Why Michael Cannon is wrong about coercion in King v. Burwell

Michael Cannon of the Cato Institute has a thoroughly unconvincing rebuttal to those of us who have pointed out that his own legal gloss on the Affordable Care Act might be unconstitutionally coercive on the states. Cannon’s core error is that he repeatedly ignores the fundamental fact that health insurance markets aren’t like other markets because they are prone to adverse selection problems.

Remember, Cannon helped spearhead the legal challenge that became King v. Burwell, premised on the theory that Congress made subsidies available exclusively to states that created their own exchanges. I have argued (as have others) that such a tactic by Congress might be unconstitutionally coercive because it would threaten the states with insurance market death spirals if they refuse to comply. In a battle of statutory interpretations, the Court thus cannot sustain Cannon’s.

Cannon argues that this isn’t coercive at all under current Supreme Court precedent. His mistake, however, is brushing past the full scale of the consequences that follow if a state declines to create an exchange under King. Cannon argues that killing the individual mandate by cutting off subsidies would just impose additional costs on state residents. But this ignores the fact that on health insurance markets, these costs aren’t stagnant. Rather, these costs are dynamic and self-perpetuating until markets seize up altogether. Health care is different, and that difference makes the “choice” in King unusually coercive.

Cannon raises three separate points pushing back against the coercion argument:

Cannon #1: “The ACA’s Exchange provisions don’t penalize states. They let states make tradeoffs between taxes, jobs, and insurance coverage.”

Response: Whether Congress penalizes the states or their residents should be irrelevant under the Constitution’s federalism protections. And the tradeoff that states would have to make to decline to create an exchange under King is significantly more burdensome than Cannon admits.

“If a state fails to establish an Exchange, the ACA withholds subsidies from a state’s residents, not the state,” Cannon argues. This is overstated for two reasons. First, withholding subsidies under King not only has individual effects, but debilitating statewide effects, too. Because withholding subsidies triggers the individual mandate’s affordability exception for most consumers, state insurance markets (still obligated to comply with the ACA’s guaranteed-issue and community-rating requirements) will plunge into death spirals. That’s very much a penalty on a state as a whole, rather than just on its citizens.

Cannon goes to great lengths to contort the death spiral phenomenon into a mere imposition of costs.  Rather than call it a death spiral, he says that “withholding subsidies in uncooperative states would make the costs of the ACA’s community-rating price controls transparent to consumers, and those costs might have the effect of coercing states into implementing Exchanges.”

This is a deeply understated and incomplete formulation of what’s coercive about King. Cannon’s sleight of hand is treating the “costs” in an uncooperative state’s insurance market as if they were the costs typical of any other market. But this just isn’t the case. Health insurance markets are fundamentally different, and are singularly prone to adverse selection problems. The individual mandate is the lynchpin that secures stability in insurance markets with consumer-protecting regulations like guaranteed-issue and community rating. Removing this lynchpin doesn’t just unveil the ACA’s “true cost” (i.e., it’s cost without cross-subsidization from the young and healthy). Rather, it unleashes uncontrollable cost increases that culminate in a market collapse. That’s what would coerce the states, for the consequences of withholding subsidies impact far more than just the individuals that would have otherwise been eligible for them.

It’s also hardly clear that, for purposes of federalism constraints on congressional power, the distinction between states as sovereigns and their residents really matters. Certainly, New York v. United States suggests that it matters some. But New York itself reminds us that the underlying rationale of these federalism constraints is to protect individuals, not states. As the Court put it, “federalism secures to citizens the liberties that derive from the diffusion of sovereign power.” Drawing a bright-line and limiting coercion to direct federal salvos against state governments’ budgets would be an artificial formality that makes little sense given the whole raison d’etre of the federalism enterprise.

Such a formality would also be too easily circumvented for the Court to accept. In fact, at oral arguments in King, Justice Kennedy signaled that this very distinction matters less than Cannon thinks to the coercion inquiry. Kennedy said that the court “wouldn’t allow” Congress to impose a thirty-five mile per hour speed limit on states that don’t go along with a federal command (at 19:3). As in King, such a restriction wouldn’t impose a direct penalty on state budgets, but would instead negatively impact its residents directly. But such a negative impact would still be coercive, according to Justice Kennedy. That means that a regulation can still be coercive even if it doesn’t directly affect state budgets.

Moreover, if King contemplates the states making well-considered “tradeoffs” under the ACA, it’s hardly clear that they have been able to do so, which gets to Cannon’s second point:

Cannon #2: “Roughly half of states appear to consider those costs [of declining to create an exchange] tolerable.”

Response: These states haven’t reckoned with the full costs of declining to create an exchange under King. And just because a state chooses to accept the federal government’s punishment doesn’t make it constitutionally acceptable for Congress to pose a coercive choice in the first place.

This state acquiescence argument has appeared frequently since oral arguments. How could the exchange choice be coercive, its proponents ask, if so many states have refused to create exchanges?

The problem, as I’ve written, is that not a single state has yet embraced the full range of consequences of refusing to create an exchange under King. No state has publicly indicated that it has knowingly and voluntarily accepted an insurance death spiral as a consequence of this choice. States may be willing to take ownership of losing subsidies, and are happy to trumpet freedom from the individual mandate. Some even now claim, post hoc, that they knew they’d lose subsidies at the time they declined to create an exchange. But so far, not a single state has acknowledged the deeply destabilizing impact on their insurance markets that follows from that choice under King.

But suppose a state did claim to accept this dire consequence. Would it make a legal difference to the coercion inquiry if states (even many states) decided to take the federal government’s punishment? What if before NFIB, states had decided to end their Medicaid programs in order to avoid Obamacare’s expansion of that program? Would the threatened loss of all Medicaid funding still be coercive? In fact, Texas — one of the country’s biggest potential markets for expanded Medicaid — was making noise about abandoning Medicaid altogether to avoid the mandatory expansion even before NFIB. I doubt that the Court would permit Congress to impose an otherwise coercive choice on the states just because it wasn’t perfectly airtight coercion.

Both in theory and in practice, the number of states declining to create exchanges should have little bearing on the degree of coercion in King. If anything, the fact that so many states have made this choice in the face of the draconian implications of King’s version of the ACA points toward other doctrines that cast doubt on the petitioners’ interpretation. Maybe the thirty-six states that declined exchanges didn’t have clear notice of the consequences of such a choice, in which case the petitioners’ interpretation violates the Pennhurst doctrine. Or maybe the states simply didn’t see the elephantine implications of the petitioners’ version of the ACA because Congress hid it in a statutory mouse-hole — another legislative no-no that Justice Sotomayor raised in oral arguments (at 23:5). However you cut it, the Fantasy Affordable Care Act conjured by the King petitioners ultimately collapses in on itself.

