This article is from the archive of our partner National Journal

The Supreme Court is taking up another Obamacare case—one that could devastate the health care law's coverage expansion.

The justices on Friday agreed to hear oral arguments in King v. Burwell, a lawsuit that challenges the insurance subsidies at the heart of the Affordable Care Act. The suit argues that the subsidies—which roughly 80 percent of Obamacare enrollees received—should only be available in a handful of states.

If the challenge succeeds, the consequences for Obamacare would be dramatic: Costs would skyrocket for millions of consumers, likely causing many of them to drop their coverage. The law's central goal—expanding health insurance to low-income Americans—would be severely set back, and at least some of the law's new insurance markets could become unsustainable.

"This lawsuit reflects just another partisan attempt to undermine the Affordable Care Act and to strip millions of American families of tax credits that Congress intended for them to have," White House press secretary Josh Earnest said in a statement Friday.

Just the fact that the high court decided to take the case—and the timing of that decision—is a bad sign for the administration. The Justice Department had asked the Court to hold off on King while a similar case works its way through the appeals process. If the Court had gone along with that request, the administration's hand almost certainly would have been stronger once the issue finally reached the Supreme Court.

"The Court's decision to grant King substantially increases the odds that the government will lose this case," wrote Nicholas Bagley, a law professor at the University of Michigan.

Here's the issue in King, and why it's such a grave threat to Obamacare: The Affordable Care Act set up a new insurance marketplace, called an exchange, in every state. The states could run their own, or they could punt the job to the federal government. To get customers into the exchanges, the law set up a stick—the individual mandate—as well as a carrot, subsidies to help low-income people pay for their premiums.

The challengers in King say the Internal Revenue Service has broken the law by making those subsidies available to people in all 50 states. They should actually be limited to states that set up their own exchanges, the lawsuit argues; people shouldn't be receiving financial assistance if their state deferred to the federal government to run its marketplace.

If the Supreme Court ultimately agrees with that logic, more than 4 million people—over half of all Obamacare enrollees—would lose their financial assistance and likely their insurance.

That enrollment erosion, in turn, would make those states' insurance markets "unstable and potentially unworkable," according to the Kaiser Family Foundation. The dreaded "death spiral" that got so much attention during Obamacare's rocky launch would likely become a real threat, at least in certain states. Insurance companies would still be required to cover people with preexisting conditions, but the biggest incentive for other people to get coverage would vanish.

The challengers in King point to a section of the Affordable Care Act that refers to subsidies flowing through "an exchange established by the state," which, they argue, is a sign that Congress wanted to limit financial assistance to state-based exchanges.

The White House says that's crazy talk.

Congress clearly intended for the same basic system—an exchange, with subsidies and a mandate and certain consumer protections—to exist in all 50 states, the administration says. Staffers and lawmakers who helped craft the statute agree. They've said the "established by the state" language is a simple mistake that happened when multiple versions of the health care bill were spliced together.

Congress clearly intended to set up one nationwide approach, with flexibility for state-specific implementation, the Justice Department argues. And it says there's no way Congress would have intentionally set certain states up for a "death spiral" in a law that was designed almost entirely to expand the private health insurance market.

Federal appeals courts are split on the issue. The Justice Department won the last round in King, when the 4th Circuit Court of Appeals said the statute is unclear and deferred to the IRS's interpretation.

On the same day, though, a three-judge panel of the D.C. Circuit Court of Appeals came to the opposite conclusion, siding with the challengers in a companion lawsuit. The Justice Department appealed that ruling to the full D.C. Circuit, which is set to hear oral arguments next month.

Many legal observers thought the Supreme Court would wait for the results of that appeal rather than jumping right in to King. But, well, they were wrong.

The high court has not yet set a date for oral arguments.

This article is from the archive of our partner National Journal.

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