In King v. Burwell, the challengers’ primary argument is that Congress deliberately designed the law to deny subsidies to people in states that opted for the fallback federal exchange, as part of a “carrots” and “sticks” mechanism to pressure states to set up their own exchanges. If the Supreme Court sides with the challengers, it could yank subsidies from millions in three dozen states and unleash untold disruptions.

But this raises a question. If Congress intended to threaten states with the loss of subsidies, why were so many government officials — including many Republicans in Congress and even officials in the states themselves — entirely unaware that any such threat existed, for many, many months after the law passed, at the very moment when those state officials were grappling intensely with the implications of the law for them?

Brian Beutler reports that a Congressional vote on a change to the ACA in the spring of 2011, nearly a year after it passed, shows that pretty much no Republican in Congress had any idea any such threat existed, and were operating from the assumption that subsidies were universal. Yet some have now endorsed the current lawsuit.

I can now add more: Several state officials who were directly involved at the highest levels in early deliberations over setting up state exchanges — all of them Republicans or appointees of GOP governors — have told me that at no point in the decision-making process during the key time-frame was the possible loss of subsidies even considered as a factor. None of these officials — who were deeply involved in figuring out what the law meant for their states — read the statute as the challengers do.

Cindi Jones was appointed in August of 2010, after passage of the ACA, by Republican governor Bob McDonnell to head his Virginia Health Reform Initiative panel. A key question it faced was whether the state should set up an exchange or default to the federal one. The question of whether the failure to set up an exchange would sacrifice subsidies was not a consideration throughout the discussions, she says.

“There was no discussion at any meeting that one of the reasons we would want to do a state based exchange was that it would be the only way we would get subsidies,” says Jones, who was held over from a previous Democratic administration and now works for Governor Terry McAuliffe. Referring to 2010 and the spring of 2011, Jones said: “The discussion of whether or not to set up a state-based exchange versus a federal exchange would have been different if one of the issues we had to consider was whether or not our citizens would get subsidies.”

 

Challengers reject this argument

Supporters of the lawsuit argue all of this is irrelevant (more on this later). Nonetheless, the fact that some state officials say they never read the law as making subsidies conditional, and the precise chronology of how this all unfolded, both could prove key to the legal dispute in this case, depending on the view Justices John Roberts and Anthony Kennedy take of it.

This is partly due to the arguments the challengers have chosen to make. They don’t merely argue that even it it’s a close call on what Congress intended, the phrase in question (subsidies go to people on an “exchange established by the state”) still definitively precludes subsidies to federal exchange states. They claim unambiguous Congressional intent, and they do so for a reason. If the Justices can be persuaded that the Internal Revenue Service rule at issue — which clarifies that subsidies go to all states — is at least a plausible interpretation of the ACA, then Justices will grant “Chevron” deference and preserve the rule. And they might conclude that the government’s interpretation is plausible if they accept that Congress’ intent, as expressed in the whole statute, may have been to make subsidies universal. But if the challengers can persuade them of Congress’ deliberate intent to the contrary, it’s more likely the Court will strike down the rule.

The challengers’ assertion of a deliberate Congressional threat to withdraw subsidies opens the way to an argument over the question of why this threat was so obscure that many state officials didn’t know of its existence. As the government asserts, it’s “implausible” that “Congress sneaked these consequences into isolated phrases” — rather than communicating them “with a clear voice” — which would display “considerable disrespect for state sovereignty.”

This week, a number of states will file a brief siding with the government, arguing that nothing in the ACA indicated opting for the federal exchange would cost them subsidies. They will argue — as in a similar, previous brief — that the challengers’ interpretation raises serious constitutional questions: The states were never given clear warning that the failure to set up exchanges could bring them serious harm, and thus the Supreme Court should opt for the Constitutional interpretation — the government’s — when that option exists.

To this argument, the challengers respond that of course the states didn’t think they’d lose subsidies, because the IRS rule — first proposed in late summer of 2011 and made official in the spring of 2012 — told them so, a key reason many states declined to set up exchanges. Thus, the challengers argue, if invalidating the IRS rule now would hurt millions in these states, that’s the fault of the IRS’s original act of lawlessness, i.e., departing from the ACA’s plain text to make subsidies available in them.

But the officials I spoke to said discussions over exchanges were not premised on any assumption that the subsidies were at stake — quite the opposite — for many months in advance of the IRS rule, and in advance of early appearances of the legal theory now driving the challenge.

