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King v. Burwell: How one Supreme Court case could unravel Obamacare

Any day now, the Supreme Court is expected to hand down a ruling in a case that could unravel President Obama’s Affordable Care Act. In a speech on Tuesday, the president said he expects the justices to keep the law intact.

Despite the heavy media coverage of the imminent ruling, most Americans at home may be scratching their heads as to what, if any, impact this case has on them.

Check out the video above to get up to speed or read on to find out what the fuss is all about:

The case is King v. Burwell: The plaintiff, 64-year-old David King, is challenging the legality of tax credits given to Obamacare users in states that use the federal insurance marketplace, Healthcare.gov.

When the ACA was implemented, each state had the option to either create its own marketplace or use Healthcare.gov, created by the federal government. Thirty-four states chose to go with Healthcare.gov. States, including New York, Colorado, Kentucky and California, run their marketplaces.

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To ensure that health insurance options were affordable for everyone, the ACA made it possible for low- and middle-income households to qualify for tax credits. The way the law was intended to work, anyone with low enough income could qualify for tax credits, whether they signed up through the federal exchange or one run by their state. In 2015, 87% (7.5 million) of the people who signed up for Obamacare on Healthcare.gov were eligible for tax credits.

But about five years ago, some people pointed out a tiny flaw in the way the new law was written -- it says that tax-credit subsidies can only be used by consumers using an insurance marketplace that was “established by the state.”

In his lawsuit, King argues that those four little words make it illegal to offer tax credits to anyone who is enrolled in Obamacare through Healthcare.gov -- the marketplace established not by states but by the federal government.

So if the Supreme Court comes out on King’s side, it will be the second-biggest blow to the law since it ruled in 2012 that states could not be forced to expand Medicaid.

Within a month, subsidies would be cut off to consumers in states that rely on the federal marketplace. That means, in 2016 as many as 6 million Americans wouldn’t qualify for tax credits. More than half of those people live in just five states — Florida (1.3 million), Texas (832,000), North Carolina (458,000), Georgia (412,000), and Pennsylvania (348,000).  

Without tax credits, a lot of healthy people might decide they don’t want to pay for insurance after all, even if it means facing a tax penalty. And when healthy people leave the market, that throws the insurance risk pool balance out of whack, leaving a larger share of sick people behind. That would give insurers all the incentive they need to start jacking up their rates. Some of them may flee the marketplace. If they do, the federal marketplace in those 34 states might collapse altogether.

The double whammy of rising insurance rates AND no tax credit to soften the blow could leave many low- and middle-income families who would qualify for subsidies in a tight spot. States could scramble to put together their own exchanges to preserve tax credits for their residents, but it could take months for them to be up and running. 

The Supreme Court is expected to rule on this case sometime this month. We’ll be watching it closely and hope you will too. Send us your questions at yfmoneymailbag@yahoo.com.

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