Another Legal Threat To The Affordable Care Act
Ramesh Ponnuru writes at Bloomberg about a legal challenge to the Affordable Care Act currently pending in the Circuit Court of Appeals for the D.C Circuit that has the potential to completely undermine the financial stability of the Affordable Care Act:
Any day now, a federal court may rule that in 36 states, the federal government can’t offer tax credits to people who buy insurance on Obamacare’s exchanges. That’s because the law, as written, authorizes those tax credits only in states that have set up exchanges — and most states refused to do so.
The law says that when states fail to establish an exchange, the federal government can operate one for the state’s residents. It does not, however, say that people who buy insurance from the federal exchange can receive tax credits.
Obamacare’s foes are in the paradoxical position of insisting that the law be obeyed. If the government can’t offer credits in most states, it also can’t impose various taxes and penalties that are tied to those credits. The Internal Revenue Service is thus threatening to levy taxes that Congress hasn’t really authorized.
And without the credits, Obamacare basically disintegrates: Far fewer people would be able to afford the insurance policies without the subsidies, especially because Obamacare’s regulations jack up their prices.
The White House argues that the law shouldn’t be interpreted in a way that defeats its purpose and renders it unworkable. But it isn’t in principle absurd for the federal government to try to use tax credits as a carrot to get states to set up exchanges. The law’s drafters just miscalculated: Their law ended up being much less popular than they expected it to be, and state-level resistance to cooperating much stronger.
If the law can’t work as written, that’s because it was written in a way that made its success depend on state cooperation that hasn’t been forthcoming. The Barack Obama administration’s decision to pretend that the Affordable Care Act allows tax credits that it doesn’t is the most consequential of its many revisions of that law.
Even as eminent a member of the liberal legal community as Laurence Tribe believes that PPACA supporters should be concerned about this case:
Harvard legal scholar Laurence H. Tribe warned Tuesday of a “very high risk” that a crucial aspect of Obamacare – its government subsidies provision – could fall victim to a major legal challenge being mounted by conservatives. That is why, he also said, that the Supreme Court will almost certainly get “a second bite of the apple” in determining the fate of President Obama’s signature health law, with uncertain consequences.
Tribe, 72, a prominent proponent of the Affordable Care Act – who taught both Obama and Supreme Court Chief Justice John Roberts as constitutional law students at Harvard Law School years ago – warned of the ACA’s prospects for surviving intact during an exclusive, hour-long interview in New York with editors of The Fiscal Times.
“It looks like the panel is quite divided over what to do with what might [have been] an inadvertent error in the legislation or might have been quite deliberate,” Tribe said. “But it’s very specific that only people that go onto a state exchange are eligible for the subsidies. And if that becomes the ultimate holding of the U.S. Supreme Court, where this is likely to end up – that’s going to have massive practical implications for the administrability of Obamacare.”
Four cases, including Halbig vs. Burwell, have been brought by employers and individuals. The plaintiffs challenge the government’s contention that Congress wanted individuals in both state and federally operated exchanges to qualify for subsidies. On March 25, a three-judge panel of the D.C. Circuit heard oral arguments in the Halbig case. Another panel in Richmond, Virginia, heard arguments in King vs. Burwell on May 14 and is expected to issue a ruling any time.
Michael Cannon of the Cato Institute and Jonathan Adler of Case Western Reserve University argued recently in Health Affairs that eligibility rules for Obamacare’s premium-assistance tax credits “clearly say” eligibility “depends on the applicant being enrolled in a qualified health plan ‘through an Exchange established by the State.” But the administration and other defenders of the law say Congress and the administration never intended to distinguish between state-run marketplaces and federally facilitated marketplaces in this provision.
Tribe, whose new book, Uncertain Justice, takes a deep dive into the Roberts court, said the plaintiffs make a strong argument. The legislative language is clear, he said, that the subsidies apply to exchanges established by states. Yet in drafting the law, Tribe said the administration “assumed that state exchanges would be the norm and federal exchanges would be a marginal, fallback position” – though it didn’t work out that way for a plethora of legal, administrative and political reasons.
“You could argue that as long as a state triggers it by asking the federal government to come in [and establish insurance exchanges] that it’s a state-established exchange, even though it’s a federally run exchange,” Tribe added. That might give some of the justices who aren’t strict constructionists some leeway in looking beyond the law’s specific language, he said.
I have previously written about this issue twice — here and here — and noted some skepticism over the idea that the Federal Courts would apply the kind of statutory interpretation that the Plaintiffs in these cases are asking them to make, an interpretation that would effectively gut the PPACA in the vast majority of the country and likely undercut its financial viability as a whole. Since then, the four cases making this argument have been making their way through the Federal Courts. The most prominent case, Halbig v. Burwell, is currently pending in the Circuit Court of Appeals for D.C. where both sides are anticipating a decision being handed down any day now. In the District Court, the Court rejected the Plaintiff’s arguments regarding the construction of the statute in an opinion issued last January. A second case, King v Burwell, is currently pending before the Court of Appeals for the Fourth Circuit after a decision from the Eastern District of Virginia in February that similarly rejected the Plaintiff’s arguments regarding statutory construction. A third case, State of Indiana v. IRS, is pending in the U.S. District Court for the Southern District of Indiana, and as of now there has been no decision handed down in the case although it does appear that all of the necessary briefing has been completed. Finally, there’s Pruitt v. Burwell pending in the U.S. District Court for the Eastern District of Oklahoma, which appears to still be in the early states based on the available pleadings. By all accounts, it is the Halbig case that will be the first one to be decided by a Circuit Court.
As I note in my previous posts on this manner, the issues before the courts in these cases are significantly different from those that were before the court in 2011 that led to the Supreme Court’s decision in National Federation of Independent Business v. Sebelius in June 2011. Unlike that case, a ruling here in the Plaintiff’s favor would not void the law itself. Instead, it would make it next to impossible for the system that the PPACA established to function because the fact that subsidies would not be available for residents in every state that doesn’t have a state-run exchange would mean that their premiums would be much higher than the would be otherwise, and that would potentially mean that people would start dropping out of the system, thus causing premiums to go up nationwide. Theoretically, the statutory issue that is at the heart of these cases could be fixed by Congress in some way, but, of course, we all know that isn’t going to happen because the GOP isn’t going to do anything to save the President’s health care plan, especially not in an election year. Realistically, of course, whatever decision we get out of the D.C. Circuit will be stayed pending appeal to the Supreme Court, and the Court could be getting yet another high profile Obamacare case for the October 2014 Term.
Update: The original version of this post stated that the Fourth Circuit case, King v. Burwell, had not yet gone to oral argument. I have been advised that this is incorrect.
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