King v. Burwell, which will be argued before the Supreme Court on Wednesday, is the most important case you’ve never heard of. The plaintiffs hope to take down Obamacare, and they may well succeed.
The Affordable Care Act gave states the authority to set up “exchanges,” online marketplaces where people can buy health insurance from insurance companies. The law requires people to buy health insurance if they don’t already receive it from their employer or other sources, and makes them pay a penalty if they do not. To ensure that low-income people can afford health insurance, the law gives them a subsidy in the form of tax credits.
Or so it seems. Opponents of the ACA claim that most of the people who have received health insurance through this system are not actually entitled to the tax credits.
If a state does not set up an exchange, the ACA provides that residents of that state may use an exchange set up by the federal government. Most states—34—have not set up an exchange, so most people depend on federal exchanges. The plaintiffs in King v. Burwell argue that those people are not entitled to a tax subsidy because of the way that the law is written.
The argument is simple. Buried in the 900-page statute is a line that says that subsidies are available for people who use “an Exchange established by the State.” Therefore, subsides are not available for people who use the exchanges established by the federal government. QED.
The government argues in response that other provisions of the statute make clear that the phrase “an Exchange established by the State” is a term of art. It means an exchange either established by a state or established by the federal government on behalf of a state. No other parts of the statute distinguish federal exchanges and state-established exchanges in terms of the benefits they afford people. Some other provisions would be hard to make sense of if the plaintiffs’ interpretation were adopted. For example, one provision says that “qualified individuals” may use the exchanges, and that a “qualified individual” is someone who “resides in the State that established the Exchange.” If such an exchange could not include a federal exchange, then none of the people in states with federal exchanges could actually use those exchanges. But Congress would not have provided for federal exchanges that no one could use.
The government also argues that the purpose of Obamacare was to provide insurance to low-income people. The law was not intended to enable state legislatures to thwart this purpose by refusing to establish state exchanges. If the plaintiffs win, then most low-income people will drop out of the market because they cannot afford insurance without the subsidies. Only the sickest people will stay in, which will cause insurance companies to raise prices for everyone, causing more people to drop out and potentially throwing the insurance market into a spiral of death.
The plaintiffs argue in response that Congress sought to involve states in the construction of universal health insurance—that’s why the law doesn’t create an exclusive federal exchange—and tried to nudge them along by offering subsidies to their residents if the states established exchanges as they were supposed to. If Obamacare’s drafters failed to anticipate the resistance among states, then they blew it. Tough luck.
So far, two federal appellate courts have heard challenges. The D.C. Circuit ruled in favor of the plaintiffs 2–1. The 4th Circuit ruled in favor of the government 3–0. The Supreme Court will resolve the disagreement between the circuits.
Statutes are often ambiguous. They contain conflicting provisions, omit words, and use the same words differently. This happens because human beings write the statutes, and often rewrite them under intense pressure as elected officials do deals that require earlier drafts to be modified on the fly. It’s often hard to reconstruct what the relevant members of Congress sought to accomplish. We rely on courts to interpret statutes in an impartial way.
Unfortunately, courts don’t always oblige. On the D.C. Circuit, the two judges who ruled for the challengers were appointed by Republican presidents, while the judge who agreed with the government was appointed by a Democrat. On the 4th Circuit, two of the judges who ruled in favor of the government were appointed by a Democrat, while the third was initially appointed by a Democrat (temporarily, via a recess appointment) and then later given a permanent appointment by a Republican. So at least five of the six judges voted in an ideologically predictable way. Five of the nine Supreme Court justices were appointed by Republicans. If the Supreme Court acts like the circuit courts, Obamacare loses.
It’s tempting to argue that the case is easy. The statute is ambiguous—it’s impossible to tell just from reading it whether tax credits are available to users of the federal exchange. A legal rule called the Chevron doctrine says that if a statute is ambiguous, then courts should defer to the regulator’s interpretation of the statute if it is reasonable. The regulator is the IRS. Its interpretation is reasonable. The courts should defer.
Adrian Vermeule, a Harvard law professor, adds the ingenious argument that the disagreement among the lower courts shows that the statute is ambiguous. If the statute were clear, the judges wouldn’t have disagreed about its meaning. So the application of the Chevron rule is justified.
A problem is that the lower-court judges not only disagreed about the meaning of the statute, they also disagreed about whether the statute was ambiguous. The judges who ruled against the government did so because they believed that the statute was clear. Two of the 4th Circuit judges thought the statute ambiguous; one thought it clear but in the government’s favor. A judge who thinks the statute is clear might think that those who disagree with him are acting in bad faith, in which case he shouldn’t put any weight on their views.
How could the judges have taken such different views? Researchers have long known that how you interpret a text depends on your “priors”—the beliefs that you bring to the task of interpretation. Often such beliefs include your policy preferences, which will affect not only how you interpret the statute, but also whether you think the statute is ambiguous. Your policy preferences will therefore also affect whether you think that those who disagree with you are being sincere or are acting in bad faith, and may incline you to disregard contrary views.
In the case of the ACA, people who support the statute also seem to agree with the government’s interpretation of it. People who oppose the statute think that the government’s interpretation is wrong. I have searched the Web in vain for someone who says I think the statute is good policy but the government should lose, or I think the statute is bad policy but the government’s interpretation is reasonable. Psychologists call this phenomenon motivated reasoning.
Motivated reasoning does not always interfere with impartial judicial interpretation. It doesn’t take place when one doesn’t care about the outcome. Consider the politically inert question whether a “tangible object” includes a fish. Just last week the Supreme Court justices crossed ideological lines over this question. The issue arose because a statute made it a crime to obstruct a government investigation by destroying “any record, document or tangible object.” A fisherman named John Yates had tossed fish he had caught back in the ocean in order to hide them from investigators who believed that he broke fishing laws. One could interpret “tangible object” in context to mean paper files only, or more broadly to mean anything with three dimensions. There was no ideological valence to this question. Yates won; three liberals and two conservatives voted in his favor.
But King v. Burwell is a different kettle of fish. Obamacare is one of the most divisive legacies of Obama’s presidency, and in addition to all the partisan disagreement, it engages conservative worries about a vast, freedom-crushing federal bureaucracy. Justice Elena Kagan, writing in dissent in Yates v. United States, argued that the plurality of justices may have decided that a fish was not a tangible object in order to avoid “overcriminalization and excessive punishment”—potentially a 20-year sentence for throwing fish overboard. And maybe they did. So if Supreme Court justices might read an obstruction-of-justice statute narrowly to avoid overcriminalization, then might they—or the conservative majority of them—read the ACA narrowly to avoid what they see as overbureaucratization? They might indeed.