Circular Reasoning

Will the logic that gutted Obamacare in 2012 save it this time?

U.S. Supreme Court Chief Justice John Roberts.

U.S. Supreme Court Chief Justice John Roberts and Justices Anthony Kennedy, Ruth Bader Ginsburg, Stephen Breyer, and Elena Kagan, prior to President Obama’s State of the Union address, on January 28, 2014.

Photo by Larry Downing-Pool/Getty Images

To the topsy-turvy annals of the Affordable Care Act, we might soon add this: that the law was saved on its second visit to the Supreme Court by the same line of thinking that partially gutted it on its first trip to the court.

That is the distinct possibility that emerged at Wednesday’s oral arguments in King v. Burwell, the legal challenge to Obamacare that grew out of the discovery by a little-known employment-benefits attorney in South Carolina and the advocacy of an ardent think-tank libertarian in Washington to seriously threaten the viability of the law. The challenge is directed at the law’s provision that federal subsidies to help people without employer-based health coverage afford private insurance would be available to those buying coverage on an “Exchange” or online marketplace. Whether it succeeds depends on how the court chooses to interpret these four words: “established by the State.” The challengers argue that under this language, the subsidies should be available only in the 17 states that have proceeded to set up their own exchanges, and not in the 33 others that have left that task to the federal government, the backup that was provided for in the law.

The government had come to the court prepared to make the arguments it had offered in the lower courts for why it was absurd to suggest, on the basis of a few clumsily drafted words, that the subsidies would not be available on the federally run exchanges as well. That the whole point of the Affordable Care Act was to provide affordable coverage to as many Americans as possible, so why would the subsidies to make that possible be allowed only in some states and not others? That it was ridiculous to suggest, as the challengers did, that withholding subsidies was a deliberate ploy on the law’s part to get states to set up their own exchanges, since that incentive was never mentioned during the law’s drafting nor spelled out in the Obama administration’s communications with the states. That the full context of the law made clear that the subsidies were intended to flow to people in both state- and federally run exchanges, and, in fact, that if one accepted the challengers’ reading of the clause in question, whole swaths of the rest of the law became nonsensical.

Those arguments had been enough to persuade the Fourth Circuit Court of Appeals in Richmond, Virginia. But the challengers had prevailed in a 2-1 ruling at the D.C. Circuit Court of Appeals, with the two Republican nominees on the panel siding against the lone Democratic one, and before a full en banc panel of that court had had the chance to review the ruling, the Supreme Court had snatched it up. This was cause for great consternation among the law’s defenders, who worried that Chief Justice John Roberts had decided it was time to eviscerate the law that he had allowed to stand in 2012, a ruling that marked him as a quisling in the eyes of many of his fellow conservatives.

But the law’s defenders took heart Wednesday when an entirely different point was raised that seemed to argue in defense of the law. And it was raised not by Roberts, the swing vote in 2012—who asked virtually no questions of the lawyers at Wednesday’s hearing—but by Justice Anthony Kennedy, who had ruled against the law in 2012. Kennedy seemed concerned that ruling in favor of the challengers, and thereby eliminating the subsidies in the 33 states without their own exchanges, would pose a constitutional problem for the law. Why? Because it would mean that the federal government was exerting an undue level of coercion over the states—threatening them with the withholding of valuable subsidies for millions of their citizens if the states did not take a specified action. “Let me say that from the standpoint of the dynamics of federalism, it does seem 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 Michael Carvin, who represented the challengers. The reason this argues against the challengers is that in seeking to interpret ambiguous statutes, the court traditionally favors whatever interpretation causes the least constitutional conflict.

If this argument about coercion of the states sounds familiar, it’s because it is what the Supreme Court relied on in the second half of its 2012 opinion—a 7-2 ruling that, to the great dismay of the law’s supporters, undid the law’s expansion of Medicaid to a new nationwide threshold of eligibility. That expansion was how the law was intending to cover the neediest swath of uninsured Americans. But the court ruled that it was too coercive of the federal government—a “gun to the head,” as Roberts put it in the ruling—to tell the states that they had to go along with the expansion, or exit the Medicaid program entirely, even if the feds were picking up nearly the entire tab of the expansion. And as a result of the ruling, some 5 million low-income people have been left uncovered in the half of the states that have refused to accept the Medicaid expansion—a grievous blow to the law’s goals.

So it was awfully ironic to have that same reasoning now being invoked in the law’s defense. Carvin was not unprepared for it, as it was raised in a brief filed by 22 states arguing in defense of the law, and also in a trenchant recent piece by Yale Law professor Abbe Gluck. Asked about the implication of the Medicaid ruling last week by the Wall Street Journal, Carvin rejected the comparison, saying that withholding subsidies from residents didn’t create the same degree of coercion as the Medicaid plan had, because the penalty for rejecting the Medicaid expansion would have been losing funding for existing Medicaid programs in the states, whereas the subsidies were an entirely new offering—that is, no one would be losing something they already had. “You’re not putting on the table old federal [funding] guarantees, and the fiscal enormity is much less,” Carvin told the Journal.

But at the court, Kennedy noted, correctly, that there was much more at stake in the threat that would be created by the challengers’ reading of the law than just whether citizens got the new subsidies. The new exchanges created by the law for individual insurance would still draw some customers even without the subsidies, because the exchanges offer consumer protections, such as requiring insurers to offer plans regardless of pre-existing conditions. But without subsidies, the exchanges would attract only those who would want to buy coverage even if it was quite expensive—that is, older and sicker people who really needed coverage. And this would send the individual insurance market in these states into a “death spiral” where an ever-dwindling pool of people were buying coverage at ever-higher rates.

Carvin struggled to respond to Kennedy’s strong articulation of the problem. He tried to argue that by Kennedy’s reasoning, even the Medicaid part of the Affordable Care Act that was left after the court’s elimination of the nationwide expansion was unconstitutional, because coverage is being denied to poor people in the states that rejected the expansion. But again, Kennedy wasn’t just saying that the coercion problem with the subsidies was that states that refused them would be denying their residents a financial benefit—he was noting that denying them would send their individual health insurance markets into a tailspin. Carvin failed to address that.

Kennedy left Carvin with some reason for hope, noting, “It may well be that you’re correct as to these words [“established by the State”], and there’s nothing we can do. I understand that.”

And there was plenty to give the law’s supporters disquiet. Roberts’ portentous silence left no sign as to where he was leaning on the case. And there was Justice Antonin Scalia’s scorn for the government’s defense, despite the fact that he has in the past argued strongly for siding with administrative interpretations of ambiguous statutes, and argued that textual readings of laws should be “holistic” and “contextual” instead of “wooden” and “literal.”

The ultimate wooden and literal reading of the Affordable Care Act would be seizing on a few words to upend the law, thereby throwing millions of Americans off of health coverage and wreaking havoc in the health insurance market. But it appears as if that’s just fine with Scalia. The millions depending on the law for their coverage will likely need to depend on another justice to retain the economic security they have gained under Obamacare.

That’s not ideal from the standpoint of many liberals, since it will only add to legal precedents favoring states’ rights, which have so often been used to undermine liberal goals—as happened with the Medicaid expansion. But at this point, the law’s supporters will take what they can get to move the president’s signature legislative achievement past the legal assassins.