The Senate healthcare bill might be unconstitutional

Senate Republicans just won’t let their healthcare bill die. But if the political process doesn’t kill it, the U.S. Constitution might. That’s because the Senate bill now imposes insurance market death spirals on any state that fails to step in to create its own positive health policy. That very well may be unconstitutional under the Tenth Amendment’s prohibition on coercing the states.

On Friday, the Senate’s Better Care Reconciliation Act (“BCRA”) took a Byrd Bath. That’s the process by which the Senate parliamentarian reviews a reconciliation bill to make sure each provision is related to the federal budget. Provisions that aren’t sufficiently related to spending get eliminated from the bill and cannot be passed by a bare majority reconciliation vote.

Unfortunately for the GOP’s already-floundering healthcare effort, the parliamentarian just knocked out some major provisions of BCRA. She ruled that a provision defunding Planned Parenthood requires sixty votes to succeed. And she ruled that a provision prohibiting federal tax credits from paying for abortion services requires sixty votes as well.

These are deep political blows to Republicans, making “passage almost impossible,” according to Rep. Mark Meadows. But perhaps the most devastating decision by the parliamentarian struck down the GOP’s six-month lockout proposal. This policy was meant to be a conservative replacement for Obamacare’s individual mandate. It would make anyone who failed to maintain continuous insurance coverage wait six months before signing up for insurance. This is meant to stabilize insurance markets by nudging healthy people to sign up or face a six-month penalty.

Without the six-month lockup provision, BCRA suddenly has no mechanism to stabilize insurance markets. This leaves Senate Republicans courting insurance market disaster. The GOP would leave in place Obamacare’s politically popular guaranteed issue and community rating requirements. Guaranteed issue means that insurers cannot deny coverage to people with preexisting conditions. Community rating requires insurers to offer coverage to sick people at the same price they offer to healthy people.

For insurance markets to remain stable under these regulations, they must have a broad risk pool with a substantial number of healthy people enrolled in coverage. That’s why the individual mandate to purchase coverage is so crucial, pulling healthy people into the market. Without any type of penalty for forgoing insurance, anyone can buy insurance at any time. This means that more healthy people will decide not to purchase insurance until they need it. With the healthiest people opting out of the market, costs go up for everyone else, leaving a sicker risk pool left over. The next healthiest group then drops coverage, making costs rise and the risk pool sicker still.

This is what’s known as an insurance market death spiral — a process that culminates in a moribund insurance market with few if any insurers willing to sell. And that’s exactly what would happen under either GOP healthcare bill. For Senate Republicans to press ahead with BCRA in its current form would be to deliberately inflict insurance market death spirals.

At the same time, the GOP bill loosens the requirements for states to obtain waivers from federal regulations. As Nicholas Bagley explained at Vox, “Under the Affordable Care Act, a state has to show that its alternative plan would allow it to cover as many people, with coverage as generous, without increasing federal spending. [. . .] [But] [u]nder the Senate bill, to get a waiver, a state doesn’t have to demonstrate anything about coverage. Instead, it just has to show that the plan won’t ‘increase the federal deficit.’”

This makes it significantly easier for states to obtain waivers from national healthcare rules. Indeed, as long as a state’s proposed plan doesn’t increase federal spending, the federal government is required to grant that state’s waiver request under BCRA.

So post-Byrd Bath, the Senate bill pairs disastrous, death-spiral inducing federal insurance market rules with a much more permissive process for states to obtain waivers from those very rules. From one vantage point, it appears that the Republican Congress could even be threatening a booby-trapped insurance market if states don’t take action to seek waivers to implement their own regulatory policies. That is, the GOP healthcare bill is so bad, it could only reasonably be meant to provoke state-based reform.

That’s where the Senate bill gets into constitutional trouble. The Supreme Court has read the Tenth Amendment to prohibit Congress from enacting legislation that coerces the states. The states are sovereign entities, and Congress cannot try to compel desired action from them through overly strong-arm tactics. For instance, when Obamacare threatened to cut off all pre-existing Medicaid funding from any state that declined to expand its program to cover the near poor, the Supreme Court held that this threat amounted to undue coercion. As Chief Justice John Roberts put it in NFIB v. Sebelius, this threat amounted to Congress pointing a “gun to the head” of the states. No reasonable state would have had any meaningful choice.

