The much-awaited Supreme Court oral argument in King v. Burwell took place Wednesday. A review of the transcript indicates that the lawyers – Solicitor General Donald Verrilli and Petitioners’ Counsel Michael Carvin – brought their A game. And so did the justices. Here are some quick-analysis thoughts.
Standing: Prior to oral argument, attention in the media had been given to whether the plaintiffs had standing – whether they faced an injury. Standing is a prerequisite to a court’s hearing a case since federal courts can only adjudicate live cases or controversies. A Wall Street Journal story had raised the issue and others picked it up.
At oral argument, Justice Ginsburg right out of the box asked Mr. Carvin about standing, and Mr. Carvin assured the Court that at least one of the plaintiffs had standing. Mr. Verilli had not challenged standing in the Supreme Court and seemed unwilling to press the factual premise underlying the challenge to standing. Apparently, the plaintiff who served in the military in Vietnam did not serve long enough to qualify for veterans health benefits and therefore was subject to the terms and penalties of the Affordable Care Act (ACA).
The standing issue therefore did not seem to gain traction; going into oral argument, the standing issue was a concern for whether petitioners (the challengers) could maintain their action. Coming out of the oral argument, the standing issue seems unlikely to derail the case. It seems like, at most, a footnote point or maybe a short paragraph.
The Clear Notice Issue. At oral argument, the question arose whether states had clear notice that their failure to establish an exchange would mean no subsidy for their residents on the federally-run exchange. This point derives from the 1981 Pennhurst decision as applied in the 2012 NFIB decision.
Under federal spending programs, states can be induced to participate in federal programs, even as they cannot be forced to participate. Once they opt in, states are politically locked in, as exit is extremely painful, particularly when the program offers federal matching funding.
The Clear Notice rule protects the states in two ways. It informs state decisionmakers, at the time the initial contract is made to enter into the federal program, of the nature and scope of the states’ obligation. Acceptance of federal dollars often has both a bitter (program obligations) and a sweet (dollars) dimension; the Clear Notice rule requires the federal government to provide a clear indication up-front of what the deal is – what the “bitter” entails. That allows states to make a knowing and informed choice about participation on clearly specified terms.
The Clear Notice rule protects states in a second way as well. It guards against federal bait-and-switch tactics. It restricts the federal government from setting a low compliance bar at the outset, then switching to a more onerous set of conditions after the state is already locked into the program.
In NFIB, the Court held that states did not have clear notice at the relevant time – when they signed up for Medicaid – that their obligations would be so broadly extended as mandated by the ACA. Both protections were violated because the states were threatened with loss of all preexisting Medicaid funding if they did not expand Medicaid as required by the ACA. The Court in NFIB applied the Clear Notice rule to protect states from unfair federal overreaching. The remedy in NFIB protected states’ preexisting Medicaid funding; it allowed states to have the choice of whether or not to participate in expanded Medicaid knowing the terms in advance of that new commitment. On a voluntary basis for states and with clear notice of the terms of the expansion, expanded Medicaid under the ACA was upheld.
In King, the Clear Notice issue is very different. The claim is that the states did not have adequate notice of the consequences when they declined to set up an exchange. But the exchange and subsidy aspects of the ACA were new programs. States could read the statute. To the extent that the states were lulled by the challenged IRS rule, which purported to withdraw the negative consequences for not establishing an exchange, states still have the option to set up an exchange and secure for their residents the ability to qualify for federal subsidies. There might be a transition issue, but that can be handled in the context of affording an appropriate remedy. In the oral argument, Justice Alito was extremely articulate in pressing forward this point.
To the extent that the Court wishes to develop further the dimensions of the Clear Notice rule, it has that opportunity in the Maine Medicaid maintenance-of-effort case, in which a cert. petition is now pending (Mayhew v. Burwell)
The Coercion Issue. Much attention has been directed at the coercion issue as presented by Justice Kennedy at oral argument. As a matter of doctrine, the NFIB decision is not on point. The Court in NFIB focused on the leveraging problem that arises when the federal government uses its power in a preexisting program to leverage participation in a new program or an unforeseeable expansion of an existing program.
