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.

*          *          *

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.

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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.

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.

Why is health care especially special?

During the long march to reform health care in the United States, liberals often asserted that health care is a right – a universal good that all Americans are entitled to regardless of ability to pay. President Obama has even suggested that the Affordable Care Act implicitly creates such a right, telling a crowd last year that “In the United States, health care is not a privilege for the fortunate few, it is a right.”

This rhetoric was useful for catalyzing political momentum and elevating the liberal position based on moral urgency. Yet it might also be misleading. By invoking health care rights, health reformers are appealing to moral and philosophical rights – not legal ones found in our constitution or statutes. The Constitution has no explicit guarantee regarding health care, nor has the Supreme Court implied one. And though the Affordable Care Act may create a regulatory scheme that in effect provides guaranteed health coverage, nowhere does it claim to provide an affirmative right to health care generally.

Nonetheless, the right to health care rings true to many of us. Yet we don’t hear the same rights-based language invoked for other basic needs that are low-level prerequisites for a decent life. Why is health care special?

Consider Maslow’s famous hierarchy of needs as a useful framework:

Maslow created a hierarchy of human needs ranging from the most basic to sustain life (physiological) to higher level needs to fulfill life (self-actualization). In the American tradition, Maslow’s hierarchy broadly tracks Jefferson’s general claim of rights to life, liberty, and the pursuit of happiness. “Life” and “liberty” are facilitated by protections of physiological and safety needs, while the “pursuit of happiness” reflects the attainment higher level needs.

To the extent that our Constitution enshrines any of these needs as rights, it does so only as negative rights – rights against the government. While we have constitutional rights against government interference in our morality or religion, our security of property, and sexual intimacy, we do not have positive constitutional rights guaranteeing us employment, food, water, or anything else.

So why have liberals asserted a positive right to health care specifically? Why not include other similar unrecognized rights like housing, food, clothing, or employment? Article 25 of the Universal Declaration of Human Rights declares rights to food, clothing, housing and medical care. So too did President Franklin Roosevelt’s Second Bill of Rights.

One likely answer is that 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.

But still, why do health care first? What is it about health care that makes it a good first step to expanding positive societal rights more broadly?

There are two apparent answers to this, but they each stem from the same principle: that health care is the easiest to accomplish. Health care is the lowest hanging fruit.

This may seem daunting given that health care reform took a century to achieve in the United States. But there are economic and political reasons to think that this is the case. In an influential 1994 paper, law professor Einer Elhauge argued that health care was unique among other would-be positive rights because it involved the least economic disruption to a market economy. Any positive right requires redistribution to those who would not be able to afford a good or service absent a societal guarantee. Elhauge argues that redistribution in the context of health care is less troublesome than redistribution against poverty generally because it creates less moral hazard. This is because we have non-economic, bodily incentives to avoid getting sick. “Individuals normally have no incentive to stay in a state of sickness (or get into one),” he writes (at 1487), “because no one wants to be sick, and because receiving medical care is not (for most of us) intrinsically enjoyable.”

Elhauge argues that the right to health care stems from the same moral intuition that supports rights to other basic needs, but that health care rights are the most feasible and pose the least risk of bad market incentives. As he puts it (at 1490-91): “[W]hat we experience as a strong moral sense that health care should be distributed without regard to ability to pay is, at root, the same moral sense we have that other needs should also be met equally and that other undeserved misfortunes should be compensated, but far less diluted by concerns about administrative problems and undermined productive incentives.”

Elhauge’s theory, then, is that health care is the easiest positive right because it does the least damage to capitalism. Some parts of his argument seem at odds with our experience. For one thing, there do seem to be a substantial number of Americans for whom consuming medical care is in fact “intrinsically enjoyable,” in the sense that they get psychic value from excess check-ups, tests, and clearances from doctors. This is part of what drives up our national health care spending. Yet on the whole, Elhauge’s theory of the unique instincts against over-consumption of medical care and against falling sick does effectively distinguish health care from other potential positive rights.

Beyond Elhauge’s economic case for health care exceptionalism, there is also a political explanation for why health care is most achievable. Unlike other would-be positive social rights, we all understand that a day will come where we will need medical care. Optimism bias may infect some of our thinking (hence the paternalist case for requiring Americans to hold health insurance), but for the most part, we know that someday we will get sick. The randomness of sickness cuts across all classes, creating a universal anxiety that animates health care rights for all.

The same cannot be said for other potential rights. Optimism bias is more entrenched in the middle-class assumption that they’ll never fall into poverty. Upward mobility has long been the American assumption. While economic inequality has dampened that spirit, class stagnation is still presumed, as few anticipate downward mobility. Therefore, most Americans place perhaps undue faith in the unlikeliness that they will face disadvantage like homelessness, hunger, or joblessness. Because of this, it becomes harder to marshal invested political will around these issues sufficient to elevate them to broadly recognized rights.

