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.

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