Cannon #3: “This ‘deal’ is comparable to what the Court allowed in NFIB v. Sebelius.”

Response: The “deal” here in unlike NFIB in that it threatens grave economic harm on the states that extends beyond depriving the program’s would-be beneficiaries of insurance.

Cannon draws an analogy between the Medicaid expansion remedy in NFIB and how the ACA would operate under King: “In NFIB, the Court allowed states collectively to turn down Medicaid subsidies for as many as 16 million poor people. The Exchange provisions permit states to do the same for 16 million higher-income residents.”

Again, the coercion here is about far more than just subsidies. The yes-or-no Medicaid expansion decision didn’t threaten broader economic harm on state insurance markets. There, the consequences of state refusal were borne entirely by those eligible for expanded Medicaid.

The consequences of the choice in King aren’t nearly so cabined. Under the petitioners’ reasoning, the choice of whether or not to accept subsidies has huge economic consequences for the sustainability of state insurance markets as a whole. As I’ve explained above, foregoing these subsidies doesn’t just mean passing up on help for “16 million higher-income residents”—it also means an insurance market collapse. If a state wants a functioning health insurance market, it’s very hard to turn down subsidies. That wasn’t a consequence states had to consider three years ago under NFIB’s Medicaid expansion holding.

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Cannon’s rejection of the coercion argument thus doesn’t hold water. The threat levied against the states under his reading of the ACA is significantly graver than he’s willing to admit — and it’s grave precisely because of the unique problems endemic to health insurance markets.

There’s a telling moment in Cannon’s article, however. As a result of a state’s decision not to create an exchange, Cannon argues, “residents would then see lower taxes, more jobs, more hours, higher incomes, and more flexible health benefits.”

The supposed economic gains are sheer speculation by Cannon, and they are highly doubtful speculation at that given how frantically business has sought to stave off the consequences of a ruling in favor of the petitioners in King. But Cannon tips his hand with the last “benefit”: “more flexible health benefits.”

Cannon presumably envisions Red states increasing reliance on a conservative favorite: health savings accounts — personal accounts where an individual funds much of his or her own medical costs rather than counting on insurance.

This is a useful reminder that the conservative vendetta against health reform is about more than just health exchanges, government subsidies, the individual mandate, or Barack Obama. At core, it’s about rejecting the basic risk-pooling function of insurance in favor of a go-it-alone, bootstraps approach. It’s part of what Jacob Hacker calls the “personal responsibility crusade,” taking us from a society that pitches in together to protect one another and transforming us into one where you’re on your own instead. That, at heart, is what’s at stake in King v. Burwell and the continued fight for universal health reform.

Scott Pruitt’s King v. Burwell own-goal

Scott Pruitt, the attorney general of Oklahoma, published a response to Justice Kennedy in the Wall Street Journal following King v. Burwell oral arguments this week.  Pruitt tried to counter Kennedy’s notion that the plaintiffs’ version of the Affordable Care Act would be unconstitutionally coercive on the states — but he unwittingly proved Kennedy’s point entirely.

Pruitt dismissed Kennedy’s federalism concerns as patronizing coddling of the states.  “The states are not children that the federal government must paternalistically ‘protect’ from the consequences of their choices by rewriting statutes,” Pruitt maintained.  “In our constitutional system, states are free to make decisions and bear the political consequences, good or bad, of those choices.”

Fair enough.  But does Pruitt grasp the full consequences of a decision not to create an exchange if the ACA works as the King plaintiffs claim?  Pruitt thinks Oklahoma made the following choice: “Declining to establish a state exchange allowed Oklahoma to voice its strong political opposition to the Affordable Care Act as a whole, as well as to make a statement that it wanted neither the large-employer mandate nor the individual mandate to have effect within its borders. That was the trade-off. Oklahoma declined the premium tax credits, but freed itself of those mandates, and that was a choice the state was happy to make.”

Pruitt’s calculus leaves out the biggest cost on the scale: near-guaranteed insurance market death spirals, brought on by a market bound by the ACA’s guaranteed-issue and community-rating regulations, but freed from its individual mandate.  He leaves this out of his column for either of two reasons: he doesn’t know about it, or he knows the political fallout from trying to defend that impossible “choice.”

If he doesn’t realize the devastating implications of the plaintiffs’ theory for his state’s insurance industry, then Oklahoma’s decision wasn’t quite so clear-minded and informed, after all.  This isn’t surprising.  Though Pruitt now claims Oklahoma understood that it would lose out on subsidies, there’s no evidence that any state considered the prospect that it would lose insurance subsidies by declining to create an exchange — let alone that losing those subsidies would send its insurance market into a tailspin.

But if Oklahoma didn’t know these dire consequences, this runs right into another constitutional doctrine that cuts against the plaintiffs’ argument in King: the Pennhurst doctrine.  The Constitution requires that the states have clear notice of the terms of federal conditional spending grants.  Because states didn’t have sufficient notice of the consequences of declining to create an exchange, the Court should avoid an interpretation of the law that unconstitutionally imposes draconian consequences without providing the states with notice.

But perhaps Pruitt and Oklahoma do understand these consequences.  If so, omitting prospective market death spirals from his response to Justice Kennedy is telling, for it all but concedes that accepting such grave devastation to Oklahoma’s insurance industry would be impossible to defend.  Imagine a political figure having to explain to her state’s citizens that she induced complete dysfunction in the insurance industry and jeopardized the stability of their health insurance in order to defy President Obama.

Perhaps Pruitt can make a plausible case that missing out on millions of dollars in federal subsidies is worth it to escape the individual and employer mandates.  But there’s no tenable way to justify accepting the resultant economic carnage that would occur if a state refused to create an exchange under the petitioners’ argument.  Especially with healthcare and business stakeholders pleading with Red states to comply with Obamacare rather than tempt market chaos.  (Remember when the ACA was supposed to be an economic killer?)

So Pruitt’s response to Justice Kennedy only serves to illustrate Kennedy’s very point.  If one reckons with the full consequences of the plaintiffs’ version of the law, the consequences of snubbing the federal government are far too draconian to seriously entertain.  By omitting the death spiral from his cost-benefit calculus for Oklahoma, Pruitt’s silence admits what the Supreme Court is catching on to: the plaintiffs’ version of the law is too coercive to embrace.

