It’s baaack – the Supreme Court and the ACA

Saturday, November 01, 2014 12:30 PM

by Edward A. Dauer, LL.B., M.P.H.

Editor’s note: Edward A. Dauer is Dean Emeritus and Professor Emeritus of Law at the University of Denver; and an Adjunct Professor in the Department of Health Systems, Management and Policy at the Colorado School of Public Health.  During 2014 he served as the inaugural Gitenstein Distinguished Visiting Professor of Health Law and Policy at the Fuchsberg Law Center of Touro College.  He holds an LL.B. from Yale Law School and an M.P.H. from the Harvard School of Public Health.

Just as this issue of Colorado Medicine was going to press, the United States Supreme Court announced that it would consider another legal challenge to a central part of the Affordable Care Act – commonly known as “Obamacare” or, more politely, the ACA.

Needless to say, the reams of legal briefs and supporting materials that will eventually be filed with the Court won’t be available for some time, making it dicey at this point to say exactly where the good and not-so-good arguments lie, or even what the fuller implications of a decision one way or the other might be. But the legal issues are already reasonably clear; and the political context, particularly given the outcomes of the 2014 midterm elections, is compelling enough to make an overview of the case and its stakes worth doing even now. I agreed to give it a try.

What’s the case about? – Part 1: The role of the “exchanges”
Much of the ACA was designed to bring the un- and under-insured within the tent of health insurance coverage. Two of the major pieces of the Act that do that are the expansion of Medicaid, and subsidies in the form of tax credits. The subsidies are designed to offset some of the cost of health insurance for individuals and families whose incomes are greater than the Medicaid limit but less than enough to buy even modest health insurance coverage without that help. The group eligible for subsidies is large – by the government’s count more than 6 million people have applied for the subsidies, and about three times that many eventually might.

The marketplaces or “exchanges” where these subsidies are available exist in some fashion in every state, but some have different parentage than others. The ACA provided that if a state didn’t set up its own, the federal government would create an exchange for the residents of that state. Fourteen states, including Colorado, created their own exchanges. Two others are still trying to but haven’t done so yet. The other 34 have either joint state-federal programs (7), or exchanges established by the federal government alone (27).

The question raised in the case coming before the Supreme Court is whether the tax credit subsidies are available to people buying health insurance in all of the exchanges – that is, in all 50 states – or only in those exchanges created by the states, i.e. somewhere between 14 and 23.

What’s the case about? – Part 2: The language of the Act
The legal issue in the case turns (mostly) on one phrase in the ACA. That phrase says that the tax credit subsidies are available to people who are “enrolled . . . through an exchange established by the State . . . ” Does that phrase mean that people buying their insurance through a federally-created exchange, rather than through an entirely state-created exchange, aren’t eligible for subsidies?

The Internal Revenue Service (the agency responsible for administering the tax credit subsidy system) answered that question in a regulation that it issued in 2012: the subsidies are available in all of the exchanges, not only those created directly by a state. The question before the Supreme Court is technically whether the IRS had the authority to issue that regulation, given the language of the statute itself. For reasons we needn’t get into here, that question isn’t exactly the same as the underlying question of what the statutory language means; but for present purposes the “what does it really mean” question is central enough.

Two federal Circuit Courts of Appeal have reached opposing conclusions on that question, though as I will explain below the situation is actually even more interesting than that.

The Court of Appeals for the Fourth Circuit, which includes Maryland, North Carolina, South Carolina, and Virginia, held, first, that the critical language in the ACA is not “clear and unambiguous;” second, that the “broad policy goals” of the Act were to increase the number of Americans covered by health insurance; third, that where a statute is ambiguous (among other things) the courts may defer to interpretations by the appropriate federal agency; and finally, that given its consonance with the statute’s broader goals the IRS’ interpretation should stand. That is to say, everyone gets their subsidies. That decision – styled as King v. Burwell – is the decision for which the Supreme Court granted review.

Almost simultaneously a three-judge panel of the Court of Appeals for the District of Columbia reached the opposite conclusion in the case of Halbig v. Burwell. That court held that, first, statutes must be interpreted so as to implement Congressional intent; second, that the best evidence of Congressional intent is the language Congress actually enacted; third, that the history and context of the ACA’s legislation do not make a substantial case contrary to the words that appear in the Act; and, finally, that courts must abide by what Congress said, not by what a judge might think Congress probably meant to say. Therefore, the D.C. panel held, the IRS rule is not valid; and residents of states where the exchanges were federally created are not eligible for premium subsidies.

