President Obama’s health-care reform law came under intense judicial scrutiny on Wednesday as a sharply divided US Supreme Court took up a case that threatens to derail the Affordable Care Act (ACA). If that happens, experts have warned, it could potentially leave millions of low- and middle-income Americans with no way to afford their health insurance.
During 1 hour and 25 minutes of oral argument, the justices appeared split along conservative-liberal lines over the central issue in the case: how best to interpret a key provision of the ACA that challengers say bars the distribution of tax credits through health-care exchanges set up by the federal government.
The case is considered a potential blockbuster, with high stakes involving billions of dollars in tax subsidies and health-care insurance plans.
Based on the tone and content of their questions from the bench, the four members of the court’s liberal wing are solidly behind the Obama administration’s interpretation of the ACA.
On the other side, the court’s conservative justices were more skeptical of the administration’s arguments and appeared more accepting of the challengers’ view of the case.
Nonetheless, it remains unclear how Chief Justice John Roberts and, perhaps, Justice Anthony Kennedy, will ultimately vote. Chief Justice Roberts cast the deciding vote in a 2012 constitutional challenge to Obamacare. That vote has led some analysts to consider him a possible deciding vote in this case, as well.
At several points, Justice Kennedy raised concerns that the ACA’s ham-handed, take-it-or-leave-it approach to tax credits could be unconstitutionally coercive toward the states, thus raising federalism concerns.
“It does seems to me that there is something very powerful to the point that if your argument is accepted, the states are being told either create your own exchange, or we’ll send your insurance market into a death spiral,” Kennedy told the challengers’ lawyer, Michael Carvin.
Kennedy suggested that perhaps the challengers might prevail in an analysis of the plain words of the statute. But he stressed that “there’s a serious constitutional problem if we adopt your argument.”
Later, Kennedy expressed concern that under the Obama administration’s approach to the ACA, the IRS had adopted a regulation authorizing distribution of billions of dollars in tax credits.
“It seems to me our cases say that if the Internal Revenue Service is going to allow deductions [by agency regulation], it has to be very, very clear [that the statute requires it],” Kennedy said.
He added that he also thought it “a little odd” that the IRS didn’t ask Congress to clear up any uncertainty about terms in the ACA.
For his part, Chief Justice Roberts did not ask many questions during the session.
The hearing drew a significant number of lawmakers into the packed courtroom from the Capitol Building across the street. They included Sens. Orrin Hatch, (R) of Utah; Lamar Alexander (R) of Tennessee; Patty Murray (D) of Washington; Dick Durbin (D) of Illinois; and Ron Wyden (D) of Oregon. Also in attendance were House minority leader Nancy Pelosi (D) of California and Rep. Paul Ryan (R) of Wisconsin.
At issue in the case is whether the ACA authorized the IRS to enact a 2012 regulation distributing billions of dollars in tax credits through health-care exchanges set up by the federal government.
A group of Virginia residents opposed to Obamacare are challenging the regulation, charging that the IRS usurped powers reserved to Congress. They argue that the text of the ACA, as written by Congress in 2010, requires that tax credits shall only be distributed to health insurance policy holders through health-care exchanges established by a state.
US Solicitor General Donald Verrilli urged the justices to embrace a broader reading of the ACA with an eye toward the larger purpose of the law – to provide affordable health care nationwide.
“Textually, [the challengers’] reading produces an incoherent statute that doesn’t work,” he said.
“Their reading forces [the government] to establish rump exchanges that are doomed to fail,” Solicitor General Verrilli said. “It precipitates the insurance market death spirals that the … statute was designed to avoid, and, of course, it revokes the promise of affordable care for millions of Americans.”
He added: “That cannot be the statute that Congress intended.”
Mr. Carvin, a Washington appellate lawyer representing the challengers, said during his argument that the disputed provision is clear and unambiguous.
“The only provision in the Act which either authorizes or limits subsidies says, in plain English, that the subsidies are only available through an exchange established by the state,” Carvin said.
He said that Congress knew how to create equivalence between an exchange established by a state and one established by the federal government, but it did not do so in the ACA.
The tax credit issue would not have emerged as a controversy – or even a point of contention in the statute – had all 50 states agreed to set up their own health care exchanges as members of Congress assumed they would.
The problem is only 16 states sought to establish their own exchanges to facilitate Obamacare subsidies. The remaining 34 states declined.
The ACA requires the federal government to set up an exchange in any state that fails to do so. But there is no parallel provision in the law explicitly authorizing the distribution of tax credits in an exchange established by the federal government.
Faced with this problem, the administration could have asked Congress to amend the statute to make clear that tax credits should be available through all health-care exchanges regardless of whether they were established by a state or by the federal government.
By that time, Democrats had lost their majority in the House of Representatives, and Republicans were eager to repeal Obamacare, rather than amend it.
The administration used the regulatory process to resolve the issue. Although the ACA appears to require the opposite, the IRS enacted a regulation stating that tax credits could be distributed through both state and federal exchanges.
Those challenging the regulation say the ACA requirement is clear – only individuals who sign up for coverage in a healthcare exchange established by the state shall receive tax credits.
If strictly enforced, that provision would eliminate subsidies for more than 7 million of the 11 million Americans who signed up on health-care exchanges and are relying on tax credits to afford coverage under Obamacare. Economists warn that such a development could plunge the president’s most significant legislative achievement into a series of “death spirals.”
At one point Justice Alito asked the solicitor general why Congress would use the phrase “exchange established by the state” if it really meant to say exchange established by either a state or the federal government?
Verrilli responded that the phrase was meant to convey a “specific exchange established in the specific state as opposed to general rules for exchanges.”
“Why didn’t they say ‘in the state,’ ” Alito asked. “That’s the phrase you just used.”
“I suppose they could have, but it worked perfectly well this way,” Verrilli said.
“So when it says ‘each state shall establish,’ it really means the federal government shall establish if a state doesn’t establish,” Alito asked.
“The right place to focus here is not on the who, but on the what; on the thing that gets set up and whether it qualifies as an exchange established by the state,” Verrilli said.
Scalia called the solicitor general’s interpretation of the statute “gobbledygook.”
“It isn’t gobbledygook, Justice Scalia,” Verrilli responded. He said it is the “only way to make sense of the statute as a whole.”
Midway through the solicitor general’s argument, the issue arose about the potential massive fallout from any high court decision undercutting Obamacare.
Verrilli said it was doubtful states would be able to organize alternative exchanges, even if existing federal subsidies continued through the end of the tax year.
“What about Congress?” Scalia asked. “You really think Congress is just going to sit there while all these disastrous consequences ensue?”
Verrilli hesitated. “Well…, this Congress, your honor ... I ... I....”
The courtroom erupted in laughter.
The case is King v. Burwell (14-114). A decision is expected by late June.