King v. Burwell & constitutional avoidance

On Wednesday, the Supreme Court heard oral arguments in the much-anticipated ObamaCare case, King v. Burwell. The big story coming out of arguments was federalism: namely, the repeated concerns that Justices Kennedy and Sotomayor raised about whether the plaintiffs’ interpretation of the ACA raises problems under the constitutional rule against coercion of the states.

I’ve written about this theory against the plaintiffs’ argument repeatedly, so it was great to see it gain traction before the Court. But I wanted to take some time to walk through the details of how applying constitutional avoidance to disfavor the plaintiffs’ potentially coercive interpretation of the law would work in practice.

First, what role could constitutional avoidance play in the Court’s analysis? To start, King is fundamentally about whether the IRS has legal authority under the ACA to issue tax credit subsidies to individuals who purchase insurance on federal exchanges. This is a Chevron inquiry, as the Court must determine whether the IRS’s interpretation is reasonable under the meaning of the law.

To determine what’s a reasonable interpretation of the ACA, the Court will need to marshal its typical methods of statutory interpretation. One of these methods is the canon of constitutional avoidance. Under this canon, the Court will avoid an interpretation of the law that raises constitutional problems and adopt a competing interpretation.

In the King oral arguments, Justice Kennedy in particular signaled that the plaintiffs’ interpretation raises “a serious constitutional problem” under the prohibition on federal coercion of the states. The question then becomes whether there is an alternative interpretation for the Court to adopt.

The alternative interpretation does not need to be particularly compelling – it need only be “fairly possible.” Nor does it need to be the “most natural interpretation,” as Chief Justice Roberts reiterated in the 2012 individual mandate case. “[E]very reasonable construction must be resorted to, in order to save a statute from unconstitutionality,” he told us.

The upshot is that constitutional avoidance lowers the bar for the government. And this bar had already been lowered under Chevron. With avoidance, the government need not even prove that its interpretation is a particularly reasonable reading of the law — it must only be “fairly possible.”

In fact, based on a pair of recent applications of avoidance by the Court, the bar for the government under avoidance might be even lower. Take the 2009 case NAMUDNO v. Holder, which raised constitutional issues about Section 5 preclearance under the Voting Rights Act. A Texas water utility district (called “Northwest Austin”) argued that preclearance was unconstitutional, or in the alternative, that Northwest Austin should be allowed to bail out of preclearance.

Bailing out didn’t appear to be an option, however, because the VRA limited bailout to “political subdivisions” of covered states — and “political subdivision” was defined as counties, parishes, and other subdivisions that conducted voter registration.  As a water utility district, Northwest Austin was none of these things.

The Court nonetheless granted Northwest Austin bailout eligibility in order to avoid ruling on the constitutionality of Section 5.  It went so far as to brazenly read the statutory definition of “political subdivision” into statutory surplussage, holding that “all political subdivisions—not only those described in [the definition]—are eligible to file a bailout suit.”

This was an extremely aggressive application of constitutional avoidance.  The Court disposed of the requirement that a competing interpretation of the statute be fairly possible, simply observing that the Court’s “usual practice is to avoid the unnecessary resolution of constitutional questions” — seemingly regardless of whether there is a plausible interpretation to latch onto.

In comparison to NAMUDNO, King presents an opportunity for a much more straightforward application of avoidance doctrine.  Each side marshals a tangle of textual arguments, and the government’s argument that the phrase “such Exchange” means subsidy-eligible federal exchanges is, at the very least, fairly possible.  Adopting that interpretation doesn’t require doing nearly the kind of violence to the statutory text that the Court committed in NAMUDNO in order to stave off ruling on the VRA for four more years.

In fact, King is probably also an easier avoidance case than NFIB was.  In order to rule upon the mandate as a tax, Roberts had to go against both the text of Section 5000A, which called the individual mandate a “penalty,” and the repeated, adamant public statements of the Obama administration and members of Congress, insisting that the mandate was not a tax.

Some commentators suggest that the government’s interpretation of the law would not be the appropriate remedy for a constitutional avoidance holding. Josh Blackman argues that the principled way of applying avoidance would be to invalidate all subsidies on every exchange. Randy Barnett suggests that the Court “strike down the federal insurance regulations that allegedly create the ‘death spiral’ and threaten to ‘destroy’ state insurance markets unless states set up exchanges” rather than “judicially authoriz[ing] billions of dollars in subsidies that Congress refused to authorize.”

There are a number of problems with these analyses. For one thing, Barnett’s “judicial authorization” argument presupposes that Congress did not authorize subsidies on federal exchanges — the very issue King is trying to answer. What’s more, Congress has not attempted to override the IRS’s decision to give subsidies on federal exchanges. If Congress thought the IRS got the law wrong and was spending money that it didn’t authorize, it could have amended the ACA to clarify that subsidies are only available on state exchanges and curb the IRS’s discretion.

The analyses also upend the very purpose of avoidance. The canon of avoidance is grounded on a presumption that Congress intends to legislate consistently with constitutional principles. To toss out all federal subsidies would seriously disregard this presumption and undermine the very purpose of constitutional avoidance in the first place.

These solutions also do far more violence to the text of the statute than is necessary. They would excise the potential constitutional defect with a bazooka rather than a scalpel. In fact, they disregard the presumption in favor of severability, where the Court presumes that Congress meant for as much of a law to stand as possible where a portion is found to be constitutionally problematic. Significantly, this presumption stands even when a statute does not contain an express severability clause — which the ACA famously does not.

Neither of these solutions comport with how the Court handles remedies for laws that violate the anti-coercion principle. Looking at the controlling remedy in NFIB is instructive here. The unconstitutional part of the Medicaid expansion was the threat that states would lose all funding for “old” Medicaid if they didn’t enact “new” Medicaid. The Court didn’t strike down all funding for old or new Medicaid. Rather, it simply removed the coercive threat. It de-leveraged the Medicaid expansion by decoupling old Medicaid funding from state decisions about new Medicaid.

The analogous remedy in King would be to unwind the death spiral threat if states fail to enact exchanges. In the ACA, federal subsidies act as a key that unlocks insurance market protections (the employer and individual mandates). So to remove the coercive threat, the Court must decouple the subsidies from the states’ decision about whether to establish an exchange.

This does not require striking down all tax subsidies or invalidating the ACA’s insurance market regulations. It simply requires making subsidies available entirely independently of a state’s decision to create or not create a health exchange.

