Halbig v. Burwell: Potential Disaster Ahead?

Over the years there have been a whole mess of court cases challenging the ACA, either en masse or sections thereof, and most of them have either been dismissed or absorbed into the law. The most famous of these was NFIB v. Sebelius, otherwise known as "the SCOTUS decision which upheld the ACA overall but made Medicaid expansion optional instead of mandatory."

Basically, the SCOTUS ruled that Congress couldn't enforce the individual mandate using a financial penalty, but it was all good because it isn't really a penalty, it's a tax, which Congress has every right to impose. Yup, the entire law hung in the balance over the semantics of a single word, which happens more often in court cases than you'd think.

However, there's still a half-dozen assorted cases left to be decided, and while most of them nibble around the edges of the law, one of them could potentially cause an epic clusterf*ck if it's successful: Halbig v. Burwell.

Dan Diamond over at the Advisory Board Company has posted an excellent roundup of the remaining pending anti-ACA cases...and Halbig v. Burwell is by far the most concerning:

This case, which could be the ACA's biggest legal threat, centers on whether Congress meant to offer subsidies through federal exchanges. And the language of the law is actually pretty clear: There's explicit mention of subsidies for state-run exchanges...but none in the federally run ones.

He posted a more detailed explanation of the case (previously called Halbig v. Sebelius, of course, until the prior HHS Secretary stepped down) last summer, but the short version is this:

• The wording of the ACA gives the power to offer tax subsidies to enrollees in the state-run exchanges...
• But it makes no specific mention of letting the IRS give tax subsidies to enrollees in the federally-run exchange...aka Healthcare.Gov.

This suit has been slowly crawling it's way up the federal court system and, according to Diamond, is currently at the DC Circuit Court of Appeals, with a ruling expected within the next few days.

I'm not sure how the process works, but I presume that it either gets shot down or moves up to the next stage (which I presume is the SCOTUS?).

However, let's look at a worst-case scenario and suppose that it does move on up to the SCOTUS and they do uphold the challenge. What would this mean?

Politically, I would imagine this would be an absolute disaster for the Democrats, which is, of course, the main reason the case was filed in the first place.

On ther other hand, there's also the outside chance that it could backfire on the Republicans; most recent polling shows that while people still aren't exactly thrilled with the ACA, a good 2/3 of the country is also exhausted from the legal battles over it and want to move on.

However, what would it actually mean in practical terms--that is, the logistics of dealing with such a ruling after the first (and possibly second, depending on how long it took to wind through the SCOTUS schedule) enrollment period was already over?

Well, I'm not a lawyer, but I presume that the 2.6 million people or so who have enrolled in QHPs via the 15 state-run exchanges would be fine, as would the roughly 900K people who enrolled in the federal exchange who aren't receiving subsidies anyway.

However, that still leaves the other 5 million people or so (including myself) who a) enrolled in a QHP via Healthcare.Gov and b) are receiving a tax credit/subsidy.

So, what would happens to them? Well, some of them chose to have their subsidies delayed until they file their taxes next year, while others (again, including myself) chose the "monthly" option, in which a portion of each monthly premium itself is simply subtracted from the total.

For those who are waiting until they file their taxes, will they just have an unpleasant surprise when they look for the section where they're expecting to enter a couple thousand dollars in refunds? That would be a shock to their system, but at least it would give the IRS time to re-write the 1040 forms beforehand. The insurance companies were already paid in full by that point.

However, I would imagine that the vast majority of those 5 million people go the "monthly credit" route; presumably most people can't afford to wait an entire year to get that credit--if they could, they wouldn't need the subsidies in the first place.

So, what about those of us going the monthly route? It seems to me that technically speaking, our policy terms of service--including the tax subsidy--are with the insurance company itself, not with the IRS. We write our premium checks (minus the subsidy amount) out to Blue Cross Blue Shield of Michigan...and I presume that the IRS then pays BCBSM the subsidy balance, right?

So...doesn't that mean that, legally speaking, the insurance companies would be legally required to refund billions of dollars to the IRS? And if so, wouldn't that mean that the companies would file a massive class action lawsuit against the Federal Government for breach of contract, etc etc?

Or am I completely misunderstanding how the "money flow" works between the HHS, IRS, insurance companies and QHP enrollees?

 How many millions of outraged and confused citizens would there be? How many additional class action lawsuits would result? Plus, what if the SCOTUS rules on the case in the middle of the 2nd Open Enrollment period? What would that mean for the Oregon, Nevada and (possibly) Massachusetts exchanges (which are all set to move from state-run to federally-run this fall)? What would it mean for Idaho and New Mexico, which are set to move from HC.gov to their own exchanges?

If this case had gone to the SCOTUS (and been ruled against the subsidies) before the first open enrollment period started, it would have been an unmitigated disaster for the Obama administration and the Democratic Party...but at least it would have been "clean" in the sense that no subsidies had actually been contractually promised to any enrollees, etc.

If it gets ruled on now, then there's the strong possibility that the SCOTUS would simply include a note in the decision basically saying "this is an easy fix for Congress; just add a couple of lines to Section 1401 of the law adding 'Federal marketplace' to the language". If that were to happen, then the onus would be on the Republicans; the Democrats could then run ads attacking the GOP for screwing over another 5 million people (in addition to the 4.8 million they've already screwed over with the Medicaid expansion denials).

No matter what, this would result in an absolute mess.