One could read BCRA as posing a similar threat to the states: adopt state-based health reform, or have your insurance markets destroyed by malicious federal regulation. Indeed, this promotes the conservative preference for federalism and state-level policymaking. Under BCRA, if state lawmakers want healthy insurance markets, they will need to take affirmative legislative action to enact market-stabilizing policies and to seek federal waivers to take steps to save their insurance markets.

This looks awfully coercive. If states don’t act, BCRA’s perverse regulatory regime destroys their insurance markets. BCRA thus becomes a way to compel state action.

But don’t take my word for it. There’s some indication that the Supreme Court considers the threat of insurance death spirals to be constitutionally problematic. In King v. Burwell, opponents of Obamacare argued that Congress had conditioned subsidies for individual insurance enrollees on each state’s decision to run an insurance marketplace. If so, that meant that Congress had threatened states with insurance market death spirals if they didn’t run their own exchanges: without subsidies, the individual mandate would be inoperative while guaranteed issue and community rating remain in effect (the same dynamic as under BCRA). Such a federal regulatory environment would have plunged insurance markets into death spirals in states that refused to comply with the wishes of Congress.

A coalition of law professors and non-profit organizations presented this problem to the Supreme Court in an amicus brief (on which I advised). And at oral arguments, multiple justices worried about the coercive effects of Congress imposing death spirals on the states. Justice Anthony Kennedy called it “a serious constitutional problem.” “The states are being told: Either create your own exchange, or we’ll send your insurance market into a death spiral,” he said.

Justice Sonia Sotomayor was similarly troubled by the coercive implications of the plaintiffs’ reading of the ACA. “If we read it the way you’re saying,” she said, “then we’re going to read the statute as intruding on the federal-state relationship, because then the states are going to be coerced into establishing their own exchanges.” (In its opinion, the court ultimately steered clear of any constitutional issues by locating an anti-death spiral constraint in the statute itself.)

Granted, these are the oral argument musings of just two of the Court’s nine justices. But one could imagine a state opposed to Obamacare repeal seizing on these hints from King v. Burwell to attack BCRA in court, pressing the Supreme Court to deal with the “serious constitutional problem.” For BCRA presents a unique perversion of the federal-state relationship: federal legislation so awful that it coerces any reasonable state into action.

The Senate’s healthcare bill was bad when it was introduced, and it got made worse after undergoing its Byrd Bath. The GOP’s healthcare effort is no longer just politically dire. It has now ventured into potentially unconstitutional territory. The same is true of the Senate’s alternative “repeal only” bill, which too would eliminate the individual mandate without bothering to supply any replacement.

The Senate is due to vote to begin debate on Obamacare repeal in a matter of hours. After the parliamentarian’s decision, the Senate’s bill currently lacks any meaningful way to protect insurance markets. If Senate Republicans press on with the bill in its current form, they will be assenting to inflicting grave harm on health insurance markets across the country. And they may be casting a bad vote for a bill that’s on the wrong side of the Constitution.

 

Note: This post is cross-posted at Medium.

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King v. Burwell’s shadow constitutional avoidance

It has been nearly two months since the Supreme Court upheld the structure of ObamaCare for the second time in three years. The Court rejected a vision of the law’s insurance subsidies as inducements to compel state action, affirming the availability of these subsidies to insurance consumers nationwide.

It was a resounding victory for the ACA and the Obama administration. Yet there was one curious absence from at least the surface of the Court’s opinion: there was no discussion of the troublesome constitutional implications of the challengers’ interpretation of the law and the need to avoid them.

But a closer view of the majority opinion — and its vulnerabilities raised by Justice Scalia’s dissent — shows that there might be more going on here. Though the Court seemingly avoided avoidance in King, perhaps the coercion issues nonetheless played a role in steering the Court away from the challengers’ interpretation and all of its federalism baggage.

As the challenge to ObamaCare’s subsidies wound its way through the lower courts, I advocated a sort of fail-safe argument for why the Court should endorse nationwide subsidies. This argument drew on the rule against coercing the states and the canon of statutory construction that cautions courts to avoid interpretations of laws that trigger constitutional issues. Putting these two doctrines together, I argued, should lead the Court to reject the challengers’ broadside to the ACA. It was a trump card; a last resort that struck at a potential Achilles’ heel in the challengers’ case.

I began writing about this argument on blogs and then in an amicus brief to the Court with my former professor Abby Moncrieff. Our brief’s argument gained traction at the Supreme Court’s oral arguments, drawing favorable pronouncements from both Justice Kennedy and Justice Sotomayor.