Where the two lines of reasoning conflict, neither in my view is a slam-dunk. Determining “Congressional intent” is often an imponderable thing because Congress, taken collectively, seldom has any singular intent. In the case of the ACA, for example, it is absolutely certain that some legislators intended the law to do whatever would expand coverage the most. At the same time, one of the Administration’s chief legislative architects publicly stated more than once that making tax credits available only on state-created exchanges would serve as an incentive for the all of the states to create them.

I mentioned that the situation is actually more interesting than just those two decisions, and it is. In the D.C. case the court granted a petition for what is called en banc rehearing – a procedure in which the whole bench, of 11 judges in D.C.’s case, revisits the decision of its three-judge panel. That review is scheduled to take place this December; but because en banc review was granted, the panel’s judgment is for the moment at least “vacated.” That means that in the law’s version of reality there is no conflict between the Circuits. Moreover, just last month a federal district court in Oklahoma also held, as the D.C. panel had, that the language of the Act means state-created only. But that case is also now under review, in the Court of Appeals for the Tenth Circuit (which includes Colorado). It is unlikely to be decided for many months more.

All of this is interesting because the Supreme Court tends to await development of a conflict in the circuits before agreeing to take a case on. But in this case some number of justices (at least four) thought the issues worthy of addressing now, even though no circuit split actually exists. Maybe that tells us something. Maybe not.

What’s the case about? – Part 3: Jurisprudence and the reality
Underneath what appears to be a straightforward question – namely, what does “exchange established by the state” mean – there are actually two more fundamental debates. One of them I’ll call the jurisprudential question; others may call it naïve. The other is the political question; some might call that one cynical.

We’ll dispense with the jurisprudence first. The central axiom of statutory interpretation is that, within Constitutional limits, courts must apply the law as the legislature created it, not the way a court might have preferred it be created. This reflection of the “separation of powers” idea is well grounded: legislators are elected, and on a regular schedule they can be unelected. Judges in the federal system, however, have life tenure – once appointed they are essentially unaccountable to the electorate.

Core democratic principles therefore caution against allowing courts to interpret legislative acts however they will. One of the ways of implementing that caution is a rule, that when a legislature says something in words, those words are what the court should enforce. All of the other rules about ambiguity and deference are meant to determine whether the words of a statute do indeed speak for themselves; or, when Congress’s intent isn’t clear from its words alone, how much interpretation should be allowed. So, one way of describing the underlying issues in these cases is that they are about competing nuances of the judiciary’s institutional competence and role. When it’s issued, the Court’s opinion(s) will almost certainly read as if that’s what this case is about.

So much for the law professor’s point of view. The realist in me has a different one. I doubt that the parties to these cases care a whit about jurisprudence and institutional competence. Some of them want to gut the ACA. Others don’t. That raises the question of what and how much is really at stake. In fact, it could be even more than meets the eye.

Why does it matter? – Part 1: How other parts of the ACA are involved
This could be a big deal. If the Supreme Court decides that the phrase “exchange established by the state” means only the exchanges in the 14 (or maybe 16) states with nonfederal exchanges, federal premium subsidies will become unavailable for a majority of otherwise qualifying Americans. Colorado, which does have a state-created exchange, might seem not to be at risk. But that appearance could be short-lived, for two reasons. One has to do with how the exchange-based subsidies are connected to other parts of the ACA; the other, with the choices the political process might face if the Act is deeply wounded.

As the petitioners in King v. Burwell have argued, both the ACA’s Employer Mandate and its Individual Mandate are linked by the language of the statute to the workings of the exchanges.

The Individual Mandate requires that (almost) everyone purchase insurance; but it exempts those for whom insurance with “minimum essential coverage” would cost more than 8 percent of their household income. The “cost” in that formula means the net cost – the insurer’s premium minus the available tax credit. With the tax credits inversely related to income and designed quantitatively to keep net costs below the trigger percentage for as many people as possible, few are exempted under the percentage formula. So, with the IRS regulation in place, the mandate applies very broadly.

But if the tax credits are not available, then the net costs of the policies rise to the full premium charge, making a very large number of people exempt from the mandate. To wit, of the 7.3 million people who have already purchased insurance through the exchanges, more than 5 million live in states where the exchange was federally-created; 90 percent of the purchasers are eligible for subsidies; and the subsidies cover on average over 75 percent of the total premium costs.

