"There’s Going To Be Chaos" - What Is The Worst-Case Outcome Of Today's Supreme Court Obamacare Hearing

Today, for the second time since 2012, the fate of Obamacare lies in the hands of the Supreme Court, and like last time, it will likely be all about Justice John Roberts ' decision. Later today, the US Supreme Court will hear oral arguments in the case of King v. Burwell, the latest challenge to Obamacare, and one that could potentially leave it gutted from an unexpected direction. As a result, nearly eight million Americans could lose their health insurance depending on how the Supreme Court interprets four words in the "Affordable" Care Act.

But while the law, or rather "tax", was already found to be constitutional in the Scotus 2012 ruling, the current case centers on whether, as many Republicans argue, one line in the law was intended to restrict subsidies to people who bought insurance through a state exchange or whether, as Democrats contend, that line was a simple oversight in the law’s drafting.

As Bloomberg adds, the new case is narrower, centering on the statute’s language: At issue is whether Obamacare can provide subsidies nationwide to people who buy insurance, or only to those in the states that have set up their own online marketplaces, known as exchanges.

Here are the four words that could make or break Obamacare:

The statute says people qualify for credits when they buy insurance on an exchange “established by the state.” Those four words matter because only about one-third of the states have set up exchanges, with the rest relying on the federal healthcare.gov system. The challengers contend that the people who buy on the federal exchange can’t claim the subsidies.


The group behind the suit, the Competitive Enterprise Institute, describes itself as an advocate for limited government and individual liberty. According to the Washington Post, the group’s financial supporters include companies tied to Charles and David Koch, the billionaire brothers who fund conservative causes.


The institute represents four Virginia residents who say they don’t want to buy the insurance required under Obamacare. Should the court block the subsidies, the four say they would fall within an exception to the insurance mandate for people who can’t afford coverage. One lurking issue that may arise during argument is whether any of the four has suffered the type of legal injury that entitles them to sue.

As Bloomberg also notes, a decision against the Obama administration would wipe out the tax credits that make insurance affordable for millions of people under the law. It would also leave hospitals with billions of dollars in unpaid bills and potentially cause insurance markets to collapse.

“If the court rules for the challengers, there’s going to be chaos,” said Abbe Gluck, who teaches at Yale Law School and backs the administration in the case.

That may be a tad dramatic, but as the NYT breaks down, roughly 7.5 million people could lose their subsidies in 34 states (shown on the map below). . The status of people in three other states — Oregon, Nevada and New Mexico — is unclear because those states at one time intended to run their own marketplaces, but now rely on the federal government to manage them.

While it is difficult to handicap what the odds are of an adverse, if mostly for Obama's legacy, ruling, Reuters reports that "a growing number of U.S. patients and their doctors are already devising a Plan B in case they lose medical coverage, as even physicians who think the court will uphold the subsidies are gearing up for the worst. As a result, doctors are "dusting off playbooks they retired when Obamacare slashed the number of uninsured people."

From Reuters:

Interviews with doctors reached through professional groups show that they are lining up free clinics to care for patients with chronic illnesses, asking pharmaceutical companies to provide discounted drugs, and moving up preventive-care appointments and complicated procedures.


"We have to be able to navigate this on behalf of our patients if it comes about," said Dr. Jeff Huebner, a family physician in Madison, Wisconsin, one of the affected states.


Many providers as well as patients are unaware of the looming threat, but some physicians are already preparing for it.

Huebner adds that he "would advise patients in this boat to schedule a visit with their primary care provider as soon as they can" to set up "transition plans." Other doctors, such as pediatrician Marsha Raulerson in Brewton, Alabama has persuaded one drug company to provide an expensive asthma medication to one of her patients if she loses her insurance. "But after a few months you have to re-apply" and show that the patient is still unable to afford medication, Raulerson said. "It's not an easy process, especially if you have to do it for a lot of patients." She is also stockpiling as many free samples as she can.