That’s how constitutional avoidance would likely play out in King. It’s a heavier thumb on the scale against the plaintiffs’ argument, and it ultimately preserves the status quo of insurance subsidies universally available and consumer-protecting regulations universally enforced across the country.

Autonomous motherhood

President Obama is increasingly signaling that universal child-care will be the next big national goal for liberals.  After giving the issue prominent attention in his State of the Union address last month, he has continued talking about it in interviews about his goals for the rest of his presidency.

Obama has proposed significantly boosting the tax credit we provide to families for childcare.  It’s doubtful much gets done on the issue in the next two years.  But these proposals and pronouncements are teeing up childcare to play the role for liberals in 2016 that healthcare played in 2008.

Anticipating this, conservatives have begun staking out their opposition early.  Much of the opposition stems from the idea that by subsidizing working parents, liberals stack the tax code against parents who stay home to provide their own childcare.  The National Review blasted Obama’s plan as an attack on the autonomy of mothers who’d prefer to stay home with their children:

Most mothers, especially of small children, prefer to work part-time or drop out of the labor force for a time. Commercial child care is the least favored option for most parents. The president’s plan encourages families to do what they do not wish to do and penalizes them for refusing.

In place of a targeted tax credit for childcare, the editors of the National Review propose a bigger child tax credit for at least some families: “provid[ing] tax relief to all parents who pay taxes, however they structure their lives, by expanding the tax credit for children. Parents would then be able to spend the extra money on commercial day care, or use it to finance a shift to part-time work for one parent, or save it for future educational expenses — or do whatever they chose with it.”

Note how carefully the National Review limits this proposal to “parents who pay taxes.”  If you’re too poor to have any tax liability, you and your children on your own under this conservative plan.

But more broadly, how serious are conservatives about respecting — and indeed, facilitating — the autonomy of mothers to freely choose how to raise their children?  What about a single mother who would like the same opportunity to “drop out of the labor force for a time” to raise her children while they are young?  To preserve this choice for her would require complete public subsidization of her family’s income — the government would have to pay her a basic adequate income for the work of childrearing.

It’s doubtful that conservatives could stomach this kind of expansion of the public dole.  For one thing, a major consequence of 1990s welfare reform was to toss single moms off of public aid. Twenty years later, conservatives show little hint of longing to re-implement AFDC.

Conservatives would also be deeply wary of this kind of subsidization’s effects on incentives for work and to maintain two-parent households.  Paying single parents enough income to stay home with their children, conservatives would argue, inherently weakens the urgency of both going to work and marrying.

These objections are entirely consistent with conservative policy thinking.  But they also sharply limit the conservative defense of motherly autonomy to married, financially-secure women.  That’s a pretty narrow conception of who merits the right to make an autonomous childrearing choice.

In response to President Obama’s plan to help parents pay for childcare, conservatives want to pay stay-at-home moms, too.  That’s an entirely legitimate position — one that, ideally, produces a resulting compromise of a generous child benefit for all low- and middle-income families.

Still, one must question the depth of conservatives’ willingness to defend motherhood autonomy.  Given their policy commitments, the freedom to choose to stay home turns out to be only freedom for a few.

The conservative Medicaid charade

The New York Times had a good piece last week detailing the still-fraught politics of expanding Medicaid in Red States.  To sum up, while some conservative governors like Mike Pence of Indiana and Bill Haslam of Tennessee are coming around to ObamaCare’s Medicaid expansion, conservative state legislators are still vehemently opposed, and are shooting down carefully crafted expansion plans that their governors had painstakingly negotiated with the Obama administration.

It’s remarkable that the anti-ObamaCare fever still hasn’t ebbed in state legislatures.  But what’s more interesting are the evolving pre-textual arguments that conservatives use to justify opposition to embracing the Medicaid expansion.  Remember, ObamaCare offers the states incredibly favorable terms to expand Medicaid to cover more of the poor and near-poor.  The federal government picks up 100 percent of the costs in the early years of the expansion, and will cover at least 90 percent of the costs forever.

Yet conservatives continue to insist that the federal government won’t meet its obligations.  According to the Times, “Opponents in [Tennessee and Wyoming] said that, among other things, they did not believe the federal government would keep its promise of paying at least 90 percent of the cost of expanding the program. It currently pays the full cost, but the law reduces the federal share to 90 percent — a permanent obligation, it says — by 2020.”

I’ve explained before why this argument is hollow.  The federal government has never made permanent cuts to funding for state Medicaid programs.  Cutting federal funding for the Medicaid expansion would require a change in the law — a change that could only conceivably be enacted by conservatives in Washington.

So this justification is weak to begin with.  But in Tennessee, Governor Haslam called conservative legislators’ bluff with a creative insurance policy: “He had traveled the state to promote [his plan] — and to try to persuade people that it was not part and parcel of the Affordable Care Act, partly because the Tennessee Hospital Association had agreed to pay any expansion costs beyond what the federal government covered.”

Hospitals, of course, are losing eye-popping sums of money in states that have refused to expand Medicaid.  The Urban Institute calculated that hospitals in these states are missing out on some $168 million in reimbursement revenue.  That’s why it’s worth it for Tennessee hospitals to agree to be a last-resort backstop to allay conservative fears that the federal government will bail on its Medicaid guarantees.

Yet even with this guarantee from their hospital sector — and a practical plea to take this incredibly good deal — conservatives in Tennessee stuck to their guns and torpedoed Governor Haslam’s plan.  “Less than 48 hours later,” the Times writes, “his plan was dead after a Senate committee dominated by Republicans rejected it before it could reach the full chamber.”

So why are conservatives still so opposed to expanding Medicaid?  Keep in mind how far to the right the terms of the expansion have shifted from the original uniform expansion called for by the Affordable Care Act.  The Supreme Court opened up the Red State option in 2012, making the expansion voluntary for the states.  This gave conservatives states ample newfound leverage to drive a hard bargain with the Obama administration and to adopt a version of Medicaid on more conservative terms.  In states like Arkansas, Indiana, and Tennessee, the Obama administration has agreed to state proposals to use Medicaid funds to put individuals on private insurance, and even to charge covered individuals small premiums.  It’s a far cry from the original plan, which simply called for an expansion of traditional, single-payer Medicaid.

Yet despite policy concessions from the Obama administration, generous funding terms, and backstop funding by the private sector, conservatives in state government are still holding out.  One Wyoming state senator previewed the revised iteration of the argument against expanding Medicaid: “The argument is that the federal government is already in debt and expanding Medicaid will make it worse,” he said.

