The Supreme Court is scheduled to hand down its decision this month in the case ofKing v. Burwell. The caseseeks to determine whether the health insurance subsidies that are part of the Affordable Care Act can legally be available through the federal health insurance exchange, Healthcare.gov, or if states must create their own healthcare exchanges in order to access the subsidies. Let's take a look back at sevenquotes from the oral arguments in March that sum up how we got here, problems that might arise if that part of the law was struck down, and a potential solution.
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Not a typoThe petitioner argued that Congress really meant to give the subsidies only to people in states that set up their own exchanges as an incentive to get states to create their own exchanges, but some of the Supreme Court Justices seemed less than convinced:
The same argument that the Supreme Court used a few years ago to strike down the part of Obamacare that required states to expand Medicaid -- it imposed a heavy burden on the state -- could be used to keep the law from requiring states to either set up their own exchanges or forgo the subsidy for their citizens.
But whether enough of the Justices buy into this argument, and how they'll deal with it -- removing the state-run requirement to get the subsidies or striking down the subsidies entirely -- remains to be seen.
Someone needed a proofreader
When Solicitor General Verrillimentions 1311, 1321, and 36B, he's referring to sections or subsections of the Affordable Care Act that he is attempting to defend. Verrilli's argument is basically that separating subsidies and exchangeswas a typo. Congress decided that the federal government would offer subsidies and, because not every state would want to set up an exchange, the federal government would set up an exchange for those states that chose not to.
Those two ideas are in separate sections of the law, but the part about the subsidies says that they'll be available to people who enrolled "through an Exchange established by the State under 1311."
What will happen if it's struck down?
Verrilli was a little more end-of-the-world about the prospects of the ACA if the subsidies die:
The only reason insurers such as UnitedHealth Group, Aetna, and Cignawere able to accept everyone regardless of preexisting conditions was because Obamacare mandated that everyone must have health insurance, thus spreading costs out over a larger population. The only way to get these healthy people on insurance en masse was to subsidize the cost.
If there aren't any subsidies, there's a danger of entering the so-called death spiral. In this scenario, the healthiest people may leave an insurance program because it's too expensive. This might require the rates to increase, as the average medical cost per person would be higher if the healthiest people were gone, which could cause the next-healthiest people to leave, and so on.
Fix the typo?
In theory, this issue could all go away if Congress would just rewrite the law as Verrilli claims it was intended to be -- which is also the way the government has been following the law since the exchanges were set up. But this is a different Congress than the one that initially passed the law, which is likely to make for some lively debates in Congress if the Supreme Court says that the subsidies are unconstitutional.
The alternative is for all the states to set up their own exchanges, rather than use healthcare.gov, but that would likely take longer to set up than the time remaining before the next enrollment period.
Delay the impact of the decision
Alito seems to be trying to strike a compromise, allowing the Supreme Court to follow the law as it was written, but allowing Congress and/or the states time to fix the problem before there's an impact.
What's an investor to do?In addition to health insurers, companies that run hospitals, such as Community Health Systems, LifePoint, and Tenet Healthcareare also at risk because the Supreme Court's decision could result in more uninsured people. This could cause an increase in unpaid bills that the hospitals would have to absorb.
If you have a strong feeling about which way the Supreme Court is going to rule, you could buy or short the insurers and hospitals, betting for the status quo, or a disruption of the law, respectively. Most investors, however, would probably be best off staying out of the sectors until the Supreme Court hands down its ruling. The binary nature of the ruling -- with just one or two Justices likely to decide the law's fate -- is too much risk for most investors without a background in constitutional law to handle.
The article 7 Supreme Court Quotes on Obamacare You Need to Hear originally appeared on Fool.com.
Brian Orelli has no position in any stocks mentioned. The Motley Fool recommends UnitedHealth Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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