Yet when the opinion dropped, there was nothing at all about coercion or avoidance. Abby came to call avoidance the “argument that wasn’t.” But the more I think about the King opinion, the more I see shades of a more subtle form of avoidance. Ruling for the challengers would have required the Court to grapple with difficult constitutional questions, so the Court steered clear of this legal tangle and affirmed the Obama administration’s implementation of the ACA.

In our brief, Abby and I had argued that (1) Congress is constrained from imposing insurance market death spirals on states that decline to create exchanges, and (2) that this constraint comes from the Tenth Amendment’s anti-coercion principle — that Congress may not pose coercive inducements upon the states. Given the ambiguity of key phrases in the law like “such exchange,” the Court should avoid an interpretation that would threaten states with death spirals, thus affirming the availability of subsidies on all exchanges.

In the section of its opinion analyzing the “broader structure” of the ACA (the focus of my discussion here), a majority of the Supreme Court agreed with Point (1), but not on the grounds proposed in Point (2). Instead, the Court reasoned that the anti-death spiral constraint arose from the statute itself. “[T]he statutory scheme compels us to reject petitioners’ interpretation because it would destabilize the individual insurance market in any State with a Federal Exchange, and likely create the very ‘death spirals’ that Congress designed the Act to avoid,” Chief Justice Roberts held.

The problem for Roberts and the rest of the majority, however, is that the ACA never explicitly prohibits death spirals — that is, the anti-death spiral constraint does not arise from the plain text of the statute itself.   Just the opposite, in fact: as Justice Scalia points out in dissent, Congress explicitly enacted death spiral inducing regulations in the long-term care market and in the federal territories. “How could the Court say that Congress would never dream of combining guaranteed-issue and community-rating requirements with a narrow individual mandate,” Scalia asks, “when it combined those requirements with no individual mandate in the context of long-term-care insurance?”

Scalia’s point echoes the decision of a panel of the D.C. Circuit Court of Appeals ruling for the ACA’s challengers a year ago. To argue that Congress is still constrained from imposing death spirals on the states, one would seemingly need to look externally from the statute. One beckoning possibility is the Tenth Amendment. As I wrote last July, “states are entitled to special protections in our constitutional order that the territories and long-term care markets emphatically are not. [ ] One of these protections is the [Tenth Amendment’s] prohibition against federal attempts to coerce the states.”

So the majority could have intercepted Scalia’s objection by relying on an anti-death spiral constraint arising from the Tenth Amendment’s rule against coercion on the states. Yet the Court chose not to do so. Instead, the majority insisted on locating an anti-death spiral principle in the ACA itself, despite statutory text to the contrary. It grounded this principle in a different set of federalism considerations. Instead of focusing on top-down federalism — that is, limits on what the federal government can do to the states — the Court emphasized bottom-up federalism: the states’ roles as policy innovators and so-called “laboratories of democracy.”

In the early pages of its opinion, the Court traces the 1990s health reform efforts at the state level in New York, Washington, and Massachusetts. These states all attempted to expand coverage by imposing community rating and guaranteed issue without an individual mandate. All of these states fell far short of universal coverage, while thoroughly destabilizing their individual insurance markets. Only Massachusetts was able to successfully expand coverage and calm its insurance market by ultimately imposing an individual mandate.

In the Court’s understanding, Congress watched the 1990s reform efforts play out and lifted Massachusetts’s successful scheme for national primetime: reform based on community rating and guaranteed issue coupled with an individual mandate. Thus, Massachusetts became the national model for successful health reform.

By adopting this narrative of the legislative process behind the ACA, the Court reads an anti-death spiral principle into the law’s legislative history: If Congress wanted to turn the country into Massachusetts, then of course it wouldn’t put in place the kind of regulatory scheme that failed in New York and Washington.

However, the states-as-laboratories view of the ACA’s legislative history could have a darker spin, too. Just as Congress drew on Massachusetts as its chosen model for health reform, it could have drawn on the discredited reform efforts in New York and Washington to prod states toward establishing their own exchanges. That is, if Congress was such a keen observer of state health policy experiments, what if it had threatened the states with deliberate New York-style insurance market instability if they refused to adopt their own exchanges?