This is dumbfounding.  Medicaid is a cooperative federalism scheme, jointly funded by the state and federal governments.  In the warped federalism of this Wyoming senator, the states now have veto power to second-guess Congress’s own budgetary determinations.  Because a state senator from Wyoming somehow knows better than federal legislators what the federal government can afford to spend.

Of course, there’s little reason to engage with the merits of these arguments.  The arguments are hollow, and conservatives barely bother to pretend otherwise.  State level conservatives are simply doing the bidding of their ideological benefactors, the Times notes.  “Tennessee’s chapter of Americans for Prosperity, the Tea Party-affiliated group backed by Charles G. and David H. Koch, and the Beacon Center of Tennessee, a Nashville nonprofit that advocates smaller government, urged the Legislature to scuttle the governor’s plan.”

And scuttle it they did.  Once you cut through the spurious publicly-offered reasons, the real source of conservative opposition to these negotiated plans is straight ideological: that government should be minuscule, and shouldn’t be in the business of guaranteeing healthcare for the poor.  As the Obama administration has learned over and over again, it’s impossible to successfully negotiate with people who oppose government’s basic existence.

The looming constitutional icebergs in King v. Burwell

I wanted to point out a new amicus brief that has been filed with the Supreme Court in King v. Burwell. Professor Abigail Moncrieff of Boston University School of Law and the Jewish Alliance for Law and Social Action have filed a brief drawing the Court’s attention to the numerous constitutional difficulties that arise directly from the petitioners’ understanding of how ObamaCare works. (Full disclosure: I advised on this brief.)

In short, the brief argues that the King petitioners’ interpretation of the Affordable Care Act leads to drastically different regulatory systems in states that create exchanges and in states that do not, targeting refusing states with a destructive and potentially unconstitutional regulatory threat. Under basic interpretive principles, the Supreme Court should avoid this reading of the law and adopt the government’s interpretation, making subsidies available on all exchanges.

In King, the Supreme Court is asked to resolve a question of statutory interpretation. The petitioners argue that the ACA denies subsidies to people who purchase insurance on federal exchanges. The government argues that the law makes subsidies available on any exchange. The Court will decide who’s right.

When determining the meaning of a statute, courts typically draw on a number of interpretive canons. One of these is the canon of constitutional avoidance, whereby courts disfavor statutory interpretations that raise constitutional questions. This is based on the presumption that Congress doesn’t intend to pass laws that violate the Constitution.

Indeed, as Chief Justice Roberts reminded us when upholding the ACA’s individual mandate as a tax three years ago, even when a constitutionally problematic reading is “the most natural interpretation” of a statute, “every reasonable construction must be resorted to, in order to save a statute from unconstitutionality.”

Under this mode of interpretation, the petitioners’ theory of how the ACA operates raises several significant constitutional problems.

First, conditioning subsidies for individuals on whether states establish health exchanges might run afoul of the prohibition on federal coercion of the states. In NFIB v. Sebelius, the Supreme Court ruled that Congress could not threaten to cut states’ Medicaid funding if they didn’t comply with the Medicaid expansion. This threat, the Court said, went beyond a run-of-the-mill incentive and amounted to a “gun to the head” of the states.

The same might well be true for the petitioners’ interpretation of the ACA. (Indeed, the petitioners have repeatedly argued that Congress tried to “coerce” the states to create exchanges, analogizing the subsidies to the Medicaid expansion.) Like Medicaid funding, the value of the subsidies is a massive fiscal inducement, reaching up to $2 billion per state. The condition attached to the subsidies is meant to encourage states to establish an entirely different program — a health exchange. The Court invalidated a similar arrangement in NFIB, where Congress leveraged funds for states’ preexisting Medicaid programs to encourage states to adopt a “new” program — expanded Medicaid. Therefore, petitioners’ interpretation that the subsidies are an incentive for states to create exchanges might ultimately make their reading of the ACA unconstitutional.

More significantly, petitioners’ interpretation sets in motion radically different federal regulatory schemes for different states, targeting states that decline to create an exchange with a perverse subset of federal policies that would wreak havoc on their insurance markets. All states would be subject to the ACA’s community-rating requirements and its prohibition on denying coverage for a preexisting condition. But the employer and individual mandates would be virtually inoperative in states where subsidies are not available. Thus, under the petitioners’ interpretation, states that decline to create exchanges lose subsidies, which means that the mandates will not be enforced in those states.

This regulatory arrangement would devastate state insurance markets. Community rating and prohibited medical underwriting without an individual mandate is the precise recipe for rampant instability and adverse selection on insurance markets, as states like New York, New Jersey, and Massachusetts can attest. Without an individual mandate, individuals face a strong incentive to wait until becoming sick to purchase insurance. This means that insurance pools will become sicker and costlier, causing more healthy people to drop insurance, making pools still sicker and costlier again. Under this regulatory regime, insurance premiums will skyrocket and insurers will ultimately exit the market, making it exceedingly difficult for individuals to get coverage.

Under petitioners’ interpretation of the law, the ACA punishes states that decline to create exchanges with this destructive policy package. Simultaneously, it rewards states that do create exchanges with a fully comprehensive and stabilizing regulatory structure.

This disparate state treatment is constitutionally problematic under the fundamental principle of equal state sovereignty that the Supreme Court relied on in Shelby County v. Holder. In that case, the Court invalidated the Voting Rights Act’s coverage formula that subjected some states to federal preclearance for their voting laws, but not others. This “disparate geographic treatment” is disfavored, for the constitutional presumption is that the states be treated as equals. In the absence of an exceptional circumstance, such an arrangement is likely unconstitutional.

Petitioners’ interpretation inherently creates disparate geographic treatment based on whether a state creates an exchange. And there’s little exceptional circumstance to justify this treatment. The Voting Rights Act was sustained from the 1960s until 2013 by the exceptional condition of historic racial discrimination in voting. There’s no comparable condition that would justify subjecting state insurance markets to such categorically different treatment.

Moreover, the only practical relief from this harsh regulatory treatment available to states declining to create exchanges is to apply for a federal waiver — a procedure highly reminiscent of the preclearance regime under the Voting Rights Act struck down in Shelby County.

This disparate regulatory treatment also likely points a gun to the head of the states under NFIB. In essence, petitioners think that Congress threatened the states with grave economic destruction in their insurance industries if they failed to comply with federal demands to create a health exchange. This seems highly coercive, going well beyond a normal incentive where states retain actual autonomy to make a choice.

