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Here’s one way the Supreme Court might save Obamacare

In my view, there’s a decent shot that the Supreme Court will side with the challengers in the King v. Burwell lawsuit, gutting subsidies to millions in three dozen states and unleashing untold disruptions in insurance markets across the country. A majority of Justices could decide that the plain text in the disputed phrase only authorizes tax credits to those purchasing insurance on state exchanges, and that there is not sufficient ambiguity there to trigger deference to the IRS’s interpretation of the Affordable Care Act — regardless of what the ACA’s full text, overall structure and legislative history indicate.

However, it’s also possible that Justices could decide the case isn’t just about statutory draftsmanship, and conclude that siding with the challengers would raise serious federalism concerns, ones involving the role of states as separate, independent sovereigns. The Justice to watch in this regard, some legal observers think, may be Anthony Kennedy.

A number of states have filed a friend-of-the-court brief arguing that nothing in the ACA put them on “clear notice” that the failure to set up exchanges could result in the loss of subsidies to their residents — after all, there is no such explicit threat in the ACA. Those states argue that “retroactively imposing such a new condition now would upend the bargain the states thought they had struck,” and that the challengers are positing a “novel kind of coercion” that would “threaten to injure a state’s citizens and to destroy its insurance markets in order to force state government officials to implement a federal program.” The states continue that “a statute should be interpreted in a way that avoids placing its constitutionality in doubt,” so the challengers’ “reading of the ACA should be rejected.”

A group of law professors, including Nicholas Bagley and Abbe Gluck, have also filed a supporting brief arguing that the Court’s previous cases have indicated it should not assume Congress has pointed such a gun to the head of the states without “certainty” that this is what Congress intended — certainty that is absent from the legislative text.

The other day, I noted that some observers think Chief Justice John Roberts might prove susceptible to such an argument. But others think the Justice more likely to be receptive to it is Kennedy. If so, there may be a bit more hope for a decision upholding the law.

Frank Colucci, a professor of political science at Purdue University Calumet who has written a book analyzing Kennedy’s jurisprudence and philosophy, is one of those who thinks this argument might hold some appeal to him. In the book, Colucci notes that in previous opinions, Kennedy has held up the principle that it is a “vital safeguard” of states’ sovereignty that conditions attached to federal spending be “expressed unambiguously.”

Colucci says Kennedy may find himself in a difficult spot, trapped between this principle and his previous vote that the ACA is unconstitutional. In NFIB v. Sebelius, Kennedy sided with the dissenters who reached that latter conclusion. But in the current case, the constitutionality of the ACA is not at issue. Rather, the case is about the validity of the IRS rule making subsidies available in all states. Colucci emails that Kennedy’s strong belief in clear notice to states may oblige him to uphold the rule, and that there is a way for him to do just this:

The clear notice objection presented by state officials is the argument most likely to persuade Kennedy and the Court to uphold the IRS interpretation.  When the federal government places conditions on funding and programs it offers to states, the Court requires the conditions be expressed unambiguously.  As the Court put it in Pennhurst State School and Hospital v. Haldermann (1981), “by insisting that Congress speak with a clear voice, we enable the States to exercise their choice knowingly, cognizant of the consequences of their participation.”
As part of his broader commitment to state sovereignty — which I discuss in Chapter Five of my book — Kennedy has criticized any “watered-down version of the clear statement rule.” In Davis v. Monroe County (1999), he wrote “only if the States receive clear notice of the conditions attached to federal funds can they guard against excessive federal intrusion into state affairs.”  Kennedy also joined Justice Alito’s majority opinion in Arlington Central School District v. Murphy (2006) which emphasized “states cannot knowingly accept conditions of which they are ‘unaware’ or which they are ‘unable to ascertain.’”
Kennedy’s commitments to the clear statement rule and to state sovereignty may conflict with his position on the constitutionality of the Affordable Care Act.  In NFIB v. Sebelius (2012), Kennedy joined the joint dissent that “would find the Act invalid in its entirety” — in part because “it undermines state sovereignty.”  Yet in King v. Burwell, amicus briefs argue state officials were unaware their decision not to establish state exchanges would result in residents being ineligible for federal tax credits to defray health insurance costs.
Kennedy and the Court could advance state sovereignty by upholding the IRS rule on clear statement grounds and reiterating that Congress retains the power to speak unambiguously. Congress would retain the power to pass new legislation explicitly conditioning individuals’ eligibility for tax credits on whether their state of residence has established its own exchange. Though Obama would most likely veto any such legislation, such a ruling by the Court in King v. Burwell would allow Congress another opportunity to make its intent clear.
This outcome would be consistent with Kennedy’s longstanding commitment to state sovereignty.

Intriguingly, one lawyer involved with the challengers also thinks Kennedy may be open to a state-sovereignty argument. “Kennedy is more likely to be the swing vote here than Roberts,” this lawyer tells me, adding that he “may be more concerned that undoing the IRS rule could prove quite disruptive and place some states in a difficult bind.”

To be sure, I wouldn’t bet a lot of money on this outcome. As Brian Beutler has explained, even if this result would be consistent with conservative Justices’ previously held beliefs, it wouldn’t take much in the way of intellectual flexibility for them to find a way to strike down the rule, anyway. But it’s an intriguing suggestion. And it could happen. Maybe.