Symposium: The Court will hear King. Thats bad news for the ACA. (Updated: 1:25 p.m. Nov. 10)

Nicholas Bagley is an Assistant Professor at Michigan Law.

In a significant setback for the Obama administration, the Supreme Court just agreed to review King v. Burwell, the Fourth Circuits decision upholding an IRS rule extending tax credits to federally established exchanges. The government had asked the Court to take a pass because theres no split in the circuit courts over whether the IRS rule is valid. At least four justicesit only takes four to grant certiorarivoted to take the case anyhow.

As I see it, whats troubling here is not that the Court took King in the absence of a split. Its rules permit it to hear cases involving important question[s] of federal law that ha[ve] not been, but should be, settled by this Court. Its not remotely a stretch to say that King presents one such important question. On this, I part ways with those who claim that granting the case marks a clear departure from the Courts usual practices.

No, whats troubling is that four justices apparently thinkor at least are inclined to thinkthat King was wrongly decided. As Ive said before, theres no other reason to take King. The challengers urged the Court to intervene now in order to resolve uncertainty about the availability of federal tax credits. In the absence of a split, however, the only source of uncertainty is how the Supreme Court might eventually rule. After all, if it was clear that the Court would affirm in King, there would have been no need to intervene now. The Court could have stood pat, confident that it could correct any errant decisions that might someday arise.

Theres uncertainty only if you think the Supreme Court might invalidate the IRS rule. Thats why the justices votes on whether to grant the case are decent proxies for how theyll decide the case. The justices who agree with King wouldnt vote to grant. They would instead want to signal to their colleagues that, in their view, the IRS rule ought to be upheld. The justices who disagree with King would want to signal the opposite.

And there are at least four such justices. If those four adhere to their viewsand their views are tentative at this stage, but by no means ill-informedthe challengers just need one more vote to win. In all likelihood, that means that either Chief Justice Roberts or Justice Kennedy will again hold the key vote.

None of this bodes well for the government. Thats not to say the government cant win. It might. As Ive said many times, the statutory arguments cut in its favor. But the Courts decision to grant King substantially increases the odds that the government will lose this case. The states that refused to set up their own exchange need to start thinkingnowabout what to do if the Court releases a decision in June 2015 withdrawing tax credits from their citizens.

One further point. In their petition, the challengers suggest that theyre trying to protect people from the individual mandate. They point out that ACA exempts families from the mandate penalty if, after taking tax credits into account, they would have to spend more than eight percent of their income to get health coverage. Eliminating tax credits in states with federal exchanges would mean that many more people would exceed that eight-percent figure.

For the challengers, thats a good thing. In Michael Cannons words, a victory for the. . .plaintiffs would freemore than 8.3 million residents from the mandate. The pending Supreme Court petition makes the same point:

[B]y purporting to make a credit allowable in states served by HealthCare.Gov, the IRS Rule reduces the number of people in those states exempt from the individual mandate penalty. Now ineligible for exemptions, those individuals are no longer free to forgo coverage . . . .

The argument seems tailor-made for Justice Kennedy. Indeed, the cert. grant suggests it may have proved persuasive.

But its an odd argument. To see why, think about who would be exempt from the mandate penalty if the Court invalidates the IRS rule. It wouldnt be everyone. The average cost of an entry-level plan is $3,468 per year. Thats more than eight percent of income only for those families making less than $43,350 per year, which for a family of four is about 180% of the poverty line.

So in most states, for families making between about two and four times the poverty line, a victory for the challengers wouldnt eliminate the mandate. It would just wipe out tax credits and effectively increase the price of insurance. Thats not exactly a blow for liberty.

What about those lucky people those who make too much to go on Medicaid but still less than twice the poverty level who would be exempt from the mandate penalty? To make it concrete, imagine for a minute that you dont have coverage through your job and youre trying to support your family on an annual income of $35,000 (about 150% of poverty). You want insurance, especially for your kids, but even a bronze plan costs almost $3,500 per year, or ten percent of your total earnings. You just cant afford it.

With a tax credit, however, coverage would be in reach. Your credit would be worth about $2,740, so youd only have to pay $760 for a bronze plan about two percent of your income, or $63 a month. (These figures arent outliers. CBO estimates that the average tax credit in 2014 will be $2,400.)

Would you really have more freedom if you lost the tax credit and, because you could no longer afford insurance, you were exempt from the mandate? No doubt, some people would say yes. They bristle at the mandate and dont value insurance very much even cut-rate insurance. Theyre also pretty cavalier about asking the rest of us to pick up the tab if they fall ill or have an accident.

Many near-poor families, however, would find it liberating to get cheap coverage, even if they were required to do so. Health insurance offers a kind of freedom, too. Its the freedom to quit that stultifying desk job that you stay in only because of the health benefits. Its the freedom not to have to choose between making rent and buying your kids asthma medication. And its the freedom not to fear that a car accident or a cancer diagnosis might bankrupt you.

Yes, if the King challengers prevail, millions of people would be exempt from the mandate penalty. But that just means they would be free to decline coverage that, without tax credits, they could not have afforded anyhow. What kind of freedom is that?

@nicholas_bagley

(Cross-posted on The Incidental Economist.)