Each of these highly problematic scenarios is a direct consequence of the petitioners’ reading of the ACA in King. Never before has Congress threatened to impose a different and destructive set of substantive federal policies in states that don’t cooperate with federal demands.

Fortunately, the Court can avoid wrestling with the problems raised by this unprecedented brand of punitive federalism. It can do so by simply adopting the government’s reading of the law. Because the government reasonably interprets the ACA to make subsidies available on both federal and state exchanges, the subsidies are not wielded as an incentive of any kind. This structure creates none of the constitutional problems that arise from the petitioners’ interpretation, for it treats all states equally.

Therefore, the brief argues, the Court should disfavor the petitioners’ argument because it may render large pieces of the ACA’s operation unconstitutional. The Court should instead adopt the government’s plausible argument that the IRS may make subsidies available on all exchanges under the ACA, protecting insurance subsidies for millions of Americans across the country.

I’ve written about some of these constitutional flaws in the petitioners’ argument on several occasions (among others). It will be interesting to see whether this thread of argument gains any traction before the Court. If the Court rules for the petitioners in King without seeing these constitutional icebergs coming, it will undoubtedly confront them someday soon. And given the scant evidence that Congress intended to use the subsidies as an incentive — let alone that it intended to torch the insurance markets in non-compliant states — the Court should wonder whether it really must let the petitioners steer us toward these icebergs.

A right to paid leave?

Back in May, I spent a post exploring the question of why liberals claimed a right to healthcare in a way that they haven’t claimed for other similar basic human needs. Extrapolating from the push to make healthcare a legislated right, I identified three criteria for when momentum for new social rights builds: (A) the right addresses an essential human need; (B) the right implicates interests that cut across all income levels; and (C) the right causes minimal economic disruption.

Because healthcare satisfied these criteria, it was the “easiest” social right to recognize first. Healthcare wasn’t special, I wrote: “liberals do support positive rights to other similar needs. FDR’s New Deal vision remains the unfinished business of American liberals, intending to tick off his proposed social rights one political mobilization at a time. Under this piecemeal approach, health care now serves as a precedent, with food, shelter, and others to follow in the future.”

For those watching closely, the White House appears to be laying the groundwork for this precise strategy to push for paid family and sick leave for more American workers. In the run-up to health reform, President Obama and other liberals repeatedly asserted that health care is a right and not a privilege. That rhetoric helped build momentum for legislative reform. It argued that reform was a moral imperative, and that we simply had to bear the costs of reform to provide a basic human entitlement.

Building on the success of health reform, the White House is foreshadowing the next liberal movement in social policy reform. Earlier this month, White House advisor Valerie Jarrett published a LinkedIn post arguing that “Paid Leave Is a Worker’s Right, Not a Privilege.” Jarrett explained the emotional ravishment that workers faced when forced to choose between missing work and staying home with a sick child or a newborn. She also pointed out the economic gains for businesses offering paid leave by attracting and retaining superior talent.

How does paid leave stack up under my three-part test? First, it certainly addresses a basic human need. Reproduction, nurturing youth, and resting while ill all fit squarely within the lower tiers of Maslow’s hierarchy of needs. On the threshold does-this-feel-like-a-basic-right smell test, paid leave seems to pass muster.

Second, paid leave is undoubtedly an issue that brings the middle-class into the political coalition for broader access. Vast swaths of average American families lack paid sick leave or paid family leave. Like with pre-reform health insurance, these ostensible rights are currently provided (or not) at the whim of our employers’ HR decisions. When the middle-class is invested in social policy proposal, reform becomes significantly more likely.

Where paid leave might stumble is on the economic disruption question. Rights involve redistribution, as we must transfer resources to provide the right to those who lacked it under the status quo. Under one conception of guaranteed paid leave, the costs of extending this right are borne entirely by employers, who would need to fund employee time-off and cope with staffing uncertainty.

Jarrett attempts to preemptively rebut these concerns by pointing out the benefits of paid leave for employers. But there’s another version of paid leave that avoids the political hurdles of regulatory mandates on employers altogether. We could fund paid leave as a public social insurance program, circumventing an employer-provided regime by compensating sick workers and new parents directly. Doing so would absolve firms of the administrative burden of running these complex insurance schemes.

Moreover, there’s little reason to think that guaranteed paid leave would burden employers any more than guaranteed health insurance has. So under any formulation of paid leave, the economic disruption might be more minimal than first thought — minimal enough to make passage realistic.

Jarrett’s claim to a right to paid leave thus fits sensibly within the framework for new social rights. Liberals are following the model of healthcare reform, seizing the moral high ground of asserting “X is a right, not a privilege.” So while guaranteed paid leave from work might not be a right we find in our Constitution or — for now — any statute, it rings true as a deeper, moral right fundamental to the human experience.

Fixing American childcare

Childcare policy is finally getting its moment in the sun, courtesy of a new push in President Obama’s State of the Union address. “In today’s economy, when having both parents in the workforce is an economic necessity for many families, we need affordable, high-quality childcare more than ever,” Obama declared.

Childcare in the United States has long been a scattershot mess. It has been a distressingly unregulated and uneven non-system, leaving the children of working parents dependent on their family’s purchasing power to pay for decent care. It’s an under-attended national scandal, raising familiar problems of quality, affordability, and access.

Recently, Congress took several important steps to improve American childcare. While reauthorizing the Child Care and Development Block Grant program, it attached conditions a series of conditions to improve the quality of care, such as by requiring background checks and training. It also increased funding for the CCDBG, making it more affordable for more families. And it encouraged states to create Yelp-like websites that would make it easy for parents to vet others’ experiences with potential daycare facilities.

The tripartite problems of quality, affordability, and access in childcare echo those that we’ve confronted in American healthcare. But childcare has little of the entrenched institutional attachment to a particular system that’s analogous to private, employer-provided health insurance. This makes childcare a particularly interesting policy area, for it might be more amenable to fundamental change than healthcare proved to be.

One solution would be to provide free or subsidized public options for childcare at schools or other public facilities. This would be a simple and elegant solution for the core problem in American childcare: the lack of a public option. The public education system’s primary purpose is, of course, educating children. But for working parents, it doubles as a valuable place for children to go during work hours. We provide no such public option for parents with young children. If we entrust the public sector to look after our four- and five-year-olds, there’s little reason to think that they can’t do the same for three-year-olds.

This might sound radical (or even French!), but we had universal childcare in the United States once. As Obama referenced in his speech, the Lanham Act established government-provided daycare so mothers could go to work during World War II.