In NFIB, the Court viewed the ACA Medicaid expansion not as a foreseeable, organic part of preexisting Medicaid but an unanticipated add-on – a new program. Accordingly, it compelled the federal government to treat Medicaid expansion as a contract formation situation, not a contract modification situation. Principles of fairness apply in contract modification circumstances that do not apply at contract formation. There is no leveraging in terms of contract modification involved in King.
There may be a narrow category of coercion absent contract modification, but it was not involved in NFIB and would require a much more egregious circumstance than in King. The example sometimes put forward is a federal funding program that would pay for all K-12 education in the states, but impose federal conditions on curriculum, teacher hiring, etc.
In King, there is nothing comparable. That a state must set up an exchange in order to allow its residents to benefit from federal subsidies is analogous to the Single State Agency requirement for states to qualify for Medicaid. If the state does not have such an agency, it must establish one in order to allow for Medicaid participation. Establishing an exchange in order to allow residents to benefit from federal subsidies is not much different conceptually.
Moreover, the petitioners’ interpretation of the subsidy provision of the ACA actually empowers states; states become the gatekeepers to the federal subsidy. And states get to determine how to strike the policy balance between allowing residents to receive tax credits when they buy insurance vs. providing businesses in the state with a safe harbor from the fine that occurs when they do not comply with the requirements for employee medical insurance coverage under the ACA. That fine is triggered when one employee receives a subsidy on an exchange. Smaller and some other businesses have argued that the ACA’s mandate of medical insurance adds costs and encourages reduced employment or reduced employment hours so as to avoid the ACA’s fines.
The coercion argument, upon analysis, does not track NFIB and actually empowers states to make important policy decisions that balance further entitlement expansion with business climate considerations. The concern about coercion should not invoke the canon of constitutional avoidance; the Court should decide on the interpretive merits uninfluenced by the constitutional avoidance canon.
The Intent Issue. In earlier proceedings, litigants and analysts had focused primarily on what Congress had intended when it enacted the ACA.
The government and its supporters contended that the goal was to provide as many people as possible with affordable medical care coverage. The challengers, supported by careful work by scholars Jonathan Adler and Michael Cannon, contended that the Senate (whose bill was adopted) had a strong preference for state-run exchanges rather than federally-run exchanges; however, under federal constitutional principles (the “anti-commandeering principle”), the federal government could not require states to establish such exchanges. The federal government could induce states to establish exchanges, and the carrot was that income-qualified residents in states that set up exchanges could receive federal subsidies to offset the cost of medical insurance purchased through an exchange established by a state under Section 1311 of the ACA.
The mandatory language of Section 1311 (states “shall” set up an exchange) was retained, even though all concede that it was constitutionally unenforceable.
Section 1321 provided for a back-up. If states did not set up an exchange under Section 1311, then the federal government was required to set up “such” exchange. But no comparable provision regarding authorization for subsidies provided for subsidies for income-qualified persons who purchased insurance on an exchange established by the federal government under Section 1321.
At the Supreme Court, the government relied on its interpretation of the text and the structure of the ACA to make its case and deemphasized the broader intent-based analysis, which focused on the access-oriented objectives of the ACA. In such a complicated and comprehensive piece of legislation, there is typically no single objective. Increased access to coverage was an important goal, but so were personal responsibility, fiscal integrity, and cost containment.
So, petitioners were able to neutralize the broad intent-based claims that the government and its supporters had relied on in earlier steps of the litigation process. Petitioners were able to make the case that the statutory language was so clear that it could only be overcome by a showing that the outcome of the statutory language was absurd.
The ACA expressly provided for two types of exchanges – those established by states under Section 1311 and “such” exchanges established by the federal government under Section 1321. Subsidies on exchanges established by a state under Section 1311 were expressly provided for in Section 1401; the ACA makes no comparable provision for subsidies on exchanges established by the federal government under Section 1321.
