THE BLOG
11/11/2014 09:42 am ET Updated Jan 11, 2015

When SCOTUS Decides: As Obamacare Goes, So Goes Dark Money

Hisham Ibrahim via Getty Images

As previously explained, SCOTUS would not have interrupted the logical progression through the lower courts (aka, "courtus interruptus") of the absurd lawsuit (King v Burwell) alleging the illegality of Obamacare subsidies through the federal exchange if it had not already decided to abolish them.

But, when the Court denies millions of people their health care subsidies, they will also be putting an end to hundreds of millions of dollars of dark money that is infecting our elections. And, likely much else in our regulatory and tax system.

At stake in King is whether a federal agency can interpret a statute in the context of the entire law, or whether it must strictly adhere to the specific words of one sentence. Section 1331 of the Patient Protection and Affordable Care Act (aka, "Obamacare") authorizes tax credits for insurance purchased on an exchange "established by the State under section 1311". Plaintiffs assert that that does not authorize tax credits for insurance purchased on an exchange established by the federal government.

The law was established to reform the health insurance industry by prohibiting exclusions for pre-existing illnesses, and make health care insurance available and affordable to everyone. To do so, the law provided state governments funding to establish their health insurance markets (aka, "exchanges") but set up a federal exchange (healthcare.gov) to take care of the people who lived in states that would not do so.

So, plaintiffs argument boils down to this: having established the federal exchange as a default mechanism so that every person, regardless of their states' political posture, would be able to receive the benefits of health care reform, the federal government simultaneously meant to exclude those people from the financial assistance to help them afford that health care.

How do they know this? Because the law used the word "state" and not "state or federal", or not just the word "exchange" in section 1331. According to this interpretation, then, the federal exchanges were established to provide health insurance only to those who could already afford it anyhow.

Nonetheless, the Supreme Court, or, more precisely, five justices, will somehow just miss the context, and find themselves "unable" to get over the literal meaning of the written words.

But, they will also find that a funny thing happened to them on the way to becoming merely an arm of the Republican political agenda, and not a court. For, there are other statutes interpreted by executive agencies, indeed the very same IRS as is involved in King, that would then be forced instantly to revert to the literal meaning of each word.

[Even if the Court tried to limit its impact, as it did in its scandalous decision in Bush v Gore, by stating it was not to be used as precedent, such protestations would not stop the agencies from applying the standards as they would be impregnable to legal argument].

One such plum involves dark money, the right of donors' identities to remain hidden, based upon a 1959 IRS interpretation of the word "exclusively" in a statute regulating tax-exempt 501(c)4 organizations to mean "primarily".

The law, section 501(c)4 of the Internal Revenue Code, defines these exempt organizations thusly:

Civic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare.

In 1959 the IRS interpreted "exclusively" to mean "primarily". With that interpretation, 501(c)4's have been scrutinized to ensure that at least 51% of their resources were "the promotion of social welfare", leaving 49% to be used, say, for political attacks. Once an organization qualifies for these preferences (and, no, my Tea Party friends, these preferences are not god-given rights, they have to be earned by proper behavior, and investigations by IRS to ensure they are not being abused are not only proper, but legally required), they are tax-exempt and their donors need not disclose their identities, i.e., dark money.

But, when the Supreme Court rules, as they surely will, in King that "state exchanges" means only "state" exchanges, and the default federal exchange was established only to provide for those who could already afford health insurance, it follows as the night the day, that "exclusively" in the IRS code can mean just one thing: 100% social welfare promotion. Hence, gone is the tax-exempt status, gone is donor anonymity, gone is dark money for the entire organization if even $1 is spent on political activities.

Nor are these situations of literal language and agency interpretation unique. Vast swaths of our laws use language that, literally read, constrains activities far more narrowly than the purpose of the law intends, leading agencies to adopt reasonable rules consistent with statutory purpose to interpret them.

For example, we enjoy generic drugs as quickly as we do when a drug patent expires because of an exemption to patent infringement contained in the "Hatch-Waxman" Act of 1984. Specifically, section 271(e) grants that exemption "solely for the purposes reasonably related to FDA approval" enabling other companies to test the patented drug while the patent is still in force, so that it can be approved the day the patent expires.

The courts themselves have given broad meaning to the word "solely" because Congress's intent was to provide a "safe harbor" to companies to get their much cheaper generic version of the drug on the market the day the patent actually expires. When the Supreme Court rules in King, kiss those cheap versions good-bye, at least for a good year or two after the patent expires. [For the right-wingers reading this, the "Hatch" of "Hatch-Waxman" is your own Orrin].

Once donor anonymity is gone, it is difficult to imagine how it will ever return. Sure, the right-wing will freak-out, the Koch Boys will demand Congress act (after all, they own it), but this is one where the President will surely veto it. It is hard to imagine Democrats, who were just beaten to a pulp by the scurrilous ads funded by this dark money, would help the Koch Boys override that veto.

By contrast, there will be a lot of incentives in states, even those controlled by the radical right wing, to provide at least a link to the federal exchanges, so its citizens do not lose their health care tax credits.

There is, after all, another election in two years. If there is anything that 2010 and 2014 showed, it is that anger is a great motivator to vote.

Millions of people will lose their health care, and states with their own exchanges will, in essence, be supported by taxpayers from the states that do not.

Even Democrats would know how to stir that cauldron.