1. Florida Politics

Supreme Court challenge to tax credits under Obamacare casts cloud over program's future

Published Nov. 28, 2014

Nearly 900,000 Floridians could lose Obamacare tax subsidies under a new U.S. Supreme Court case, but state political leaders say they're making no plans to deal with the potential fallout.

The court case — affecting people in 37 states — revolves around a dispute over how the federal government provides tax credits to those who buy insurance plans in Obamacare marketplaces, which are called "exchanges."

Under the Affordable Care Act, people get the tax credits if they bought insurance on exchanges "established by the State." Florida and other states left it to the federal government, which then issued a rule saying residents in those states would get the subsidy-like tax credits anyway.

Conservatives sued, saying the decision by the Internal Revenue Service violated the strict letter of the law. If the tax credits are struck down, Republicans hope it could lead to the "implosion" of Obamacare. Liberals and defenders of the Obama Administration say the lawsuit is politically motivated and that it fails to consider the design and context of the ACA: to make everyone insured.

The states in question could make the controversy go away by establishing their own exchanges. But Florida and other conservative-led states want Obamacare to fail — and they're content right now to leave this in the hands of the U.S. Supreme Court, which leans Republican.

"I'd wait and see what happens. That's down the road," said Gov. Rick Scott, a phrase repeated by his fellow Republicans who lead the House and Senate in Tallahassee.

After Scott was first elected in 2010, Florida fought against the ACA by returning a $1 million federal grant to establish a state-run exchange. Scott said the state should spend no money to implement Obamacare, which he calls an unconstitutional job-killer.

Florida has also refused to expand Medicaid, which could ultimately provide government-run health care to nearly 1 million in a state with one of the highest uninsured rates, nearly 25 percent at one point.

The federal government has no statistics on the effects of Obamacare on Florida's uninsured, but a Gallup survey indicated the law is reducing the uninsured rate across the nation. States that set up their own exchanges and that expanded Medicaid saw the biggest drop in the uninsured rate, Gallup reported.

Florida lawmakers have time to decide what to do next.

The U.S. Supreme Court won't hear the Obamacare case, King v. Burwell, until March, when the Florida Legislature reconvenes for its 2015 session. A ruling wouldn't be expected until the summer of 2015 at the earliest. Many would want a decision before the beginning of the next Obamacare enrollment period in the fall.

By then, Florida will be well in the grip of the next presidential race. And, Republican consultants say, the chances that something as momentous as Obamacare will be taken up by the GOP leaders of the state is slim.

All the major potential GOP candidates for president either want to repeal or severely limit Obamacare, including the two Floridians who might seek the presidency, Sen. Marco Rubio and former Gov. Jeb Bush.

"If the Republican Party's main candidates or nominee are campaigning to get rid of Obamacare, I can't see the Legislature in an election year taking a separate position," said Marc Reichelderfer, a longtime Tallahassee lobbyist and top Republican political consultant.

But state Sen. Rene Garcia, R-Hialeah, said he wants a state-run exchange "because it empowers us much more than relying on the federal government.'' He said that a court ruling against subsidies in a state like Florida could force the state to re-examine establishing an exchange.

"If they get rid of the subsidies, it's going to be a big battle," Garcia said. "All those people receiving the federal subsidies are going to force us to answer to them. We're going to have to do something."

The political calculus isn't straightforward, however, partly due to the complicated nature of Obamacare itself.

For starters, if the high court rules against the Obama Administration, not everyone who would lose a tax credit would therefore be required to buy health insurance and pay more out of pocket. That's because the ACA provides that people can avoid buying insurance if the cost exceeds 8 percent of their income.

Other people generally have to buy health insurance or face a tax penalty. How many people is that? No one knows.

One of the Virginia residents who sued to stop the subsidies in the King V. Burwell case is among those who wouldn't have to buy insurance if the court rules in favor of the plaintiffs. In another case, Halbig v. Burwell, West Virginia resident David Klemencic testified to earning $20,000 a year and didn't want to be forced to buy insurance or take "government handouts."

