The Supreme Court made a big splash when it announced Friday afternoon that it would grant a certiorari in the case of King v. Burwell. So what does that mean exactly?

Supreme Court building
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Well, for the Supreme Court it means that arguments won’t be heard until March 2015, with a decision not expected until at least June. In the meantime though, there’s plenty of law to be poured over to explore the contradiction of the court as it stands.

It all happened last July when two federal court of appeals considered whether the IRS had reasonably interpreted the Affordable Care Act as allowing the agency to give tax credits to taxpayers through an exchange set up by the federal government.

Both courts considered the same material, legislative histories, regulations, and arguments. They both applied the same legal principles. According to Dan Bushell at Florida Appellate Review:

Both proceeded to analyze sections 1311 and 1321 of the ACA, which deal with establishing exchanges by the state and federal government.

Section 1311, read literally, requires all states to establish exchanges. It defines “Exchange” as “a governmental agency or nonprofit entity that is established by a State…” But section 1321 says that states may “elect” to set up exchanges, thus making it an option rather than a mandate. And if a state does not elect to itself establish the exchange, section 1321 directs the federal government to “establish and operate such Exchange within the State…”

The two courts differed on how to understand the command that the federal government set up “such Exchange within the State.” Both agreed that it means that a federally established exchange is the functional equivalent of a state-established exchange and that a federal exchange must be understood as an exchange established under the authority of section 1311.

So how then, on the same day, did they come up with such opposite results? As Bushell continues, the courts disagreed about whether it is reasonable to understand the phrase “exchange established by the State under section 1311” as inclusive of federal exchanges, or if it only applies to exchanges established by the state.

In Halbig v. Burwell, the three-judge, D.C. Circuit Court of Appeals ruled 2-1 that individual consumers were eligible for tax-credits (only?) if they acquired their coverage through a state-run exchange. But (that same day) in King v. Burwell the Fourth Circuit unanimously found the language to be “ambiguous and subject to multiple interpretations,” deeming the IRS’s interpretation reasonable and leaving it to the agency’s discretion.

So why is this decision so important? Folks against overturning it say that it could mean a collapse of the economic foundation of the ACA. As Erik M. Cuadros writes on California Public Agency Labor and Employment Blog:

Only 14 states have fully established their own exchanges. The federal exchange,, operates in the remaining 36 states. The 4.7 million Americans who purchased subsidized coverage through could be affected if those subsidies are found to be prohibited by law…If the Supreme Court sides with Halbig, 4.7 million Americans would be ineligible to receive subsidies. They would likely see their out-of-pocket expenses increase sharply and plans on the federal exchange would become unaffordable.

Additionally, the ACA text says that the penalties under the employment mandate are only triggered if an employee receives a subsidy to purchase their coverage through an exchange established by the State—so if those who were originally receiving federally-subsidized health insurance aren’t anymore, their employers will no longer be penalized. Thus, there would no longer be an employer mandate in most states.

The implication is certainly there: granting certiorari  means SCOTUS is to hear “important questions of federal law that ha[ve] not been but should be settled by this court.” So we’re left to assume that the Court — or at least a few of them, since it requires four Supreme Court judges for a certiorari — think that King was wrongly decided. Which Nicholas Bagley writes for The Incidental Economist that this could be a huge blow for the Obama administration:

The justices who agree with King wouldn’t vote to grant. They would instead want to signal to their colleagues that, in their view, the IRS rule ought to be upheld. The justices who disagree with King would want to signal the opposite.

And there are at least four such justices. If those four adhere to their views—and their views are tentative at this stage, but by no means ill-informed—the challengers just need one more vote to win. In all likelihood, that means that either Chief Justice Roberts or Justice Kennedy will again hold the key vote.

None of this bodes well for the government. That’s not to say the government can’t win. It might. As I’ve said many times, the statutory arguments cut in its favor. But the Court’s decision to grant King substantially increases the odds that the government will lose this case. The states that refused to set up their own exchange need to start thinking—now—about what to do if the Court releases a decision in June 2015 withdrawing tax credits from their citizens.

This isn’t the ACA lawsuits of the past, where it pitted the text of the act against the boundaries of personal freedom in the face of federal power. This may be yet another attempt at crippling “Obamacare” but it all falls to interpreting ambiguous text of the law and figuring out if Congress and Obama meant different things with the text. It could be just a drafting error — not uncommon for a piece of legislature as hefty as the ACA, but unlikely — but we’ll have to wait and see how big this will cost the act.