Why Obamacare Will Lose

A lower court’s ruling could help the Supreme Court weaken Obamacare’s subsidies.

The exterior of the U.S. Supreme Court on March 26, 2012.
National Journal
Feb. 18, 2015, 3:40 p.m.

Na­tion­al Journ­al looks at the up­com­ing Su­preme Court case on Obama­care and ex­plains why each side will win. Click here for our story on how the Obama ad­min­is­tra­tion will win.

The Su­preme Court will hear or­al ar­gu­ments next month in King v. Bur­well, the con­ser­vat­ive-led law­suit that will de­term­ine the fu­ture of the Af­ford­able Care Act

Here’s why the Obama ad­min­is­tra­tion will lose.

The cent­ral is­sue in King is the for­mula for cal­cu­lat­ing Obama­care’s premi­um sub­sidies. The law says the pay­ments are tied to cov­er­age through an Ex­change “es­tab­lished by the State.” The chal­lengers say that line means that sub­sidies are only avail­able in states that set up their own mar­ket­places—not in the 34 states that punted the task to the fed­er­al gov­ern­ment.

“The fear is go­ing to be that the Court is go­ing to read these four words in isol­a­tion,” said Abbe Gluck, a law pro­fess­or at Yale Uni­versity who sides with the Obama ad­min­is­tra­tion in the case.

The ques­tion that keeps nag­ging at the Justice De­part­ment is this: If Con­gress didn’t in­tend to lim­it sub­sidies to state-based ex­changes, what are the words “es­tab­lished by the State” do­ing there? It’s one the gov­ern­ment will have to an­swer dur­ing or­al ar­gu­ments, giv­en the strong tex­tu­al­ist lean­ings of the Court’s con­ser­vat­ive ma­jor­ity.

(RE­LATED: Re­pub­lic­ans See Lever­age from Su­preme Court for Obama­care Over­haul)

The most hon­est an­swer is prob­ably some ver­sion of, who knows? It’s a messy stat­ute; this part was writ­ten in a hurry—maybe it’s just a mis­take.

But the Justice De­part­ment can’t really make that ar­gu­ment be­fore the Court, leg­al ex­perts said, be­cause courts try to avoid read­ing parts of any le­gis­la­tion as ex­traneous. If Con­gress said something, the courts tend to as­sume that it did so for a reas­on.

“It’s a simple ar­gu­ment for the pe­ti­tion­ers,” said Chris Walk­er, a law pro­fess­or at Ohio State Uni­versity and a former clerk to Justice An­thony Kennedy.

So, the gov­ern­ment’s best bet is to ar­gue that “es­tab­lished by the State” be­longs there, but doesn’t mean what it sounds like. The Justice De­part­ment says “es­tab­lished by the State” refers to any ex­change, no mat­ter who es­tab­lished it.

The stat­ute treats state- and fed­er­ally run ex­changes as equi­val­ent in oth­er ways and, the gov­ern­ment ar­gues, the stat­ute as a whole in­dic­ates that Con­gress in­ten­ded for the fed­er­ally run ex­changes to “stand in the shoes” of the states.

(RE­LATED: Why the Obama­care Case Drives Wash­ing­ton Crazy)

“That phrase is a term of art that in­cludes both an Ex­change a State es­tab­lishes for it­self and an Ex­change HHS es­tab­lishes for the State,” the Justice De­part­ment said in a brief to the high court.

Still, every­one who sup­ports Obama­care and wants to see this case fail would be hap­pi­er if the words “es­tab­lished by the State” wer­en’t there. And that makes them a prob­lem. The ques­tion is, how big a prob­lem?

Un­der the Justice De­part­ment’s in­ter­pret­a­tion, crit­ics ar­gue, “es­tab­lished by the State” is a “term of art” that doesn’t mean any­thing—the sen­tence would mean the same thing with those words as it would without them. So, again, why are they there?

“Why would Con­gress add un­ne­ces­sary words that, on any read­ing, say pre­cisely the op­pos­ite of what it sup­posedly meant?” the chal­lengers’ brief asks.