Virginia State Senator John Watkins, a Republican, was an early proponent of a state exchange. Watkins tells me that throughout arguments over this topic in 2010 and the first half of 2011, the notion of a threat to withdraw subsidies was not a factor, and adds that if he’d thought such a threat existed, it would have strengthened his argument for a state exchange.

“I didn’t think we would lose the subsidies if we were in a federal exchange,” Watkins said. “If I’d felt this was in fact the way the law read, it would have given me an additional argument for setting up a state exchange.” Virginia ultimately decided in December of 2012 not to set one up.

Sandy Praeger was elected the Insurance Commissioner of Kansas as a Republican for three successive terms starting in 2002. She recalls that the debate over setting up the state exchange — which her office was deeply involved in — got underway just after the law passed. At first it was widely assumed the state would do so, she says, but this was not “etched in stone,” and in the spring of 2011, debate over whether to do so intensified.

“The discussion was never about what happens to the subsidies,” says Prager, a Republican who supported Obama and the ACA but says she voted for multiple Republican presidential and Senate candidates. “Had it occurred to us that not doing a state exchange would somehow jeopardize citizens in Kansas being eligible for subsides, we would have made that argument loud and clear. And we never did. It never entered our minds.” Governor Sam Brownback elected not to set up an exchange in late 2012.

Linda Sheppard, who was a high-level official involved in ACA implementation at the Kansas Insurance Department at the time and says she is a registered Republican, adds that during the time period in question, “at no time” did officials involved in discussions over the state exchange ever read the law as suggesting that “tax credits would not be available in states that chose to utilize the federal exchange.”

 

States’ lack of knowledge of threat could figure in case

To all of this, the challengers have a rebuttal that is internally consistent with their general theory of the case. They will argue that at the time, none of the states was seriously considering opting out of setting up an exchange, and thus were not focused on the consequences of doing so. They will say state officials simply didn’t know what was actually in the law, which only became clearer in the summer of 2011 — which then forced the IRS to issue the first version of its rule clarifying matters. Jonathan Adler, one of the legal architects of the challenge, emails:

The text of the law is clear.  That some people did not focus on the text and misunderstood the nature of the choices states faced does not change that fact.  When the law was passed, no one anticipated a problem because no one anticipated dozens of states would refuse to cooperate, and when state-level opposition to ACA implementation materialized, people were slow to focus on the text.

When I pointed out what the law said at a health care conference in early 2011, no one thought it was a big deal because everyone expected states would come around. Commissioner Praeger’s remarks from that same conference make that abundantly clear.  And by the time people started focusing on the statute’s text, the Administration had decided to “fix” this problem with the IRS rule at issue.  In the end, however, what matters is what Congress enacted, not what others thought of it.

It’s true the drive for states not to set up exchanges really gained steam later in 2011. But the chronology is murky: As Brian Beutler shows, some states were seriously considering opting out in the early spring of 2011, at exactly the same time the above state officials tell me they didn’t think such an action would sacrifice subsidies. Indeed, in a speech in March of 2010, just after the law passed Congress, House GOP Rep. Michael Burgess defiantly declared that multiple states — already — were considering not setting up exchanges.

What’s more, while some states filed a brief siding with the challengers, far fewer GOP-led states did so than joined the first lawsuit against the ACA, perhaps suggesting they don’t want the challenge to succeed — costing them subsidies — or possibly even skepticism of its legal argument.

To be clear, the Court may see this case the way Adler does: The Justices could decide that the key phrase says what it says, and it’s not the Court’s job to fix it. The government argues that the text of the law, when interlocking pieces are taken together, unambiguously makes subsidies available in all states. The Court may not see this as enough.

But it’s also possible, as law professor Laurence Tribe suggests, that the Justices could conclude this case is about more than statutory draftsmanship, and see at stake momentous questions about the relationship between the federal government and the states. If so, the fact that some state officials themselves didn’t read the statute as conditioning subsidies on their behavior — and now see the threat to withdraw them as an unfair, coercive burden on them — could be relevant. Law professor Nicholas Bagley:

The challengers say that Congress clearly threatened the states with the loss of tax credits if they didn’t set up their own exchanges. But the states read the ACA very carefully, and they didn’t see any threat.

It’s the worst kind of revisionist history to claim that the ACA put states on notice of the harsh consequences of failing to establish an exchange. The states had no idea that tax credits hung in the balance. And the Supreme Court has said time and again that statutes shouldn’t be read to impose unexpected burdens on the states. That basic principle — the idea that states must have clear notice of the consequences of their decisions — protects the rights of the states in our federal system. And it cuts hard in favor of the government.