"The availability of credits on West Virginia's federal Exchange therefore confronts Klemencic with a choice he'd rather avoid: purchase health insurance at a subsidized cost of less than $21 per year or pay a somewhat greater tax penalty," the U.S. Court of Appeals for the District of Columbia Circuit said in a 2-1 ruling that sided with the plaintiffs.

The full appeals court then decided to hear the whole case and vacated that decision from the three-judge panel.

Hours after that initial D.C. ruling, the Richmond, Va.-based 4th Circuit Court of Appeals ruled in the King. V. Burwell case that the federal government could provide tax credits to those who buy insurance in federal exchange states. The U.S. Supreme Court then took up the King v. Burwell case.

That doesn't mean the Obama Administration carried the day in the 4th Circuit case. The defense team of U.S. Health and Human Services Secretary Sylvia Burwell tried to argue that the law clearly allowed the IRS to grant tax subsidies in federal exchange states.

The judges noted, however, that there was no real legislative history to show congressional intent and, echoing the plaintiffs, they pointed out that the law clearly said the subsidies were for those "established by the State."

"The statute is ambiguous and subject to at least two different interpretations," the court ruled in King, ultimately deferring to the government to interpret the law.

That deference could prove problematic for the ACA in future years if an Obamacare opponent is elected president and decides to interpret the tax-credit law differently. In the meantime, Obamacare opponents got a boost from the unlikeliest of people: a top health-policy expert named Jonathan Gruber who advised Democrats over Obamacare and had been an influential figure in crafting the ACA's predecessor in Massachusetts.

Gruber gained infamy for suggesting the ACA was written by the Democratic Congress in a "tortured way" to obfuscate its financial provisions and take advantage of "the stupidity of the American voter."

While those comments have received the most public attention, Gruber's 2012 comments about the tax credits in the 2010 law could prove more damaging to Obamacare.

"I think what's important to remember politically about this, is if you're a state and you don't set up an exchange, that means your citizens don't get their tax credits," Gruber said.

Michael Carvin, attorney for plaintiffs in the King and Halbig cases, said the statement disproved Obamacare defenders who said critics were misreading the plain text of the law.

"Gruber's comments confirm what I think is otherwise obvious: people were aware of this," Carvin said. "But it doesn't really matter whether they were well aware of it or not. They enacted a law that said it."

He has argued that Congress intended to force states to set up exchanges by having the "established by the State" language in the law. But the courts noted there was no evidence for this theory.

"We are confident that the financial help afforded millions of Americans was the intent of the law and it is working as Congress designed," a White House spokesman said in a statement. "This lawsuit reflects just another partisan attempt to undermine the Affordable Care Act and to strip millions of American families of tax credits that Congress intended for them to have."

If the IRS tax credit rule is struck down, insurers in states like Florida fear that fewer people would buy insurance because they won't get subsidized. That would leave sicker people who need insurance in the market. Premiums would then rise further. More people would then be priced out, leaving the plans in a "death spiral."

While Florida officials won't say what they'll do if the court rules against the Obama Administration, leaders in other Republican states are more forthcoming. When asked if Louisiana would set up an exchange, Gov. Bobby Jindal said "absolutely not."

"If the court holds what the law means what it says, that will cause an implosion of the law," Jindal said.

It's difficult to get an exact number of Obamacare enrollees. The administration inflated nationwide enrollment numbers by adding in about 380,000 dental plan enrollees to keep the total nationwide figure at 7 million, Bloomberg reported.

In Florida, estimates for enrollees range between 762,000 and 983,000. An estimated 91 percent of them have received subsidies. But the administration can't say what the total dollar amount is.

The Herald calculated that the feds could spend nearly $3-billion on subsidies in Florida for 2014. But that projection assumes that everyone who signed up received coverage for the entire year. In fact, because of technical problems with, many consumers were not able to enroll until March or later so the actual figure is likely lower. But it could give Florida legislators a rough idea of how much money Floridians might lose.

Florida House Speaker Steve Crisafulli and Senate President Andy Gardiner, both said they'll "wait and see" what the court does before they act.

"We have discussed it and when you look at what other states have done with exchanges I think it's been a real challenge," Gardiner said, "But I think you'll find we're at least open for debate."

Miami Herald staff writers Mary Ellen Klas, Kathleen McGrory and Nicholas Nehamas contributed.