If universality is necessary for positive rights, perhaps that’s why the closest analogue to the right to health care that we see is the concept of a right to education. Education, like health care, is universally experienced by all Americans. While the federal constitution contains no guarantee of a right to a decent education, most state constitutions do. Moreover, we still see the idea that education is a civil right animating education reformers seeking to improve low-income schools.

This political argument for why health care rights are special can be read in two ways. First, we might see it as raw self-interest. The bulk of Americans will only mobilize around a positive right that they expect will effect their lives – that rights are only politically mainstream if they further middle-class interests. A second, more high-minded way of understanding this, however, is that on the issue of health care, Americans’ political determinations are closer to the Rawlsian veil of ignorance than they are on other issues. Because much of sickness is random falling beyond our control, capable of happening to any of us at any time, Americans more closely approximate a singular objective viewpoint – a uniform interest – when thinking about extending health care rights than they do elsewhere.

We know that liberals think that health care is a special good – something too important to be left to an unfettered market, something too essential to human life and dignity to deprive from those who cannot pay. But understanding why it’s special relative to other special goods both politically and economically is essential to the direction of the liberal social vision after health care reform.

Halbig v. Sebelius is a misfire, not a silver bullet

Two important cases challenging different pieces of Obamacare had oral arguments last week. The Hobby Lobby challenge to Obamacare’s contraception mandate before the Supreme Court received most of the attention, but another case with far more significance for the law’s fate was also argued before the D.C. Circuit Court of Appeals. This case – Halbig v. Sebelius – threatens to unravel the law – to render key components of it inoperable in a majority of states.

Halbig’s attack on Obamacare’s subsidies poses existential threat to the law – but I believe it to be an empty existential threat. While the oral arguments in the case left many spectators concerned for the future of federal exchange subsidies, this is because the government and the law’s supporters are failing to make a crucial argument that could deflate the challengers’ central theory.

In short, the implications of the Obamacare challengers’ theory of the law means that Congress attempted to incentivize states not just with subsidy losses but also with sweeping collateral damage to their insurance industries. Such a move may very well be unconstitutionally coercive on the states, so constitutional avoidance doctrine should guide courts away from this interpretation of the statute and toward the government’s argument that the text of the statute is imperfect but does indeed make subsidies available on all exchanges.

1. The Supreme Court’s decision in NFIB v. Sebelius

To understand why Halbig is a misconceived challenge, it is important to recall what happened in the first wave of lawsuits challenging Obamacare. In 2012, opponents of President Obama’s health care reform brought legal challenges against two key pieces of the law: the individual mandate and the Medicaid expansion. The individual mandate requires most Americans to carry health insurance or else pay a fine. In NFIB v. Sebelius, a majority of justices agreed that this mandate exceeds Congress’s power to regulate commerce. However, Chief Justice Roberts cast the decisive fifth vote to save the individual mandate, determining that if Congress couldn’t impose it under its commerce power, it could do so under its power to tax. The individual mandate, therefore, was constitutional.

The other, less discussed part of the law challenged in NFIB was the Medicaid expansion. One way that Obamacare sought to expand health insurance coverage was by expanding the number of people eligible for Medicaid. Specifically, Obamacare sought to make all people earning below 133% of the federal poverty line eligible for health care coverage through Medicaid. Because Medicaid is run jointly by the state and federal governments, the Obama administration could not just order the states to expand their Medicaid programs – the Constitution prohibits the federal government from “commandeering” the states to enact policies. Rather, Obamacare – through an old provision of the Social Security Act, which governs Medicaid – made expanding Medicaid a required condition for any Medicaid funding: that is, if states didn’t expand Medicaid, they could lose all federal Medicaid funding.

The Supreme Court said that this was unconstitutional coercion on the states. Because they heavily rely on federal money to support their Medicaid programs, states could not afford to refuse to expand their Medicaid program. Rejecting the expansion and losing federal funding would decimate state Medicaid programs and wreck state budgets. The Court decided that this wasn’t a real choice – it was akin to being asked to choose with a gun to your head. The upshot of this decision was that the Medicaid expansion became wholly optional with no threat of lost funding.

2. The Arguments in Halbig

So Obamacare opponents won on the Medicaid issue and narrowly lost on the individual mandate. Undeterred, they came up with a new challenge attacking the law’s tax credits that make it easier for lower- and middle-income people to buy health insurance on the individual market. Led by lawyers from the conservative Cato Institute, Obamacare opponents argued that the text of the law itself denies health insurance subsidies to the millions of Americans who have purchased their insurance on exchanges run by the federal government.