The structure of the ACA did not produce absurd results. It incentivized states to establish exchanges, and it simultaneously empowered states to serve as gatekeepers of the subsidy. Under the ACA, large employers (50 or more employees) are mandated to provide affordable and comprehensive medical insurance to employees. This employer mandate is enforced by a substantial fine — $2000 per employee, with an exemption on the fine for the first 30 employees.
States are empowered under the ACA to strike the balance between expanded subsidy opportunities for their residents and improving the business climate of the state – if there are no subsidies, there is no fine for violation of the employer mandate.
So, if petitioners are right about interpretation of the ACA, as I think they are, the result is that states are empowered on both legs of the stool through which access to medical care is enhanced by the ACA. Under the Supreme Court’s 2012 decision (NFIB v.Sebelius), states decide voluntarily and knowingly whether to expand Medicaid. As the recent debate in Tennessee attests, these issues are thoroughly vetted and discussed, but the political choice and political conversation occur at the state level. If petitioners in King prevail, states will not be victims but empowered gatekeepers of the subsidy provisions as well, determining which is more important – expanding subsidies for the purchase of medical insurance or limiting the potentially adverse economic and employment effects of mandating that employers provide generous medical insurance packages for their employees.
The Context and Structure Issue. Before oral argument, there was some question about how individual justices would analyze the government’s claim that the context and structure of the ACA supported the IRS regulation. That regulation extended tax credits to income-qualified persons who purchase medical insurance on exchanges established by a state under Section 1311 and also on “such” exchanges established by the federal government under Section 1321.
At the outset, one must wonder why the ACA would not have said expressly that subsidies apply to both types of exchanges. It would only have required that the subsidy provision actually include federally-run exchanges in the subsidy language. The petitioners basically said that the Congress and the law it produced should be taken at their word.
Having backed away from an approach that relied on the overall intent of the ACA, the government emphasized two points.
First, the federal government was empowered to set up “such” exchanges if a state did not set up an exchange as it was commanded to do under Section 1311 (recognizing that the states could be so commanded). The government asserted that the federal and state exchanges were functionally identical, so subsidies should flow through both.
Secondly, there would be adverse consequences that arose from petitioners’ interpretation. Those consequences would result in a detrimental effect on the insurance market in each state and would cause interpretive anomalies in other applications of the ACA.
As Justice Kagan pointed out early on, context is important in interpreting a text. She gave the example of her assigning a memorandum in her chambers to law clerk A, with law clerk B editing that memorandum, but assigning the memorandum to law clerk C if law clerk A were too busy to work on it. Justice Kagan posed the question: Does law clerk B’s obligation to edit exist, even if the memorandum is drafted not by law clerk A but by law clerk C?
So, that example plucks off the low-hanging fruit; context is often necessary to secure a proper interpretation. But the more apropos example is this: Justice Kagan assigns an important memorandum to law clerk A. Nothing is said in that assignment about any roles for law clerk B or law clerk C. It seems to law clerk B that law clerk A is not doing her job or not doing it well. Can law clerk B take on this task, or should she consult with Justice Kagan to determine whether there is a problem and if so how to resolve the problem?
At a high level of abstraction, acceptance of context is low-hanging fruit. But the revised version of Justice Kagan’s hypothetical highlights the critical questions in the King case. When a statutory text is as clear as the subsidy provision in the ACA, yet the executive branch deems the outcome problematic, what is the proper pathway forward? Does the executive branch have authority to fill in a gap it perceives to exist when there is no statutory directive for the executive branch to engage in that type of activity? Separation-of-powers principles dictate the answer. It is up to Congress to legislate, and if the law Congress passed is deemed unsatisfactory in some manner, because of adverse impacts or perceived anomalies, then the proper pathway forward is for Congress to have the opportunity to determine whether or not in fact a problem exists and if so how to fix it.
