Health Care Exchanges Face Supreme Court Test

President Barack Obama’s health care law is for the second time at risk before the Supreme Court. The justices will hear oral arguments Wednesday in a case that could leave the law unworkable without a legislative fix, and millions of Americans without health insurance.

This time, the high court won’t be determining the constitutionality of the law, as it did when it upheld it in a landmark 5-4 decision in June 2012. Instead, justices will perform one of their most common tasks — deciding what Congress intended when writing the law.

Its fate hangs on one six-word phrase buried deep within hundreds of pages of legislative text — “an exchange established by the state.” Here’s a closer look at the case:

Who is challenging the law?

The story of the health care law’s second major legal rumpus starts with a band of libertarian lawyers in Washington. They seized on an idea presented at a 2010 policy forum, and developed a theory to render the law virtually moot. They found plaintiffs, and recruited a star Supreme Court litigator to get the issue before the nation’s highest court.

The practical consequences of a victory are not of interest to them. Democrats in Congress who wrote the law and pushed it through are the ones ultimately to blame if the justices throw the nation’s health care system into chaos, said Tom Miller of the American Enterprise Institute, which hosted the 2010 forum.

“If you write a bad law in a sloppy manner under extraordinary procedures and methods, it will ultimately catch up with you,” Miller said. “That’s what created this situation.”

The plaintiffs are four Virginia residents who do not want to purchase health insurance, and the lawsuit is funded by the Competitive Enterprise Institute.

What is their argument?

Justices will be told about how the health care law calls for a one-stop shopping spot for health insurance, called an exchange, to be set up by states. In states that decline to participate, the law says the federal government must establish and operate a fallback exchange.

The challengers’ argument focuses on a six-word phase tucked in section 36(B) of the law. That section authorizes health insurance subsidies for low- and middle-income residents enrolled in “an Exchange established by the State.”

They argue that language means subsidies are not authorized for residents in the 34 states that did not set up a state exchange and rely on the federal exchange. They are challenging an IRS rule that says residents using the federal exchange also qualify for the subsidies. They say the IRS rule is contrary to congressional intent.

How will the Obama administration defend the law?

The Obama administration says the purpose of the law is in the law’s first title, “Quality, Affordable Health Care for All Americans.” The administration argues the whole point of the law is to provide health care to residents of all states regardless of whether the state runs the exchange, and having all Americans in the insurance pool is an integral part of the economics that make the law work.

They point out that the law demands that when a state fails to set up an exchange, the federal government set up “such exchange” in its place. They say the law must be read as a whole, and the challenge “rests on an acontextual misreading of a single phrase of the president’s signature law, and is “an implausible account of the act’s design and history.”

What will happen if the Obama administration loses?

There’s no shortage of dire predictions about what would happen. Millions could be added to the ranks of the uninsured, the cost of coverage could rise dramatically and insurance markets could be thrown into chaos.

Leading voices on both sides think it’s unlikely the subsidies will disappear on Day One, but they’re also skeptical Congress will act promptly to avoid a major disruption in coverage.

The Obama administration is expected to take whatever action possible to keep the subsidies flowing in states that rely upon the federal exchange, but the details would depend on the specifics of the ruling. One theory is that the administration could use regulations or guidance to ease the process for those 34 states to establish their own marketplaces.

Congress would have several possible paths. Lawmakers could try to fill the hole, using the issue as leverage to force the president to accept other priorities. They could pass legislation granting federal exchange states a transition period to determine whether they want to establish a state marketplace. Or they could do nothing.

Who are the key justices on the issue?

Those watching the case are focused on Chief Justice John G. Roberts Jr. and Justice Anthony M. Kennedy. It is widely assumed the other justices will vote as they did in the initial 5-4 decision.

The three conservative justices, Clarence Thomas, Samuel A. Alito Jr. and Antonin Scalia, are expected to side with challengers. Justices Ruth Bader Ginsburg, Stephen G. Breyer, Sonia Sotomayor and Elena Kagan are expected to side with the administration.

Roberts and Kennedy, however, might see this case differently from the last challenge. The 2012 case posed a constitutional challenge, which would have struck down the law. This time, if it is just a wording problem, the Supreme Court could rule for the challengers with the idea that it is up to Congress to fix the language.