Dr. Robert Wergin, a primary care physician in Milford, Nebraska, is scrambling to locate labs and imaging centers that offer the lowest prices for blood tests, X-rays and MRIs.

"Around here, people feel responsible for their bills and I'm not sure they would come in if they lost insurance and couldn't pay," Wergin said.

In retrospect, perhaps chaos is not all that dramatic:

Yolanda Diaz, 27, is one of them. A single mother of two, she suffers from occasional blackouts that last several minutes. She cannot afford the full premium on her wages as a pantry manager at Brevard County, Florida, community center so she pays $74.95 a month and the rest is covered by a $205 Obamacare subsidy.


Her coverage began this month, Diaz said, and the first thing she did was make appointments for an MRI and CT scans in hopes of identifying the cause of the blackouts.


"I would hate to have to go to the ER, but if the subsidies get taken away I don't know what I'll do," she said. U.S. law requires hospitals to treat all emergency cases regardless of ability to pay, so many uninsured patients seek care there.


Of those expected to be priced out of insurance in case of unfavorable ruling, the Urban Institute estimated 81 percent are, like Diaz, employed full- or part-time.

To be sure, the Obama administration is confident the worst will not come to pass: it contends that the phrase is a “term of art,” and says that other parts of the law show that there is no distinction between federal and state run exchanges.

“If you look at the law, if you look at the testimony of those who were involved in the law, including some of the opponents of the law, the understanding was that people who joined the federal exchange were going to be able to access tax credits,” President Obama said in an interview with Reuters. “And there’s in our view not a plausible legal basis for striking it down.”

Enter Plan B, or lack thereof (just like the ECB, which as we all know lied to Zero Hedge that it didn't have a Plan B on Greece, when it in fact, only it called it a Plan Z):

The Obama Administration has stated it has no backup plan ready if the Supreme Court rules against it. “If they rule against us, we’ll have to take a look at what our options are,” Obama said recently. “But I’m not going to anticipate that. I’m not going to anticipate bad law.”


Republicans on the other hand, are eager to show they have a Plan B. In the past two days, lawmakers from the House and the Senate have said they’re in the process of working on alternatives to the law, should the Supreme Court rule in favor of the plaintiffs. Reps. Paul Ryan, John Kline and Fred Upton wrote in the Wall Street Journal, they’re proposing an “off-ramp out of Obamacare,” that would allow states to opt-out of insurance mandates and offer options for those who can’t otherwise insurance. Sens. Orrin Hatch, Lamar Alexander and John Barrasso wrote in the Washington Post, they too would help those who can’t afford coverage during a “transitional period” and let states create alternative marketplaces.

So as we head into today's oral argument, much is once again at stake. For those seeking further detail, here is some additional Q&A on the outcome courtesy of Bloomberg:

1. What is the administration’s argument?

The administration says the disputed phrase is a term of art that includes a federally facilitated exchange. U.S. Solicitor General Donald Verrilli urges the court to look beyond the “established by the state” wording to the rest of the act and its broad purpose of providing coverage to tens of millions of uninsured Americans.

Verrilli says Congress designed the law with the goal of offering tax credits nationwide and argues that no member of Congress suggested otherwise during the debate over the measure, which is President Barack Obama’s biggest legislative initiative.

2. What will happen if the court rules for the plaintiffs?

Prepare for falling dominoes. Within a matter of weeks, the healthcare.gov system would have to stop providing tax credits for an estimated 7.5 million Americans in the 34 states that never authorized their own exchanges. Many of those people would probably find premiums unaffordable without the subsidies and would drop their coverage, boosting the ranks of the uninsured.

Yet those who are sick and need insurance would probably try to hang onto their coverage, as healthy people dropped out. Insurers call this phenomenon “adverse selection,” and say it inevitably results in premiums spiraling upward. The Urban Institute estimates that premiums would increase by 35 percent, on average.

Doctors and hospitals, faced with more uninsured patients, would be forced to provide more uncompensated care. If they try to make up for the losses by charging commercial insurers higher prices, that would raise health-care costs for everyone.

