A Legal Argument That Could Bring ObamaCare Crumbling Down
There's a potentially fatal legal argument looming out there for the PPACA.
While much of the news coverage of the Affordable Care Act over the past several months has been devoted to the failures of the Federal Exchange website, the relatively low sign-up numbers, the issue of whether or not enough young and healthy people will sign up to balance out the demographics of the PPACA’s insurance risk pool, the number of people finding their pre-existing coverage canceled, there remain other threats to the law slowly making their way through the courts that haven’t gotten much attention. One of those, of course, are the numerous lawsuits that have been filed around the country relating to the mandate established by the Dept. Of Health And Human Services that requires all employer-based health insurance policies to include birth control coverage. Dozens of lawsuits have been filed by religious organizations and small corporations owned by individuals asserting that the mandate violates their rights under the First Amendment and the Religious Freedom Restoration Act. As I’ve noted, the Circuit Courts Of Appeal have largely split on the question of whether that mandate violates either the Amendment or the RFRA, and the Supreme Court accepted an appeal in one of those cases late last month. Of course, even if the religious institutions and employers ultimately win their argument regarding the mandate, it will only have a tangential impact on the PPACA itself.
There’s another legal challenge floating out there, though, that hasn’t received nearly the amount of attention that the birth control issue has. It’s not a Constitutional argument per se, but if it were to succeed in Court it could bring the entire financial structure of the PPACA crashing down:
It all started in 2011, when Jonathan H. Adler, a conservative law professor at Case Western Reserve University in Ohio, shot an email to his friend Michael Cannon, a health policy expert at the libertarian Cato Institute in Washington, D.C. Adler thought he had spotted an error in Obamacare that could unravel a significant portion of the law.
At issue are the federal subsidies for individuals buying insurance in their state’s health care exchanges. The law stipulates that those subsidies should be allotted for plans purchased “through an Exchange established by the State under Section 1311” (italics added), a reference to the section of the law that establishes state-run exchanges.
Adler wondered: Did the law provide subsidies for only state-run exchanges and not federal ones? The law requires that the federal government step in to create an exchange when a state declines to do so. But does it fail to give subsidies to the residents of those states?
It may seem like a small problem, but if true, it spells disaster for the Affordable Care Act. Without subsidies, health care on the individual market becomes unaffordable. Without an affordable option, the individual and employer mandates disappear. In other words, the entire law could come crashing down in the 36 states that have opted not to run their own exchanges.
Adler and Cannon first discussed their argument in an Op-Ed in The Wall Street Journal:
The law encourages states to create health-insurance exchanges, but it permits Washington to create them if states decline. So far, only 17 states have passed legislation to create an exchange.
This is where the glitch comes in: ObamaCare authorizes premium assistance in state-run exchanges (Section 1311) but not federal ones (Section 1321). In other words, states that refuse to create an exchange can block much of ObamaCare’s spending and practically force Congress to reopen the law for revisions.
The Obama administration wants to avoid that legislative debacle, so this summer it proposed an IRS rule to offer premium assistance in all exchanges “whether established under section 1311 or 1321.” On Nov. 17 the IRS will hold a public hearing on that proposal. According to a Treasury Department spokeswoman, the administration is “confident” that offering premium assistance where Congress has not authorized it “is consistent with the intent of the law and our ability to interpret and implement it.”
Such confidence is misplaced. The text of the law is perfectly clear. And without congressional authorization, the IRS lacks the power to dispense tax credits or spend money.
What about congressional intent? Law professor Timothy Jost suggests that since ObamaCare requires all exchanges to report information about premium assistance, and it would be silly to impose that requirement on federal exchanges if their enrollees were not eligible, that shows Congress could not have intended anything but to provide assistance in federal exchanges. At least, he argues, there’s enough ambiguity here about Congress’s intent that federal courts will permit the administration to resolve it.
Not so fast. The Supreme Court has increasingly limited such deference to cases where the text of the law—rather than Congress’s intent—is ambiguous. In this case the language of the law is clear, as even Mr. Jost admits.
The health law’s authors in Congress deliberately chose to pass the bill with known imperfections and to use the reconciliation process to make only limited amendments. Writing a perfect bill would have required too many votes and risked failure. If what they passed was an imperfect bill with no premium assistance in federal exchanges, then that is what Congress intended.
And there are plausible reasons why Congress may have wanted to limit assistance to state-run exchanges—including encouraging states to create exchanges so that the federal government doesn’t have the burden.