This was a temporary wartime program, but we very nearly had this same type of system enacted permanently in the 1970s. Congress passed the Comprehensive Child Development Act, which would have created a “national network of federally funded child care centers, with tuition subsidized depending on a family’s income,” as Emily Badger explains. But for President Nixon’s veto, we may have had universal daycare for the last forty years.

The CCDBG reauthorization has taken a different tack, one reminiscent of the structure of healthcare reform established in the Affordable Care Act. It moves us toward a system of state marketplaces for parents to explore childcare options. It tightens quality controls by setting requirements for licensing and requiring due diligence in hiring by care facilities. And it provides subsidies for care among some low-income families purchasing it.

Even within this nascent framework, there’s substantial room to improve our support for working families. The CCDBG’s current funding is only enough to serve one out of every six eligible families. Yet childcare has become prohibitively expensive for all families. The average cost of care exceeded the average homeowner’s mortgage costs in 22 states in 2011. It even exceeded the costs of instate college tuition and fees in 35 states.

Families need far more help than they are getting. Both President Obama and the House Democrats have proposed making care more affordable by boosting our other childcare subsidy, the Child and Dependent Care Tax Credit. Obama would triple it, offering families as much as $3,000 annually for each child under age 5. The House Democrats propose doubling the CDCTC, subsidizing up to 25 percent of childcare costs up to $8,000 per child (or $16,000 for two or more children).

Just as we encountered with health reform, fixing childcare in the United States will undoubtedly raise fraught political tensions. Most notably, subsidizing families who place their children in care facilities raises the question of whether we should likewise subsidize parents who stay home with their children. Conservatives at the National Review have breathlessly portrayed Obama’s CDCTC proposal as an assault on traditional motherhood. “Most mothers, especially of small children, prefer to work part-time or drop out of the labor force for a time,” the editors write. “Commercial child care is the least favored option for most parents. The president’s plan encourages families to do what they do not wish to do and penalizes them for refusing.”

In reality, the CDCTC is no more a tax penalty on stay-at-home parents than the Home Mortgage Interest Deduction is a tax penalty on renters. By helping offset the costs of childcare, the government provides relief to millions of families for whom “commercial care” is an economic necessity. In fact, researchers have seen a slight rise in the number of stay-at-home mothers in response to our current state of affairs, where childcare costs have become so daunting as to make workforce participation an economic wash for some mothers.

Still, there is a strong case for compensating parents doing the serious and socially beneficial work of full-time childrearing. Though doing so might come at an economic cost by removing some parents from the labor force, this is a cost we ought to be willing to bear. It might make sense to simply package the CDCTC and the Child Tax Credit into one large child subsidy. (Indeed, the National Review proposes just this sort of alternative.)  We might give a larger subsidy to children under the age of 5 to compensate parents for providing care before their children reach school age.  And ideally, we might provide this subsidy as a periodic child allowance throughout the year, rather than just during tax season.

Second, how we fix childcare might influence how we design other policies, like family leave.  For instance, how early are we comfortable with putting children in the care of others?  Research seems to indicate that children benefit from spending the first year with their parents. This suggests a need for longer guaranteed parental leave, perhaps six months per parent instead of the three months currently provided by the Family Medical Leave Act.

And third, childcare might be a policy area where it makes sense to impose some kind of employer mandate or otherwise encourage firms to provide for on-site or nearby childcare. Yes, this would impose costs on business, but we could provide tax nudges to ease the burden. And these costs might be worth the benefits — psychic, convenience, and economic — that parents would enjoy from having their young children close by during the workday.

These questions are ones worth grappling with. For too long, our childcare system in the United States has hardly been a system at all. We’re just now beginning to tackle the project of making childcare better and more affordable to the average family — and there’s still much to be done.

The Advantage of a Middle-Out Economy

In advance of the State of the Union address on Tuesday, President Obama has unveiled a number of aggressive policy proposals to combat the wage stagnation that is squeezing the middle-class.

This includes a series of proposed tax cuts for the middle-class that would be funded by new tax revenue from the wealthy. Obama would eliminate a pair of tax preferences that have long subsidized the wealthy through the tax code, closing a loophole that has shielded trust funds from taxation and raising the top marginal tax rate on capital gains to 28 percent (up from 23.8 percent).

This proposal has obvious political appeal for Obama and his fellow Democrats: it’s a populist initiative that forces the GOP to choose between absolutist protection of capital gains and lowering taxes for average Americans.

But it also reflects a deeper debate between the two parties over the core of our macroeconomic policy. Namely, who spurs economic growth in the United States: the wealthy, or the middle-class?

The conservative prescription for accelerating growth has long been to create a business-friendly environment by slashing taxes and relaxing regulations on high earners, who will then invest their savings, expand their businesses, and grow the economy. That’s why conservatives like Sen. Orrin Hatch (R-Utah) were quick to denounce the revenue side of Obama’s tax plan. “Slapping American small businesses, savers and investors with more tax hikes only negates the benefits of the tax policies that have been successful in helping to expand the economy, promote savings, and create jobs,” Hatch claimed.

In response the to top-down growth favored by conservatives, liberals have begun championing “middle-out” economic growth. This budding liberal alternative would have us ease the strain on middle-class budgets on both ends of the balance sheet. It would boost their assets by cutting their taxes and increasing their take-home pay. And it would chip in for their liabilities by making modern-day necessities like health insurance, education, and childcare more affordable.

So which model is more effective for bringing about growth? This largely depends on a pair of economic effects — each of which indicates that liberals have the better path to robust shared prosperity.

There are two different responses that individuals might have to a change in their tax rates. If my tax rates go down, the amount of time I put in working becomes more valuable, which ought to make me work harder and work more, generating more economic activity. Economists call this the substitution effect, because I’d substitute more work hours in place of leisure time.

Alternatively, if my tax rates decline, I might instead realize that I can maintain the same income while working fewer hours. With an unexpected windfall from a new tax cut, I could keep my take-home income constant while working less than I had been. Economists call this the income effect, because I elect to use my new income from the tax cut to “consume” more leisure and thus work less.

So the debate over targeted tax cuts depends on which effect wins out: whether tax cuts make us work more or work less. But there’s reason to think that these effects vary when we look up and down the income scale.

High-income individuals may very well respond to greater disposable income by consuming more leisure. Because they already enjoy economic security, a newfound lower tax burden might incentivize these individuals to work less while taking home the same amount of money. If so, tax cuts for the wealthy are an economic windfall, not a stimulant.

