02/28/2015 04:36 pm ET Updated Apr 30, 2015

The Supreme Court & Obamacare Round II

The plaintiffs in King v. Burwell argue that federal subsidies under the Affordable Care Act (the "ACA") are lawful only in states which have set up their own health care exchanges. This case is now pending before the United States Supreme Court, and the very survival of the ACA could be at stake. In the words of the Fourth Circuit Court of Appeals which ruled against the plaintiffs, "[w]ith only sixteen state-run Exchanges currently in place, the economic framework supporting the Act would crumble if the credits were unavailable on federal Exchanges."

As I read plaintiffs' argument, it primarily turns on the interaction of three provisions of the ACA. First, Section 1311 of the ACA provides that states "shall" set up Exchanges although Section 1321 recognizes that a state may elect not to do so. Second, Section 1321 provides that if a state does not elect to set up an Exchange, the Department of Health and Human Services "shall . . . establish and operate such Exchange within the State." Third, Section 1401 of the ACA provides subsidies for coverage "enrolled in through an Exchange established by the State under Section 1311. . . ." Since no express mention is made of federal Exchanges in the last provision, plaintiffs argue that subsidies are available only for Exchanges set up by the states themselves.

However, as Judge Davis points out in his Fourth Circuit concurring opinion, "[w]hen a state elects not to establish an Exchange, the contingency provision authorizes federal officials to establish and operate 'such Exchange' . . . ." In other words, federal officials are effectively acting on behalf of the state in creating "such Exchange." Read in that full context, it's hard to see why subsidies would not be available. Instead, if Congress had wanted to provide unsubsidized coverage for federal exchanges in an act purporting to make healthcare more affordable and available, wouldn't one expect explicit language to that effect? As Judge Davis puts it, "If Congress wanted to limit . . . tax credits . . . to state-run Exchanges, it would have said so rather than tinkering with the formula in a subprovision governing how to calculate the amount of the credit."

Plaintiffs have a further problem. Granting for the sake of argument that the statutory language is reasonably subject to different interpretations, the IRS has determined that credits are available for both federal and state Exchanges. Under the Chevron doctrine, where statutory language is reasonably subject to different interpretations courts have long deferred to agency interpretations that are not "arbitrary, capricious, or manifestly contrary to the statute." Such review "is highly deferential, with a presumption in favor of finding the agency action valid." As the Fourth Circuit noted, ". . . widely available tax credits are essential to fulfilling the Act's primary goals. . . ." Furthermore, again, the Fourth Circuit recognized that "the economic framework supporting the Act would crumble if the credits were unavailable on federal Exchanges." Since the IRS interpretation both furthers essential goals of the ACA and prevents the very crumbling of the act itself, it's hard to see how the interpretation could be arbitrary, capricious, or manifestly contrary to statute under any standard of review, especially a highly-deferential one.

Apart from the substantive problems with their case, plaintiffs must also convincingly address the practical absurdity of their argument. Given the clear purpose of the ACA to extend the reach of affordable healthcare, how can it not be absurd to choose a reading of the ACA which denies subsidies to federal exchanges? I deliberately use "choose" here since, as noted above, such a reading is not required. Plaintiffs have a hard task defending their choice in a legal tradition long averse to absurd practical results.

William Blackstone, for example, instructs us to avoid "a very absurd signification" resulting from "effects and consequence[s]" of a statute. One example he gives is a law of Bologna which provided "that whoever drew blood in the streets should be punished with the utmost severity." Though the Burwell plaintiffs would presumably disagree with the result, Blackstone notes that the law "was held after long debate not extend to the surgeon, who opened the vein of a person that fell down in the street with a fit."

In Church of the Holy Trinity v. U.S., the Supreme Court also famously avoided statutory absurdity. Though a federal statute criminalized importing persons into the country for "labor or service of any kind," the Court found it absurd to apply the statute to pastors brought in to serve a church. They noted that the act was titled "An act to prohibit the importation of foreigners and aliens under contract or agreement to perform labor in the United States . . . ." They also noted that "the thought expressed in this reaches only to the work of the manual laborer, as distinguished from that of the professional man." They further looked at "contemporaneous events, the situation as it existed and as it was pressed upon the attention of the legislative body." Doing so, the Court explored "the evil which [the act was] designed to remedy" and found that to be "cheap, unskilled labor" rather than "brain toilers."

Context and purpose mattered in Holy Trinity and context and purpose matter here. The subsidy subsection of the ACA must be read in the context of the entire act and its goal of expanding not shrinking affordable healthcare. The title of the ACA ("Patient Protection and Affordable Care Act") leaves little doubt of its purpose which the Fourth Circuit noted is to "increase the number of Americans covered by health insurance and decrease the cost of health care." How do plaintiffs respond? They argue that Congress meant to limit subsidies to state exchanges as a means of "inducing states to take the desired action of establishing Exchanges." In other words, they answer one absurdity with another. A Congress hoping to expand affordable healthcare withheld it in states refusing to set up exchanges.

Oddly enough, the weakness of plaintiffs' case may be a blessing for Republicans. If plaintiffs succeed, Republicans may well be disproportionate first casualties. Many Republican-led states have refused to set up state exchanges. Their citizens would thus be among the first to feel the "victory" in this case. Not only would many Republicans lose their subsidies, might they have to pay them back as well? What happens if many lower-income and middle-class Republicans feel an awful sting of having voted against their own economic self-interest? What would Republicans leaders do then? Set up state exchanges they had previously condemned? Replace the ACA with concrete legislation that preserves things people like about the ACA such as coverage for pre-existing conditions? What are the odds of that happening any time soon if at all?

Perhaps the Supreme Court has taken this case not only to settle the specific matters before it. Perhaps it would remind us of other things as well. Law is not a game of words played by taking parts out of their full context. Nor should the hammer rule the carpenter. Words are tools of life, not the absurd reverse, and should be read as such. Perhaps the Supreme Court will thus both reject plaintiffs' uncompelling statutory argument and expressly reaffirm Holy Trinity's renunciation of the absurd. If they choose not to do so (and this will be a choice not compelled by the text of the ACA), it will be especially interesting to see how affected Republican voters respond.