U.S. Supreme Court upholds Obamacare tax subsidies

In a major win for President Barack Obama, the U.S. Supreme Court has ruled that the federal government can provide tax subsidies to help poor and middle class people buy health insurance. "This was a good day for America," Obama said in the wake of the ruling.

6-3 decision means Americans who get health insurance via federal exchanges can still get subsidies

U.S. President Barack Obama comments after Supreme Court upholds Obamacare. 6:10

In a major win for President Barack Obama, the U.S. Supreme Court has upheld a lower-court decision that allows the federal government to issue health care subsidies to states.

The 6-3 decision means that Americans who get their health insurance through exchanges set up by the federal government will continue to be eligible for tax subsidies.

The plaintiffs in the case had argued that these subsidies were illegal because Obama's Affordable Care Act, widely known as Obamacare, stipulates that to be eligible for federal tax credits, insurance had to have been purchased through an exchange set up by a state, not the federal government.

But the court sided with the Obama administration's interpretation and found the language in the law sufficiently broad to apply to both state and federal exchanges.

The ruling is more confirmation that the law "is working exactly as it's supposed to," Obama said in reaction to the decision.

The HealthCare.gov serves as an insurance exchange where individuals whose states have not set up their own exchange can compare plans from competing providers. (Don Ryan/Associated Press)
"After more than 50 votes in Congress to repeal or weaken this law, after a presidential election based in part on preserving or repealing this law, after multiple challenges to this law before the Supreme Court, the Affordable Care Act is here to stay," the president said at a news conference in the Rose Garden at the White House.

"This is not an abstract thing anymore. This is not a set of political talking points. This is reality," he said after listing off examples of how the law has made health care more accessible and affordable for millions of Americans.

"This law is working, and it's going to keep doing just that," Obama said.

2nd high court ruling in favour of Obamacare

Thursday's decision marks the second time in three years that the high court has ruled against a major challenge to the law brought by conservatives seeking to gut it.

"We should start calling this law SCOTUScare," Justice Antonin Scalia wrote in his dissenting opinion, referring to the common abbreviation for the Supreme Court of the United States.

- U.S. President Barack Obama

The decision means the subsidies will remain not just in the 13 states that have set up their own exchanges and the three states that have state-federal hybrid exchanges, but also in the 34 states that use HealthCare.gov, the exchange run by the federal government.

"This was a good day for America," Obama said of the ruling, telling the media that had the challenge been successful, millions of Americans would have lost thousands of dollars in tax subsidies and many would have become uninsured.

"America would have gone backwards, and that's not what we do," he said.

Federal insurance exchange legitimate

The case centred on the tax credits offered under the law, passed by Obama's fellow Democrats in Congress in 2010 over unified Republican opposition, that help low- and moderate-income people buy private health insurance. The exchanges are online marketplaces that allow consumers to shop among competing insurance plans.

Since the federal government can't compel states to set up exchanges, in some cases where states failed to do so or had trouble running their own exchanges, it stepped in and created them on their behalf through HealthCare.gov and provided subsidies to low- and middle-income individuals nationwide, regardless of whether they enrolled in their insurance plan through a state-run or federally run exchange.

The point of the subsidies is to keep enough people in the pool of insured to avoid triggering a so-called death spiral of declining enrolment, a growing proportion of less healthy people and premium increases by insurers.

The court itself wrote in its decision that "the tax credits are among the act's key reforms, involving billions of dollars in spending each year and affecting the price of health insurance for millions of people." 

In 2014, roughly 87 per cent of people who bought insurance on a federal exchange did so with tax credits, the court noted.

Chief Justice John Roberts wrote the majority opinion in the U.S. Supreme Court's 6-3 decision backing Obama's Affordable Care Act. (Nati Harnik/Associated Press)

The question before the justices was whether a four-word phrase in the expansive law saying subsidies are available to those buying insurance on exchanges "established by the state" had been correctly interpreted by the administration to allow subsidies to be available nationwide.

While the plaintiffs argued for a strict interpretation of this part of the law, several states told the court that they had no inkling they had to set up their own exchange in order for their residents to get tax credits, and the court found that the structure of the law and several provisions within it assume that tax credits will be available on both state and federal exchanges.

Chief Justice John Roberts wrote that although the conservative challengers' arguments about the plain meaning of the statute referring to exchanges being "established by the state" were "strong," the "context and structure of the act compel us to depart from what would otherwise be the most natural reading of the pertinent statutory phrase."

Adhering to the plaintiffs' narrow reading of the statute "would destabilize the individual insurance market in any state with a federal exchange, and likely create the very 'death spirals' that Congress designed the Act to avoid," he wrote in the majority opinion. 

"Congress passed the Affordable Care Act to improve health insurance markets, not to destroy them," he wrote.

With files from Reuters and The Associated Press