—and up to as many as six.
"Today's ruling, given that it has validated both federal and state exchanges, can be used as a reminder to providers of the increased exposure to False Claims Act liability," Breen said.
4. Further entrenches the ACA; sends message to lower courts
The president addressed the nation shortly following the ruling, underscoring the feeling of many that this latest victory suggests that the Affordable Care Act is now entrenched in American law.
"The Affordable Care Act is here to stay," Obama said. He took the opportunity to defend the efficacy of the legislation and repeated several times: "It's working."
"This is not an abstract thing anymore," the president said. "This is reality. The law is working exactly as it's supposed to."
King v. Burwell expert Jost indicated that the Supreme Court decision also sends a clear message to lower courts to "bring the curtain down on ACA litigation." Countless cases challenging the constitutionality of the healthcare law have been filed over the last five years; few have succeeded "on the grounds that the individuals bringing the cases had not been personally injured by the ACA."
"Given the Court's admonition in King v. Burwell that courts should interpret the ACA to promote Congress' intention to improve insurance markets and not destroy them, litigation against the ACA is likely to fare no better in the future," Jost writes in Health Affairs.