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.

Pushing lawsuits: Michael Cannon
National Journal
Sam Baker
Dec. 7, 2013, midnight

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.

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