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June 25, 2015

Economic analysis is at the heart of the Supreme Court’s opinion upholding the Affordable Care Act subsidies

June 25, 2015

This post has been modified from its original version. See note below.

For the second time in three years, the Supreme Court has upheld the central provisions of the Affordable Care Act (ACA). And also for the second time, Chief Justice Roberts wrote the critical opinion upholding those provisions.

The decision today means that low- and middle-income people in all 50 states will remain eligible for federal subsidies to help pay for the cost of health insurance. At the heart of the court’s decision was economic research and analysis of the practical impact of a decision withholding subsidies from the millions of Americans living in the 34 states that have not built their own health insurance exchanges.

The case was remarkable for several reasons:

  • The decision was 6-3 with conservative Chief Justice Roberts writing the opinion upholding the ACA subsidies.
  • There were only two opinions filed (Justice Roberts for the majority and Justice Scalia for the dissent). Unlike so many contentious cases before the Court, no other justices issued additional opinions explaining how they agreed only in part or adding different arguments.
  • A future administration cannot interpret the law differently. The Court did not rely—as it often does—on the executive branch agency’s interpretation of the statute. This is it. With billions of dollars at stake every year and the fact that the availability of subsidies is “a question of deep ‘economic and political significance’ that is central to this statutory scheme,” Congress did not intend to delegate this important issue to the executive branch. As the Court explained: “This is not a case for the IRS.”

The legal issue before the Court was how to interpret the language and purpose of the statute, but this was not simply a dry analysis of statutory language and what lawyers refer to as principles of statutory construction.

The court relied heavily on economic research and analysis—including a paper published by Linda Blumberg, Matt Buettgens, and John Holahan at the Urban Institute—showing that without providing subsidies in every state, the very purpose of the ACA would be defeated. Citing this research and the legislative history of the ACA, the court recognized that without the subsidies, there would be a market “death spiral” and that the health insurance markets would likely collapse in those states that did not build their own exchanges.

While the Court’s interpretation of the law may seem like common sense to many economists and policymakers, this was not a simple legal analysis for the Court. The Court had to apply general rules of statutory interpretation including by examining the overall purpose of the law, and concluded that the practical economic impact of eliminating the subsidies would have undermined the very purpose of the ACA. As Justice Roberts explained at the end of the Court’s opinion: “Congress passed the Affordable Care Act to improve health insurance markets, not to destroy them.”  

Regardless of how people feel about “legalese” or whether they have any idea what a “microsimulation model” is, today’s decision was a demonstration of law and economics at their best, with experts in both fields striving to determine how complex policies have real practical impacts on the lives of individuals throughout the country.

NOTE:  This post was edited to clarify that the Court applied general rules of statutory construction.

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