How will the Supreme Court rule in the latest Obamacare challenge?

As Steve has noted, the Supreme Court will review the Fourth Circuit’s decision in King v. Burwell. That decision holds that the provision of Obamacare authorizing tax credits for insurance purchased on an exchange “established by the State under section 1311” also authorizes tax credits for insurance purchased on an exchange established by the federal government.

It seems clear that four Justices are prepared to reverse the Fourth Circuit and decide that Obamacare does not permit tax credits (i.e. subsidies) for insurance purchased on the federal exchange. The Supreme Court could not have decided to review Burwell unless at least four Justices voted to do so. And in the absence of a Circuit Court decision that is contrary to Burwell, the Justices had no good reason to review that decision unless they think it is wrongly decided.

It’s true that one or more of the four Justices who voted to hear the case could have a change of mind or heart. It’s more likely, though, that there will be at least four votes to reverse.

But will there be a fifth vote? The answer isn’t clear to me. On the one hand, I have difficulty imagining any of the five center-right Justices ignoring the unambiguous statutory language and concluding that a federal exchange is an exchange “established by the State under section 1311.”

This prospect seems particularly unlikely given that Jon Gruber, a leading architect of Obamacare, provided the rationale for limiting subsidies to state exchanges, thus defeating the argument that reading the statute as it is written would render the law nonsensical. Gruber’s rationale was that by limiting subsidies to state exchanges, the legislation would induce states to set up exchanges so that their citizens would receive benefits.

On the other hand, given Chief Justice Roberts’ decision upholding the individual mandate, there is reason to doubt that, at this late date, he would sign on to a decision that (1) takes away subsidies from millions of people and (2) has the potential to wreck Obamacare. Thus, before predicting how the Supreme Court will rule, we should consider the practical consequences of a decision reversing Burwell.

Megan McCardle has done so. She concluded that eliminating subsidies to folks on the federal exchange would lead to a death spiral in states that don’t have their own exchange:

For one thing, without the subsidies, fewer people would be subject to the mandate, because the cost of a policy would become “unaffordable” as the Internal Revenue Service defines it for the purposes of assessing mandate penalties. Even if that weren’t the case, without the subsidies, a lot of people would find it cheaper just to pull out and pay the penalties.

The most likely people to do this? Healthy youngsters paying more in premiums than they get in health services. If they exit the exchanges, premiums will rise, and the markets will spiral downhill.

The question thus becomes: how many of the states that currently don’t have an exchange would establish one in the absence of a federal exchange? The answer is: nobody knows.

But because states have the option of establishing exchanges, a decision that eliminates subsidies on the federal exchange would not, in itself, kill Obamacare. And this reality may help persuade the Chief Justice that the Supreme Court would not be asserting too dominant of a policy role if it reversed King v. Burwell.

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