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.