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The Next Attack on Obamacare

The law still isn't safe from legal challenges that could destroy it. The next ones concern subsidies to buy individual insurance.

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Pushing lawsuits: Michael Cannon(Cato Institute)

The Supreme Court's 2012 decision upholding the Affordable Care Act's individual mandate stunned the conservative legal establishment and seemed to ensure the law's survival, given that Republicans couldn't enact a legislative repeal. But a cadre of conservative lawyers and state officials formulated a new plan of attack, and they're trying again to push the health care law toward what they hope will be a more receptive Supreme Court.

Their lawsuits aim to eliminate billions of dollars in federal subsidies designed to help millions of people buy health insurance. The subsidies are a critical component of the Affordable Care Act: They are by far its most expensive provision, its strongest incentive for people to buy coverage, and the centerpiece of its goal of making health insurance affordable. The law would be crippled without them. And that's exactly what conservatives want to accomplish. A federal court in Washington heard oral arguments over the issue earlier this week, and a similar case is pending in Virginia.

 

Liberals say the latest challenge is weak on its merits. But they feel they lost the public-relations battle over the individual mandate and don't want to repeat that mistake by brushing off cases about the law's subsidies. "I take it seriously," said Simon Lazarus, senior counsel at the Constitutional Accountability Center, who supports the Affordable Care Act. "They have a strategy, and the strategy is to get this case up to the Supreme Court and hope they have five conservative justices who will see this is a Bush v. Gore moment."

Conservatives say the Internal Revenue Service has illegally implemented the law's insurance subsidies by making them available in all 50 states. The subsidies (which are administered as tax credits) should be available only in states that operate their own insurance exchanges under the health care law, they argue. Only 14 states set up their own marketplaces, so these lawsuits threaten to wipe out subsidies for the majority of the country.

The text of the Affordable Care Act seems, at least in part, to support their interpretation. The law says people are eligible for subsidies when they enroll in health care coverage "through an Exchange established by the State." That plainly rules out the exchanges run by the federal government, conservatives maintain. "Nowhere in the law did Congress authorize the IRS to provide the credits or subsidies to those other than citizens who buy their insurance through an exchange established under section 1311 of the ACA—i.e., a state exchange," Oklahoma Attorney General Scott Pruitt wrote in a Wall Street Journal op-ed this week.

 

The Obama administration says such a reading is too narrow. Take the statute as a whole, the Justice Department argues, and it clearly intended to treat state and federal exchanges the same way. In states that don't set up their own exchanges, the law authorizes the Health and Human Services Department to take over the responsibility for "such Exchange"—meaning, Lazarus said, that HHS "stands in the shoes of the state." Interpreting the statute as its challengers suggest would also make several provisions nonsensical or impossible, perhaps even implying that no one would be eligible to use an exchange, the government argues. "There could not be an exchange, in effect. It's an absurd reading," Lazarus said. "No one even imagined their argument for close to a year after the law passed, on either side."

While the challengers' textual case is pretty straightforward, they have had a harder time demonstrating that Congress intended to limit subsidies to state-run exchanges. Critics of the IRS regulations say Congress intentionally withheld subsidies in federally run exchanges because the funding was supposed to serve as an incentive for states to set up their own marketplaces. "This is not a mystery about why Congress would do this," said Michael Cannon, director of health policy studies at the libertarian Cato Institute. That interpretation was mentioned during the legislative debate, but not at much length. The Congressional Budget Office repeatedly estimated the cost of providing subsidies in all 50 states, and the agency has said that no one from either party ever asked it to assume that consumers in some states would not receive the tax credits.

The Justice Department says the law was clearly designed to set up a particular and interconnected system of exchanges, subsidies, and mandates in each state. Slicing out certain parts of that equation in certain states isn't what Congress had in mind, the Justice Department says.

A federal District Court in Washington heard oral arguments on the subsidies earlier this week, and Lazarus said he was encouraged by the judge's questions about congressional intent. Judge Paul Friedman pressed attorney Michael Carvin, who argued against the subsidies (and also argued part of the case against the individual mandate before the Supreme Court) to explain his evidence that the IRS regulations conflict with Congress's intentions. And Carvin spent a lot of his time defending that part of his assertion, according to Lazarus, who attended the arguments. "His doing that shows that he realizes that his textual argument … just isn't enough to get the ball across the finish line for them," Lazarus said.

 

Cannon has been instrumental in shaping this legal argument and helping to push the issue through the courts. State attorneys general in Indiana and Oklahoma have filed lawsuits challenging the subsidies, and private businesses have sued in the District of Columbia and Virginia.

A ruling could come soon in the Virginia case, where the judge bypassed oral arguments and opted to rule based on written briefs alone. As for the arguments in Washington this week, Cannon didn't seem worried about Friedman's questioning about congressional intent. The text of the statute is clear, Cannon said, and he thought the judge was trying to determine whether congressional intent would even matter. "I saw some good signs, but no predictions," Cannon said.

This article appears in the December 7, 2013 edition of National Journal Magazine as Is the Second Time a Charm?.

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