What Happens If Obama Loses the Halbig Case?

| Tue Jul. 22, 2014 1:54 PM EDT

So let's suppose the Halbig case goes up to the Supreme Court and they rule for the plaintiffs: in a stroke, everyone enrolled in Obamacare through a federal exchange is no longer eligible for subsidies. What happens then? Is Obamacare doomed?

Not at all. What happens is that people in blue states like California and New York, which operate their own exchanges, continue getting their federal subsidies. People in red states, which punted the job to the feds, will suddenly have their subsidies yanked away. Half the country will have access to a generous entitlement and the other half won't.

How many people will this affect? The earliest we'll get a Supreme Court ruling on this is mid-2015, and mid-2016 is more likely. At a guess, maybe 12 million people will have exchange coverage by 2015 and about 20 million by 2016. Let's split the difference and call it 15 million. About 80 percent of them qualify for subsidies, which brings the number to about 12 million. Roughly half of them are in states that would be affected by Halbig.

So that means about 6 million people who are currently getting subsidies would suddenly have them yanked away. It's even possible they'd have to pay back any tax credits they'd received previously.

So what's the political reaction? The key point here is that people respond much more strongly to losing things than they do to not getting them in the first place. For example, there are lots of poor people in red states who currently aren't receiving Medicaid benefits thanks to their states' refusal to participate in Obamacare's Medicaid expansion. This hasn't caused a revolt because nothing was taken away. They just never got Medicaid in the first place.

The subsidies would be a different story. You'd have roughly 6 million people who would suddenly lose a benefit that they've come to value highly. This would cause a huge backlash. It's hard to say if this would be enough to move Congress to action, but I think this is nonetheless the basic lay of the land. Obamacare wouldn't be destroyed, it would merely be taken away from a lot of people who are currently benefiting from it. They'd fight to get it back, and that changes the political calculus.