What Happens if Obamacare Loses in the Supreme Court?

Let’s say that the Supreme Court holds, in the King v. Burwell case involving federal exchanges, that such exchanges are not legally permitted to receive subsidies. This holding would create an enormous problem for Obamacare, since individuals in a large number of states would not be receiving subsidies. Clearly, a legislative change would be required. What then?

It has generally been assumed that this legislative change would be beneficial to opponents of Obamacare, as compared to the current situation. Under the current situation, once Republicans control both houses in January, they can pass modifications of Obamacare, but it is assumed that Obama will simply veto them.  The default situation—the regmine without a new law—is the continuation of Obamacare, which Obama likes. But if the Supreme Court holds the subsidies for federal exchanges illegal, the default situation changes: no subsidies for federal exchanges. And therefore one might argue that the Republicans are better off in this situation.

Perhaps. But things are more complicated. The default situation, if the Supreme Court holds the subsidies illegal, is similar to (although distinct from) the default under spending bills. If Obama vetoes a spending bill, the government often closes down. While one might believe that this would pressure him into approving Republican measures, it often doesn’t. The press—who often behave, as Glenn Reynolds puts it, as Democratic operatives with bylines—will usually report the shutdown in a biased way and the Republicans will be forced to compromise. If this happens with federal exchange subsidies—a likely possibility, even though Obama is losing support in the press—then the Republicans may be in a more difficult position than many people appear to assume.

Part of the issue turns on what will happen to people who lose the subsidies. If they lose their health insurance, then the Republicans are likely to be blamed by the press. If the Republican Congress does not give Obama what he wants, then states may choose to adopt exchanges in order not to lose the subsidies.  One issue favoring the Republicans is that the employer mandate will not apply to states with federal exchanges. In addition, the people who lose the subsidies are likely not to be covered by the individual mandate.  

The Republicans may be able to get some concessions from Obama, but how much is hard to know. Some might be relatively easier, such as the medical devices tax, but will not do much to eliminate the problems with Obamacare. My preference would be to lower the minimum requirements that insurance policies have to satisfy in order to be sold on the exchanges. My guess is that Obama will fight this tooth and nail.

The bottom line is that even if the administration loses in the Supreme Court, it is by no means clear that it will lose in the political sphere. It is sad to say, but real reform of Obamacare is likely to require Republican control of not only of the Congress but of the Presidency.