This is their argument in a nutshell: A central part of Obamacare was creating health exchanges in each state where people could directly buy health insurance if they couldn’t get it through their employer. These exchanges were meant to be a simple way for people to purchase insurance and to promote greater competition among insurers, leading to lower premiums. Obamacare gave states the option of opening and running their own exchanges. If they chose not to do so, then the federal government would run an exchange in that state for them.

The Obamacare opponents argue that the text of the law only gives tax credit subsidies to people who buy insurance on an exchange run by a state. If this interpretation is correct, it will take away subsidies from people in states that refused to create an exchange – that is, those who bought their insurance on federal health exchanges (the embattled Healthcare.gov). These people would then likely be unable to afford the insurance that they have purchased. Moreover, without subsidies, the law’s individual and employer mandates would be weakened to the point of irrelevance. Each mandate is tied to the availability of affordable health coverage, defined as about 8 percent of income. Without subsidies, health coverage becomes a lot less affordable for many people, leaving them exempt from the individual mandate.

Why would the law do this? Obamacare opponents theorize that Congress wanted to create an incentive for states to run their own exchanges. According to them, Congress used the exclusivity of health insurance subsidies as a carrot to entice states to choose to operate health exchanges. Having more states run their own exchanges would, of course, reduce costs for the federal government. According to Obamacare opponents, Congress miscalculated the incentive power of these subsidies, as 34 states have refused to run their own health exchanges.

The law’s supporters, however, resist this interpretation of the law. They acknowledge that the text of the statute is messy, convoluted, and ambiguous in places, but maintain that it can certainly be read to give out subsidies on both types of exchanges. For example, Section 1563 of the statute appears to (counter-intuitively) define a federal exchange as a state exchange. Other parts of the law demand disclosure reports from both state and federal exchanges on the amount of subsidies being issued and otherwise imply that buyers on both types of exchanges are eligible for subsidies. All of which makes it less clear that issuing subsidies on federal exchanges raises any problem at all.

Moreover, the fundamental purpose of the law was to expand health insurance access. Depriving insurance subsidies from federal exchange consumers undermines this goal. Under this reading, Congress merely gave states an option to control their own health exchanges as an act of federal-state cooperation. If states chose not to run their own exchanges, the federal government would step in to do so – subsidies and all.

The goal of Obamacare opponents is to get their case to the Supreme Court and have the federal exchange subsidies struck down. The individual and employer mandates would go down with the subsidies, unraveling the core of the law in 34 states. Obamacare opponents have brought cases in multiple appellate circuits across the country. If two or more circuits disagree about the legality of the federal exchange subsidies, the Supreme Court is almost guaranteed to take the case.

3. Halbig’s Fundamental Flaw

There is one significant flaw in the argument against Obamacare’s subsidies: their theory of what Congress did might not be constitutional. In the opponents’ view, Congress used insurance subsidies to pressure the states to create health exchanges. Beyond this, however, the structure of Obamacare threatened to inflict even graver harm on the states. The law bans insurance companies from excluding people with preexisting conditions or price discriminating against them through medical underwriting. Without an effective individual mandate, people could wait until they got sick to purchase insurance. This would cause massive adverse selection, culminating in what’s known as an insurance death spiral – a phenomenon where insurance pools become increasingly and disproportionately comprised of expensive sick people until the insurance market collapses. Without subsidies, more and more people would be exempt from the individual mandate as the cost of insurance escalated, resulting in a death spiral.

Because Obamacare’s individual mandate is only effective if subsidies are available, the opponents’ theory essentially means that Congress threatened states not just with a loss of subsidies, but with an insurance market meltdown if they failed to create a health exchange. After the Supreme Court’s decision on the Medicaid expansion in NFIB, we must seriously wonder whether it would be constitutional for Congress to do such a thing.

Remember, in NFIB the Supreme Court said that it was unconstitutionally coercive for Congress to tell the states that they would lose all Medicaid funding if they failed to expand their Medicaid programs. The federal demand in that case was that states expand Medicaid to cover more of the poor and near-poor. The coercive “gun to the head” was cutting all funding for traditional Medicaid and wrecking state budgets.

Similar coercive tactics are embedded in the Obamacare opponents’ theory in Halbig. (Indeed, Obamacare opponents have partially argued coercion in court.) The federal demand is that states create health exchanges. The coercive gun to the head is a death spiral on state insurance markets imposed by federal regulation. Without subsidies, the individual and employer mandates are essentially inactive, but the bans on preexisting conditions and underwriting restrictions are active. This regulatory environment would devastate the insurance markets in states that opted out of creating health exchanges.

