The Supreme Court decided today on the “Obamacare” case, called “King v. Burwell” and ruled in a 6-3 decision to support the Administration’s position on the law, that subsidies should be allowable in federal marketplaces.  The Chief Justice Roberts and Justice Kennedy joined the four liberals (Breyer, Ginsburg, Kagan and Sotomayor) in the decision.  Find the decision here.

The decision is important for the continued implementation of the Affordable Care Act, and means that perhaps as many as 6 million people will not see their subsidies eliminated, making the health plans not affordable for them, likely leading to most of them becoming uninsured overnight.

I am still digesting the opinion, but it appears that the Court came to this decision because in the words of majority opinion: “in every case we must respect the role of the Legislature, and take care not to undo what it has done. A fair reading of legislation demands a fair understanding of the legislative plan.”  What the majority is saying there it appears is that they are following the longstanding deference of the Courts to the Legislature: the Court should not overturn laws passed by the majority.

Further, the Court came to the strong view that 
“Congress passed the Affordable Care Act to improve health insurance markets, not to destroy them.”  This means the Court concluded that a ruling in favor of the plaintiffs here would lead to collapsing health insurance markets, because of what health economists describe as a "death spiral" that would occur.

To quote the decision:  “Here, the statutory scheme compels the Court to reject petitioners’ interpretation because it would destabilize the individual insurance market in any State with a Federal Exchange, and likely create the very 'death spirals' that Congress designed the Act to avoid. Under petitioners’ reading, the Act would not work in a State with a Federal Exchange.” And also that “the combination of no tax credits and an ineffective coverage requirement could well push a State’s individual insurance market into a death spiral. It is implausible that Congress meant the Act to operate in this manner.”

On this point, the majority of the Justices concluded that “the availability of premium tax credits under section 36B would make little sense if tax credits were not available on Federal Exchanges.” Also the majority concluded that “those credits are necessary for the Federal Exchanges to function like their State Exchange counterparts, and to avoid the type of calamitous result that Congress plainly meant to avoid.”

The way I interpret this is that the Court is sending a strong message by deciding twice, in opinions authored by the Chief Justice, that the ACA should be upheld and implemented.

This time, the Court relied heavily on the idea – central from health economics – that health insurance markets without regulation can suffer from so-called “adverse selection,” that is where people with chronic diseases are more likely to purchase health insurance than healthy people, leading to a destabilization of the insurance markets, called a “death spiral.”  To put it another way, if mostly chronically ill people seek insurance, and healthy people do not, then insurers need to raise premiums, which further drives healthy people to drop health insurance, accelerating the death spiral. To counter this, before the ACA insurers had an incentive to “cream skim” and insure healthy people and not sick ones.

What the majority of the Justices are saying is that invalidating the subsidies would make insurance so unaffordable to many (in the federal marketplaces) that overnight the law would not work as intended, leading to many more becoming uninsured.