This punitive twist on states-as-laboratories federalism would be completely unprecedented — but it was exactly what the ACA challengers’ interpretation of the law entailed. As I wrote in June, such a reading of the law would “cast Congress in the role of evil scientist, resurrecting the failed experiments of the states to bludgeon its way to getting its chosen policies enacted nationwide.” This type of congressional threat would almost certainly require the Court to revisit its nascent coercion jurisprudence.

To avoid dealing with the coercion issue, the Court had to read the ACA in a broad, purpose-driven way. The Court’s thinking goes something like this: In passing the ACA, Congress’s primary aim was to expand health insurance, so it solely wanted to turn states into Massachusetts. It wouldn’t threaten some with becoming New York for the sake of promoting state-run exchanges (a deeply subsidiary goal of the law). Doing so would undermine the overarching aim of expanding health insurance coverage.

Now this is an eminently reasonable understanding of Congress’s priorities. Indeed, it’s a refreshingly broad-minded counter to the ACA challengers’ myopic hypertextualism.

But it also revives old school purposivist interpretation — a mode of statutory construction traditionally associated with liberal jurisprudence. The Court invoked the relatively barren canon of construction cautioning against negating statutory purposes, relying on New York State Dept. of Social Servs. v. Dublino, a case that has been seldom used since the 1970s, and a canon that inherently requires courts to first identify a statute’s overarching purpose based on its structure and presumed aims.

This is uncommon ground for Chief Justice Roberts and Justice Kennedy to tread. Judicial conservatives rarely rely on the supposed purpose of a statute to guide their decision-making. But in doing so in King, Roberts and Kennedy may have turned the ACA into what legal scholar William Eskridge calls a “super statute.”   Certain significant, high profile pieces of legislation are interpreted by courts with great deference to Congress’s legislative purpose. These statutes aren’t subject to plain meaning limitations, and seem to defy the typical rules of statutory interpretation.

So when Justice Scalia laments that King “changes the usual rules of statutory interpretation for the sake of the Affordable Care Act[,]” he’s not entirely wrong. The question is why the Court went to these lengths and bent some interpretive rules to arrive at its decision.

One plausible reason was that the Court really wanted to avoid delving back into coercion doctrine. At oral arguments, Justice Kennedy seemed persuaded that the challengers’ interpretation of the ACA presented a “serious constitutional problem” under the Court’s coercion holdings. Justice Sotomayor too was troubled by these constitutional implications in the challengers’ reading.

The problem with the Court’s anti-coercion principle, however, is that it opens a giant judicial can of worms. The rule against coercion is rife with line-drawing problems and malleable, poorly defined standards. Just how substantial does a federal inducement have to be to cross the line into coercion on the states? How burdensome does a conditional regulation need to be? The whole enterprise plunges the Court into endless difficulties.

Regardless of any line-drawing problems inherent in the anti-coercion constraint, it seemed crystal clear to me that threatening states with insurance markets wrecked by federal regulation — as ObamaCare’s challengers postulated — would be extremely problematic no matter where one draws the coercion-inducement line.

Rather than reckon with this outcome and revisit a vexing constitutional principle, the Court took a different route to reach the same result, upholding the ACA’s subsidies nationwide. To avoid even touching upon the coercion issue, the Court landed on an expansive reading of the ACA that, if anything, bolstered the law’s standing and reach. And it settled for reasoning with glaring weaknesses, teeing up Justice Scalia’s objections based on the federally induced death spirals in the CLASS Act and the federal territories.

Between the lines then, King might read like an odd sort of avoidance opinion after all in its contortions to avoid passing upon the coercion issues at play. Indeed, perhaps this is a pure from of avoidance: stretching alternative reasoning to avoid discussing or developing a constitutional doctrine at all. (If so, then King is the polar opposite of Chief Justice Roberts’s commerce clause opinion in NFIB v. Sebelius, wherein he fully analyzed the individual mandate’s commerce clause implications before invoking avoidance.)

This might explain some of the compromises and strains apparent in the Court’s opinion. In fact, its concluding language echoes that typically found in constitutional avoidance cases: “Congress passed the Affordable Care Act to improve health insurance markets, not to destroy them. If at all possible, we must interpret the Act in a way that is consistent with the former, and avoids the latter.” (emphasis added)

A ruling for ObamaCare’s challengers would have forced the Court to directly confront the coercion issues embedded in the challengers’ interpretation. The complexities arising from these issues only made it more difficult for the Court to contemplate a ruling for the challengers.