The individual mandate is essential to preventing what insurers call “adverse selection.” As the premium cost of health insurance rises, the healthier people tend to drop out of the pool, causing an increase in insurers’ average risk and cost. In that way any significant reduction of the mandate could trigger a premium “death spiral,” or at the very least a substantial increase in premiums for those who do remain insured. The markets, some say, would be seriously destabilized if the credits were unavailable in any significant number of the 36 states. Whether the Colorado insurance market could isolate itself from that phenomenon is something I cannot say; but it very well may not be able to do so.

The Employer Mandate linkage is a bit more tenuous, but still at risk. The statutory discipline which prompts large employers to offer qualifying insurance to their employees is the threat of a penalty called “assessable payments.” That penalty applies if employers fail to offer adequate coverage, resulting in any full-time employee enrolling in exchange-purchased coverage for which a premium subsidy is allowed or paid. But if no subsidy is available in a federally-created exchange, the mechanism of the assessable payment penalty arguably disappears, effectively relieving the employer from its legal obligation to offer insurance to anyone.

Whether that undoing actually happens, or whether some plausible work-around can be conjured up, I cannot at the moment say. But this linkage also illustrates how, given the internal dynamics of the whole ACA, a challenge to the subsidies in some of the states risks repercussions even wider than just the loss of affordable insurance, which by itself could be a disaster for the Act.

Why does it matter? – Part 2: The politics are the thing
This challenge to the subsidies in two-thirds of the states is not news. It was well understood even before the IRS first addressed it in 2011. It could have been fixed – and it still can be – by a simple legislative amendment that changes the phrase “in an exchange established by the State” into the more inclusive phrase “in an exchange” (plus a few minor conforming touch-ups.) So why hasn’t that happened?

The ACA was passed when the Democrats controlled the House, the Senate, and the Administration. Only one Republican voted for the bill when it was considered in the House. Republicans became a majority in the House in the 2010 elections, many of them running on the promise to undo the ACA tout de suite. It then became impossible to enact any amendment to the ACA at all, because the Administration had vowed to veto any bill that threatened the Act. It seemed inconceivable that a correcting amendment – strengthening the Act against the kind of challenge it is now facing – could have become law. With the Republicans also a majority in the Senate as of the 2014 election, that stalemate is even more the case today.

For its part the United States Supreme Court is, theoretically at least, “above politics.” But the overlapping opinions in the first Constitutional challenge to the ACA in NFIB v. Sibelius left little doubt about the tenor of the justices’ jurisprudential ideologies, in case they weren’t otherwise absolutely clear. Although the meaning of the Court’s merely granting a petition for review is always inscrutable, what we know about judicial propensities makes this case a horse race.

If the challenge fails, life returns to its ACA normal. But if the challenge succeeds, and if there is no court-created fix as there was for the Medicaid expansion in NFIB, insurance premium subsidies could become unavailable for the residents of as many as 36 of the 50 states. That would be a major blow to one of the signal social constructions of the 21st century. It would also be at the very least a politically unstable circumstance. I cannot imagine life going on that way.

Putting aside any follow-up legal challenges to government’s discriminating against some of its citizens on what might be thought an irrational ground, there would in the political arena be the spectre of a massive transfer of money from some citizens to others – taking tax revenue from the 36 states with no subsidies and giving it to the 14 states that retain them. Might the 34 states that haven’t created their own exchanges then fix the problem by doing so now, assuming that could affect their eligibility? I wonder. For one thing, 19 of the states declining to create their own exchanges are among the 20 states that also declined the ACA’s Medicaid expansion. Add to that the political distribution of the governorships…

Again, I am uncertain that Colorado could isolate itself from the national quandary. Could we retain our exchange, and our broadened coverage, and everything else the ACA now provides if in a majority of the sister states there was no ACA? Or if the Act is politically imperiled across the board by some of the destabilizing effects of the Supreme Court’s adverse decision? The last time we looked at it comprehensively it seemed questionable whether Colorado could afford to go it alone. Circumstances are different now; but how one state could replace what the ACA now provides would still be a challenge – if, of course, it comes to that.

Other than that, it is beyond my ability to predict how our political institutions will behave if the Court holds that the language of the ACA simply means exactly what it says. Even as these lines are being written, the ground rules of engagement for a divided government are largely unknown. Eventually some bargain will emerge, even if it has to await the outcome of the 2016 elections. I for one simply cannot see a bargain – or the absence of a bargain – that leaves 14 states’ residents forever insured and those from the other 36 states not.

So on the one hand, if the ACA survives its current peril, we can all go back to work doing what we do. If it does not survive, all of us – physicians more than most – will be challenged to craft yet another future for health care, for Colorado as well as for the nation.