Such behavior by Congress would seem to raise serious constitutional problems after NFIB. Therefore, in a potential Halbig Supreme Court case, the Court would have to choose between two competing theories of the statute: either that it is a coercive incentive scheme, or that it might be an inartfully drafted statute that meant to make subsidies available on all exchanges. The first theory raises constitutional problems, while the latter does not.

Which gets us to the heart of the matter: this is the same exact choice that Chief Justice Roberts faced with the individual mandate in NFIB. In that case, Chief Justice Roberts analyzed the individual mandate and determined that it would be unconstitutional under a commerce clause theory, but would be constitutional under a taxing power theory. The Chief Justice therefore upheld the mandate as an execution of Congress’s taxing power.

This was not a charitable moment of fleeting liberalism by the Chief. Importantly, the decision that his reasoning led to was compelled by a long-held doctrine of statutory interpretation. When courts are presented with two competing interpretations of a law, one that raises constitutional problems and one that does not, courts must adopt the vision of the law that raises no constitutional problems. Chief Justice Roberts relied on this exact canon – known as constitutional avoidance – in upholding the mandate in NFIB. “[E]very reasonable construction must be resorted to, in order to save a statute from unconstitutionality,” he reiterated.

Therefore, in Halbig, constitutional avoidance would require courts to reject the Obamacare opponents’ theory of the law because it might be unconstitutionally coercive on the states under NFIB. Courts should choose the equally plausible interpretation of the law presented by the government and Obamacare supporters: that although its text may seem ambiguous, it can reasonably be read to offer subsidies on federal exchanges while giving states the option to control their own insurance marketplaces.

4. Other considerations

Some might resist the above analysis on the grounds that the coercion on the states in Halbig is less severe than in NFIB. States declining to create an exchange could impose their own individual mandates to prevent an insurance death spiral, or take other measures to shore up their insurance markets. However, similar arguments could have been made about Medicaid in NFIB. States declining to expand Medicaid could have taken measures to fund their traditional Medicaid program, such as reallocating budget priorities, raising additional tax revenue, or even repealing balanced budget amendments so as to run budget deficits. Therefore, the existence of alternative state actions does not seem to make a coercive federal program any less coercive.

If anything, constitutional avoidance is easier to invoke in Halbig than it was in NFIB. In reading the individual mandate as imposing a tax in NFIB, Chief Justice Roberts had to go against both the explicit text of the statute and public statements of President Obama and other key policymakers claiming that the individual mandate imposed a penalty and not a tax. On the other hand, Halbig deals with a section of Obamacare that is highly ambiguous and open to numerous plausible interpretations. Invoking constitutional avoidance in Halbig does less violence to the text than doing so in NFIB.

Moreover, striking down key components of Obamacare has, if anything, become more politically difficult for the Court now than it was in the heated summer of 2012 when the Court decided NFIB. Commentators praised Chief Justice Roberts’s opinion as a politically savvy masterstroke, simultaneously advancing conservative goals of reining in the federal commerce power while protecting the Court from charges of ignoble politicization. Still, it would have been far easier for Chief Justice Roberts to gut Obamacare in 2012 – when the law’s benefits had not yet fully “gone live” – than in 2014, when millions of Americans have relied upon subsidies to gain coverage through federal exchanges. As the curator of the Court’s legitimacy, the Chief Justice would be acutely aware of the mounting political and social costs of invalidating a now-active health care reform.

As in NFIB, a potential Halbig decision presents the Chief Justice with an opportunity to both advance conservative goals while upholding President Obama’s signature domestic achievement. Invoking constitutional avoidance, and explaining why the Obamacare opponents’ incentive theory raises serious constitutional problems, further fleshes out the Court’s nascent coercion doctrine and protects federalism and states’ rights. Doing so is precisely what compels the Court to interpret Obamacare in line with its supporters’ theory of the law – an interpretation that raises no constitutional violation and leaves the law intact.

Certainly, there are other significant holes in the Obamacare opponents’ theory of the law. If Congress committed a political miscalculation in believing that exchange subsidies would entice states to run their own exchanges, then certainly the states too committed a gross miscalculation. Refusing to create an exchange as an act of protest against the president may have been a politically beneficial move for some governors and state legislators. But would it have been worth a self-inflicted insurance market death spiral? There appears to be no evidence that anyone – policymakers or otherwise – at the state level debated or even anticipated that the loss of subsidies or the ensuing insurance market calamity would be a consequence of declining to establish an exchange. If the subsidies were a carrot for the states, then the law’s supporters certainly did an incompetent job of communicating this.

All of which is to say that Obamacare should be safe from a Halbig-style challenge before the Supreme Court. Constitutional avoidance doctrine, coupled with the full coercive implications of the Halbig litigants’ arguments, should guide the Court away from the position of the law’s opponents. Obamacare, then, will live to fight another day.