If Cannon and Adler are correct, then the implications are rather obvious. The majority of states declined to establish exchanges of their own, and thus the people who live in those states are required to go through the Federal Exchange to obtain insurance coverage if they need it. Many of those people would be eligible for tax subsidies to cover premium costs based on their annual income, which would quite obviously alleviate the financial sting that might be felt in cases where the premium cost of new coverage is higher than whatever coverage they had before might have been. If it turns out, though, that participants in the Federal Exchange are not eligible for the subsidies, then it’s going to have a huge impact on how many people sign up for coverage and on public perception of whether the PPACA is actually working. After all, one of the primary selling points of the PPACA was that it would bring the cost of insurance coverage down in part thanks to the subsidies provided for in the law. This is problem that could impact tens of millions of people in the end if it spreads out to small businesses who also try to obtain coverage through the exchanges in the year to come, and it may lead many participants to risk dropping out of the program entirely simply because they cannot afford coverage without the subsidies. The ultimate impact of that eventuality on the soundness of the risk pool should be rather obvious.
Proponents of the PPACA, quite understandably, dismiss the arguments that Cannon and Adler make:
“I think it’s a case without merit,” said Sara Rosenbaum, a health care expert at George Washington University. “The plaintiffs have seized on a few words in a statute, they’ve taken the words completely out of context, and they have ignored numerous other parts of the statute that make their interpretation of the law basically senseless.”
Defenders of the law argue that the phrase “established by the State under section 1311” does not exclude federally-run marketplaces. Their legal argument is simple: the law defines an “Exchange” as established by the state, then orders the federal government to establish the exact same exchange, denoted as “such Exchange,” if a state fails to act. In other words, it authorizes the government to act as the state and set up an exchange as it is defined in section 1311. Whether a particular section of the law references an “Exchange” or an “Exchange established by the state” is the same thing as referring to the law variously as the “Affordable Care Act” and “Obamacare,” two terms with identical meaning, because a federally-run exchange is, for the purposes of the law, the same as a state-run exchange.
“[T]here is nothing extraordinary about the Secretary acting for, or stepping into the shoes of, or standing in for, or representing, the State,” former Justice Department lawyer Rob Weiner wrote in an amicus brief in Carvin’s case. “This type of legal substitution happens all the time.”
Presently, there are four cases pending in U.S. District Courts around the country where this argument has been raised. While none of those courts have issued an opinion yet, its only a matter of time before that changes. Indeed, I’d expect to see those opinions slowly trickle out after the first of the year. Whichever way these four Judges go on the questions at issue in the case, it’s an absolute certainty that the question while find its way to the various Circuit Courts of Appeal and, ultimately, the Supreme Court.
As for the merits of the argument itself, that strikes me as a much tougher call. Unlike the original round of PPACA litigation, these cases don’t raise Constitutional issues per se, and they don’t raise the same kind of questions that the birth control cases do. Instead we’re talking about an issue of statutory construction and the question of whether or not the Executive Branch, or the Judiciary, can substitute its judgment for what appears to be the plain language of the statute. In this case, it’s obvious that the law that Congress passed authorized tax subsidizes for exchanges established by the states. However, since the Federal Government cannot directly order the states to establish exchanges, there is also language in the statute that authorizes the Federal Government to establish an exchange for states that decline to establish an exchange. What the statute does not explicitly state is that subsidies are also authorized for an exchange established by the Federal Government. Despite that fact, both the IRS and HHS have interpreted the statute to authorize subsidies for policies through the Federal Exchange. The question before the Courts is whether that interpretation is permissible.
The rules regarding Judicial interpretations of statues, statutory intent, and the like can get fairly complicated and I won’t go through them in detail here. However, the basic rules include the idea that the plain language of the statute ought to be the starting point for any case involving how to interpret a statute and that Courts should not substitute their judgment for that plain language absent some compelling reason. Additionally, courts generally presume that words used in a statute are used a the legislature intended them, and that the statute is deemed to be both internally and externally consistent, meaning that it doesn’t contradict itself or other laws passed by Congress. Finally, the intent of Congress as set forth in official documents can also be relevant to the process of interpretation, but it’s the actual text of the law that controls, not some expression of intent in the Congressional Record or elsewhere, These are the basic principles upon which the evaluation of the cases that have been filed will be evaluated, along with a whole host of case law on the issue that is likely to make the opinions issued in these cases quite long and somewhat dry reading from the perspective of the lay person.
Not having reviewed the pleadings or the law at issue here in depth, I am not going to even try to make a prediction about which way these cases might go even in their initial round at the District Court level. However, I don’t think that Cannon and Adler are understating the impact of what could happen to the PPACA if their argument ultimately wins the day. Most of the states in the country are covered by the Federal Exchange, as is the majority of the population of the country, and if it turns out to be the case that these people are not eligible for the PPACA’s tax subsidies because of what may or may not be a drafting error in the law, then it will have a series impact on the viability of the entire system going forward. We may not know the ultimate answer to the questions raised her until 2015 or 2016, but it could end up doing more damage to the survival of ObamaCare than the website problems that have afflicted the law for the past three months.