Leg­al ex­perts said Dav­id Rivkin, who is ar­guing the case for the chal­lengers, will likely do his best to bring the justices—par­tic­u­larly Kennedy and Chief Justice John Roberts—back to that ques­tion.

(RE­LATED: Will John Roberts or An­thony Kennedy Save Obama­care?)

The Justice De­part­ment has a thor­ough ar­gu­ment about the most nat­ur­al way to read oth­er parts of the stat­ute, but when the ques­tion­ing is con­fined to “es­tab­lished by the State,” it will likely stay pretty cir­cu­lar. The fur­ther the justices are will­ing to branch out, the great­er chance the gov­ern­ment has of win­ning.

Real­ist­ic­ally, the Justice De­part­ment has more ways to win than the chal­lengers. But the sil­ver lin­ing for the law’s crit­ics is that their strongest ar­gu­ment is the start­ing point for the court’s ana­lys­is.

“The four words are def­in­itely on their side, and then they just have to be able to really ham­mer home that you can read the rest of the stat­ute con­sist­ently with that,” Walk­er said.

That’s not easy, but it can be done.

The chal­lengers have worked hard to build a case that Con­gress fully and ex­pli­citly in­ten­ded to lim­it Obama­care’s sub­sidies to state-run ex­changes. It’s not an es­pe­cially strong ar­gu­ment; no lower-court judges have bought it. It’s more of a per­mis­sion struc­ture—a loose col­lec­tion of facts and the­or­ies that might help a con­ser­vat­ive justice cast doubt on the gov­ern­ment’s view of con­gres­sion­al in­tent, even without a fully formed al­tern­at­ive.

That was enough for a three-judge pan­el from the D.C. Cir­cuit Court of Ap­peals, which ruled 2-1 last year that sub­sidies should only be avail­able in state-based ex­changes. Al­though the ma­jor­ity in that de­cision didn’t buy the chal­lengers’ ar­gu­ment that Con­gress clearly in­ten­ded to lim­it the scope of sub­sidies, as an in­cent­ive for states to set up their own ex­changes, it said the gov­ern­ment’s the­ory of in­tent wasn’t a sure thing, either—and that the text should be the tie-break­er.

(RE­LATED: 5 Things to Watch in SCOTUS’ Obama­care Ar­gu­ments)

“The fact is that the le­gis­lat­ive re­cord provides little in­dic­a­tion one way or the oth­er of con­gres­sion­al in­tent, but the stat­utory text does. Sec­tion 36B plainly makes sub­sidies avail­able only on Ex­changes es­tab­lished by states. And in the ab­sence of any con­trary in­dic­a­tions, that text is con­clus­ive evid­ence of Con­gress’s in­tent,” that court wrote.

The D.C. Cir­cuit’s ma­jor­ity could provide a sort of road map if the Su­preme Court’s con­ser­vat­ive bloc wants to in­val­id­ate the sub­sidies. It largely ac­cep­ted the gov­ern­ment’s ar­gu­ment that fed­er­ally run ex­changes were meant to stand in for state-based mar­ket­places—but, again, said that doesn’t change the mean­ing of “es­tab­lished by the State.”

“The prob­lem con­front­ing the [gov­ern­ment] is that sub­sidies also turn on a third at­trib­ute of Ex­changes: who es­tab­lished them,” the D.C. Cir­cuit wrote.

Such a rul­ing might ap­peal to Roberts’s in­ner tex­tu­al­ist, of­fer­ing him a way to rule against a law he pre­sum­ably doesn’t care for, while fram­ing that rul­ing as the only way to re­solve an un­clear stat­ute.

The Justice De­part­ment needs to em­phas­ize the sub­sidies’ con­nec­tions to oth­er parts of the stat­ute to steer the Su­preme Court away from a sim­il­ar de­cision, Gluck said.

“This is a very com­plic­ated stat­ute, and the fear is that the Court won’t un­der­stand it enough to be able to see through the chal­lenger’s ar­gu­ments. That’s what I’m most wor­ried about. That’s what happened in the D.C. Cir­cuit.”

Now read why the Obama ad­min­is­tra­tion will win.

— This story has been up­dated.

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