Further down the income scale, middle- and working-class Americans might make the opposite choice and work more hours in the wake of a tax cut. With less of a financial cushion to rely on, making work more valuable ought to encourage more working hours among these individuals. When work becomes more lucrative, leisure time correspondingly becomes more expensive and harder to justify. This generates higher incomes and more economic growth.

So we might expect to get more economic growth out of cutting taxes — and thereby expanding disposable income — for middle-class and low-income Americans than we would by making things easier on the wealthy. This makes intuitive sense: The poor and middle-class simply need new income more than high-earners do for basic survival and security. They therefore respond to policy changes by maximizing their incomes rather than their leisure.

If the wealthy respond to a tax cut by pocketing more leisure time, we’d expect the inverse to be true, too. That is, the wealthy might consume less leisure — and work more — when their taxes go up. This expectation is backed up by behavioral studies demonstrating that individuals tend to react more strongly to prospective asset losses than they do to opportunities for asset gains — a phenomenon known as the “endowment effect.” In the face of a tax hike, then, the wealthy might work more in order to sustain the same after-tax income level.

To promote growth, then, we ought to raise taxes on the wealthy and cut them on the middle-class — precisely what Obama proposes to do. We’d expect this to generate more economic activity than relying on tax cuts for the wealthy. Indeed, this is borne out in the data. Lower income groups have a highermarginal propensity to consume” than the well-off do. That means that they spend a higher percentage of each additional dollar received than the wealthy would, providing greater stimulus for economic growth.

For much of the twentieth century, the United States grew its economy on the back of an ascendant and secure middle-class. It’s not coincidental that rising income inequality corresponded with a shift toward top-down economic policies implemented by conservatives in the 1980s. For the better part of three decades, average Americans have been waiting for a trickle-down that never happened.

As an alternative to the doldrums of supply-side inequality, “middle-out economics” isn’t just some populist platitude. It’s a serious and persuasive prescription for promoting economic growth. It returns the United States to its roots as a society of egalitarian growth and shared prosperity. And best of all, it’s very likely a more effective and pragmatic plan for the economy than the the top-down alternative offered by conservatives.

More than (four) words

The viability of the Affordable Care Act’s subsidies in 36 states is going to be decided by the Supreme Court.  King v. Burwell, the Fourth Circuit iteration of a multi-pronged challenge to availability of health insurance tax credits across much of the country, has been granted cert by the Court to be heard this term.

I’ve written about these cases (focusing on the D.C. Circuit case, Halbig v. Sebelius Burwell) frequently (I, II, III, IV, and V). But as the case readies for it’s moment before the Highest Court, I wanted to take a moment to address a clever rhetorical deceit that is being propagated by those cheering on the subsidy challenge.

That’s the idea that this is a cut and dry case, a foretold outcome based on the unambiguous text of the statute. Take George Will: “Four words in the ACA could spell its doom.” “The four words that threaten disaster for the ACA,” Will writes, “say the subsidies shall be available to persons who purchase health insurance in an exchange ‘established by the state.’ But 34 states have chosen not to establish exchanges.”

Or take Patrick Wyrick, the solicitor general of Oklahoma, who is challenging the law’s subsidies in a separate suit.  “The phrase ‘Exchange established by a state under Section 1311′ ​leaves nothing to the IRS’s imagination​,” he argues at SCOTUSblog.

Indeed, the architect of these lawsuits, Michael Cannon of the Cato Institute, asserts much the same, contending that “the tax-credit eligibility rules ‘clearly say’ exchange subsidies are available only through state-established exchanges,” and that any ambiguity has been retrospectively manufactured by the government’s lawyers.

There’s a reason the challengers in King are so adamant that this is a simple, unambiguous case. If there is any ambiguity in the statute — any uncertainty whatsoever in whether the text permits subsidies in non-exchange states — the challengers likely lose. That’s because ambiguity triggers so-called Chevron deference to the IRS’s interpretation of the law, which favors making subsidies available in all states.

It could also trigger constitutional avoidance doctrine, since the challengers’ constitutionally troublesome and coercive reading of the law would have to compete with the government’s abjectly constitutional, non-coercive reading of how the subsidies operate.

But if what the law says is clear and unambiguous, then there’s no discretion for the IRS to employ, and no deference owed to its interpretation. And there’s no constitutional avoidance obstructing the challengers’ path to victory, because there would be no alternative reasonable interpretation at hand.

Now “established by the State” sounds pretty unambiguous, right? Pretty damning for the government and the law’s supporters, no?

Of course it does. But it’s also a neat sleight of hand, because those four dooming words aren’t the ones that this case hinges on.

Instead, the case turns on two words, not four. Those two words are “such Exchange.” See, Section 1311 of the law instructs that each state create a health exchange. But Congress can’t order the states to do anything, so it created a federal fallback. For states that don’t elect to run their own exchanges, Congress said, the federal government would step in to “establish and operate such Exchange within the State.”

What’s more, the term “Exchange” in the statute is defined as “an American Health Benefit Exchange established under [section 1311 of the ACA].” That’s the section that directs states to create exchanges.

So what does “such Exchange” mean, exactly? One eminently plausible interpretation is that, if you connect the daisy chain of definitions and provisions laid out above, the federal government creates the functional equivalent of an exchange established by the state in each non-compliant state. That is, for purposes of the statute, the federal government can create an “exchange established by the State.”

Counterintuitive, sure. But it’s clearly a reasonable interpretation, as I’ve explained before. And the meaning of “such” is what split the lower courts in the first place. Shouldn’t this alone be enough to suggest ambiguity, which in turn triggers deference to the IRS’s interpretation?

One would think so.  But the ObamaCare challengers evidently insist that the federal government can only create “an exchange,” not “such Exchange,” for it can create one with all the attributes of a state-created exchange except for subsidy availability. Where’s the support for this in the text?

The challengers’ case looks a lot weaker when we hone in on the text of the law that really matters to this case. And liberals like Paul Krugman ought to stop arguing that the law is facing “death by typo,” for it concedes that the law’s text as written can’t accommodate subsidies on the federal exchange.

That’s only the case if you accept the challengers’ false framing of the language that this case turns on. They’re trying to hide the ball behind the seemingly open-and-shut certainty of “established by the State.” But that’s not the language that really matters. And the fact that “such Exchange” is ambiguous is just enough to expose the challengers’ case to potentially crippling vulnerabilities that could spell their doom before the Supreme Court.