Finally, the law’s requirement that employers provide insurance to their workers would be gutted in states where subsidies aren’t legal. Penalties on employers for not providing coverage are triggered when their workers receive a subsidy for an Obamacare plan; without subsidies, there’s no penalty.

3. How would the federal government and states respond?

It’s unclear. Representative Paul Ryan of Wisconsin, the Republican chairman of the powerful House Ways and Means Committee, has said his party will design a “bridge out of Obamacare” for people in states affected by the ruling. There’s no agreement among Republicans on how such a policy would work.

States could respond by simply setting up their own exchanges. The Obama administration could make that easier, for example by letting them use healthcare.gov to sell insurance online.

However, the U.S. health secretary, Sylvia Mathews Burwell, said in a Feb. 24 letter to Congress that the administration couldn’t do much on its own.
“We know of no administrative actions that could, and therefore we have no plans that would, undo the massive damage to our health care system that would be caused by an adverse decision,” she wrote.

4. What is corporate America’s take on the case?

The hospital and health-insurance industries are backing the administration. That includes HCA Holdings Inc., the hospital chain that is the nation’s largest private health-care provider. Trade groups for the hospital and health-insurance industries are also urging the court to back nationwide subsidies.

5. Who holds the pivotal vote?

The most likely candidate is Chief Justice John Roberts. He cast the decisive vote in 2012, joining the court’s four Democratic-appointed justices to uphold the core of the law. The other four Republican appointees voted to invalidate the entire measure, saying Congress exceeded its authority.

Opponents of Obamacare accused Roberts, normally the leader of the court’s conservative wing, of betrayal. Those criticisms escalated after CBS News reported that the chief justice first voted against the administration and then switched sides.

6. Which way is Roberts likely to go?

Both sides can find reasons for hope. Roberts is no stickler for statutory wording. He reads laws against the backdrop of institutional principles that Gluck says might cut in the administration’s favor, including deference to the views of administrative agencies.

In a 2009 case involving the Voting Rights Act, as well as the 2012 health-care decision, Roberts deviated from what he said was the most natural reading of a law to avoid declaring it unconstitutional.

“The chief is an institutionalist,” Gluck said. “He’s not a hyper-literalist.”

Jonathan Adler, a law professor who was one of the first to make the case against nationwide subsidies, says Roberts is more inclined to adhere to a statute’s wording in non-constitutional cases.

“The chief certainly is willing to bend a statute in order to avoid declaring a statute unconstitutional, but that’s not at issue here,” said Adler, who teaches at Case Western Reserve University in Cleveland.

One other factor: As chief justice, Roberts has always kept one eye on the court’s institutional integrity. One theory is that he was driven in 2012 by concern that a ruling striking down the law would be seen as a political decision.

If true, that thinking might suggest another Roberts vote in favor of the administration and another close call for Obamacare.

* * *

Finally, here is some visual detail courtesy of the NYT:

How would insurance coverage change?

The effect of a court decision would not be limited to the people currently receiving subsidies in the federal marketplaces. People who buy their own health insurance in those states, even without subsidies, could be affected, because rates would increase if insurance pools become older and less healthy. Estimates from the Urban Institute prepared for The New York Times show how a post-King world would look compared with the current trajectory for the Affordable Care Act — or if the health law had never passed.

Which groups would be most affected?

The people who would lose their insurance are more likely to be white, high-school graduates, employed and from the South.

What about the rest of the states?

States that run their own insurance marketplaces would be unaffected by a court ruling, meaning a widening gap between insurance coverage in the two groups of states. The Urban Institute estimated the outcome for federal and state-run marketplaces by 2016.

How will the states react?

Under any court ruling, states will have the power to restore their residents’ subsidies if they establish their own exchanges. It would not be easy, but some states face more hurdles than others. Here is a look at the status of the states that could be affected. Some have already begun doing the work of building exchanges. Some have signaled weak interest and taken little action. Others have already set up legal impediments.