In an earlier case, Justice Kagan seemed to recognize this type of interpretive dynamic; so, going in to oral argument one could not fairly predict how she would respond to the government’s position that the IRS had the authority to patch up Congress’ work. Based on the oral argument, where Justice Kagan played a dominant role, it seems that she has bought into the government’s interpretive stance on the context and adverse consequences claims.
In an earlier case, Justice Breyer had carefully cabined the gap-filling authority of the IRS (U.S. v. Home Concrete Supply, LLC). He concluded that the authority of an agency to fill perceived gaps was not to be analyzed in the abstract but as related to a “particular issue,” with the question being whether the agency authority exists regarding “the precise question at issue.” Application of that principle to the King context would focus on whether the ACA authorized the IRS to expand the express subsidy provisions contained in the ACA. There is no such authority in the ACA, even as the IRS and the Department of Health and Human Services are authorized to issue regulatory guidance on other dimensions of the ACA.
At oral argument, it seemed that Justice Breyer, like Justice Kagan, accepted and even advocated for the broad context position urged by the government. Also based on comments and questions at oral argument, one can fairly infer that, in addition to Justices Breyer and Kagan, Justices Ginsburg and Sotomayor will side with the government’s interpretive approach.
The Adverse Consequences Issue. Much of the government’s focus and of the oral argument overall was on the potential for adverse consequences on the medical insurance market if no federal subsidies would accrue in states that have not established exchanges.
The Chief Justice was not an active questioner in oral argument, but he did ask one potentially poignant question: If the IRS had authority to issue the regulation in question, but was not required to issue that regulation by the terms of the ACA, couldn’t a new Administration in 2017 issue a contrary interpretive regulation, provided that the requirements of the Administrative Procedure Act are followed? General Verrilli conceded the point. So what’s up here? What’s the point?
My inference – and it is only that – is that the Chief Justice was signaling that the adverse consequences concerns were being overstated. If a new Administration could alter the regulation and impose the petitioners’ interpretation of the subsidy provision of the ACA, would that not also have practical consequences? That is, the Court should not worry about the adverse consequences since they could accrue by executive action. The Court should be bound by the provisions of the law and its text; courts are not well suited to understand all the permutations of how an interpretation will play out and how the politically accountable actors will respond.
In King, unlike NFIB, the Court is not being asked to trump the decisions of the political branches. Instead, the Court is being asked to maintain the authority of Congress, as the legislative branch, to determine whether the statute that Congress wrote needs fixing from a policy point of view. Such is a role for Congress, not the executive branch through the IRS.
The separation-of-powers argument supports judicial vindication of Congressional authority and rejection of executive action through the IRS. And the fact that Congress has now changed hands politically reinforces that judicial role; the issue is returned to the political arena, empowering the newly-empowered Republicans to have a say in shaping the legislation that they did not have in 2009, when the Senate passed the ACA.
When the Congress that wrote the ACA apparently did not achieve what it sought to achieve (in large part because a majority of the states did not agree to set up exchanges), it is appropriate for the Court to take the law as written and reinforce the political process by vindicating Congressional authority, now under new management.
The New Deal became institutionalized after not only President Roosevelt’s landslide reelection in 1936 but his retention of broad legislative majorities over an extended period of time. Major social change, such as the ACA, should not be endorsed by the Court, in the absence of clear statutory provisions, when the proponents of the major social change have not been able to sustain their platform in the political/legislative arena. In this case, the Court reinforces the political process when it vindicates Congress’ power to determine whether the subsidy provisions of the ACA accord or do not accord with public policy goals and whether changes to the law are warranted.
The points about adverse consequences were reinforced at oral argument by comments of Justices Scalia and Alito. Justice Scalia emphasized the potential response at the federal level, while Justice Alito stressed that the remedy could be shaped to offset some of the short-term transition costs of a ruling for petitioners – e.g., by not disrupting existing insurance contracts until their expiration.
Equally significant, a decision for petitioners would reinforce the political process and accountability at the state level. States would hold the key to determine which priority prevails – subsidies for residents or business climate values by providing a safe harbor for businesses from the economic and employment effects of the employer mandate.