Justice Kennedy said at oral arguments that the constitutional considerations are “in the background of how we interpret this [law].” If coercion added a judicial hurdle — even if only in the background — that kept the Court from ruling for the challengers, then the constitutional avoidance argument did its job in King.

The King is coming

King v. Burwell is imminent.  The resolution to the legal challenge to ObamaCare’s jugular is expected to arrive within a matter of days.  We’ll soon know whether the Supreme Court will allow the anti-universal coverage crusaders to radically expand the federal government’s power to dragoon the states.

The petitioners in King argue that Congress sought to manipulate state behavior in an unprecedented way.  Specifically, the petitioners argue that by passing ObamaCare, Congress posed the following choice to the states: establish an exchange and enjoy a fully functioning universal healthcare scheme, or decline to establish an exchange and endure deliberately imposed federal regulatory havoc on your insurance market.

The latter choice is implicit from the very structure of ObamaCare.  The law’s insurance expansion is based on a system of consumer protections, individual mandates, and government subsidies.  The consumer protections guarantee insurance coverage for the pre-existing sick.  The mandate protects insurance markets from adverse selection by requiring people to buy into insurance risk pools preemptively rather than waiting until falling ill.  And the subsidies allow individuals to afford private health insurance — a necessity to equitably impose a mandate.

The petitioners argue that Congress threatened to unravel this tripodic structure in states that rejected the option to create a health exchange.  Under their theory, such states elected to forego subsidies.  This triggers the affordability exemption to the individual mandate, releasing countless low- and middle-income people from the obligation to purchase insurance.  This in turn would upend individual insurance markets in these states, destabilized by the relative healthy opting out of insurance risk pools.

We know how the story ends in this regulatory environment.  States like New York, New Jersey, and Massachusetts have all tried this same untenable regulatory environment, and they each incurred moribund insurance markets, spiraling costs, and political frenzy as a result.  By trying to legislate against insurance discrimination and medical underwriting without adopting costly subsidies and mandates, these states quickly saw their insurance markets seize up and their health premiums vault beyond the reach of consumers, sending their political leaders scrambling for a quick fix.

The only true fix was found in Massachusetts, where Governor Mitt Romney enacted a system of mandates and subsidies that ultimately became the model for ObamaCare.  This shored up the insurance market while guaranteeing coverage for all.

The King petitioners posit that Congress threatened to impose the dismal fate of past futile efforts of the states on those that decline to create exchanges.  Economic theory and historical practice show that this would wreck state insurance markets, plunging markets into death spirals and launching an insurer exodus.

Such a threat would seem to be plainly at odds with Supreme Court precedent.  Our federalist system prevents the federal government from coercing the states to enact its preferred policies.  Threatening to decimate insurance markets via regulation if the states decline to enact a federal program would seem to be precisely such an illicit threat.

That’s why the Supreme Court ought to avoid this loaded interpretation that the petitioners propose in King in favor of the government’s reasonable, utterly unproblematic reading of the law.  Under the government’s reading, the Affordable Care Act authorized the Department of Health and Human Services to create “such exchange” in any state that elected not to create its own — and that “such exchange” meant an exchange that could pay out insurance subsidies.

At oral arguments in King, at least two justices — Justice Sotomayor and Justice Kennedy — seemed drawn to this reasoning. They worried about the coercive implications of the cramped statutory reading that the petitioners put forth.

And earlier this month, the Court denied cert in another ObamaCare case, signaling that it would not be redefining its coercion jurisprudence this term.  This is good news for the law’s supporters.  For the Court to endorse the petitioners’ position in King, the Court would have to confront coercion head-on and explain how the coercion here is different from that under the NFIB Medicaid expansion.  And the Court can still use coercion in a constitutional avoidance context in King without creating new precedent.

The Supreme Court has long romanticized the idea that the states are laboratories of democracy, testing out policy experiments on a small scale to see which are ready to go national.  Indeed, ObamaCare very much fit this mold, picking up Massachusetts’s successful health reform as the model for national reform.

Entirely novel, however, would be a statutory structure that cast Congress in the role of evil scientist, resurrecting the failed experiments of the states to bludgeon its way to getting its chosen policies enacted nationwide.  Such a tactic would be a cynical perversion on traditional federalist principles.  And ObamaCare supports ought to hope that the Supreme Court doesn’t allow it.

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.

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.

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.

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.