Yet Another Legal Attack on Obamacare

On Tuesday, federal courts heard two of the seemingly endless ad hoc legal challenges generated by Republicans opposed to the Affordable Care Act. Most of the attention was captured, for good reason, by the arguments at the Supreme Court, which concerned the claims by Hobby Lobby and other corporations that they should be exempt from the Affordable Care Act's requirements that insurance cover contraceptives. But a lawsuit with the potential to do far greater damage to the Affordable Care Act went before the D.C. Circuit as well. In a more rational universe, these arguments would be laughed out of court—but the oral arguments suggest that there are still numerous Republican judges willing to damage the Affordable Care Act by any means necessary, even if it means accepting arguments virtually nobody would have taken seriously five years ago.

This challenge to the ACA is based on a drafting error in the law. In addition to a major expansion of Medicaid (which the Supreme Court severely damaged by placing unprecedented limits on the federal spending power), at the core of the Affordable Care Act is the creation of regulated private exchanges. Individuals are required to carry insurance. But in return, people who do not get insurance through their employer and are not eligible for Medicaid or Medicare are supposed to have access to private insurance to the exchanges. The insurance on the exchanges must be issued to all comers and must cover particular things. Crucially, those who would otherwise be unable to pay for insurance are eligible for potentially generous subsidies.

The architects of the ACA envisioned most of the exchanges being run by the states, but in part because of the Republican war on health care for the non-affluent, only 16 states have done so. The drafters of the legislation were aware of this possibility even if they didn't anticipate the degree of non-participation, and allowed the federal government to create exchanges in cases where states declined to do so. The literal language of the ACA makes these tax credits available to anyone obtaining insurance from "an Exchange established by the State." Sensibly, the Internal Revenue Service interpreted the statute as making the credits available to those who obtained insurance from federal exchanges as well, reasoning that other provisions of the ACA as well as the structure and purpose of the statute made it clear that Congress intended the subsidies to be made available to everyone obtaining insurance from an exchange, state or federal. The opponents of the ACA bringing the suit, however, argue that the statutory provision should be read literally and in isolation as making subsidies only available to those who acquire insurance from state exchanges.

U.S. District Court Judge Paul Friedman supported the IRS's reading of the statute with little difficulty. First, the courts are supposed to defer to reasonable constructions of statutes made by federal agencies Congress has empowered to implement the law. And, second, the construction of the statute offered by the IRS was plainly the superior one. The courts, Friedman observes, have a "duty to construe statutes, not isolated provisions." Viewed in the context of both other provisions of the ACA and the purpose of the statute, it's abundantly clear that Congress wanted the subsidies available to those who purchased insurance on federal exchanges. Holding otherwise would lead to absurd results that would subvert the purpose of the ACA's regulatory framework.

Almost certainly, withdrawing the subsidies from the federal exchanges would have devastating effects on health care markets. The purpose of the individual mandate and the subsidies is to prevent a "death spiral" in which young, healthy people leave the market, leading to increases in premiums that cause yet more people to drop out. Absent the subsidies, many people would choose to pay the tax for not carrying insurance rather than purchasing insurance they couldn't afford.

Obviously, Congress did not intend to make the legislation inherently unworkable. As an amicus brief filed by an all-star team of liberal economists puts it, "[n]othing in the record suggests that Congress intended the economically disastrous approach of dramatically limiting subsidies only to participants in state exchanges." The arguments advanced to the contrary are implausible in the extreme.

Unfortunately, some federal judges have contracted the anti-ACA fanaticism that has infected most of the Republican Party, and at least two on the D.C. Circuit appear ready to ignore sound principles of statutory construction if they can deal a blow to the hated ACA. In a particularly telling comment, Judge Raymond Randolph asserted that "there is an absurdity principle, but not a stupidity principle. If the legislation is just stupid, it’s not up to the court to save it." Or, to translate that from Republican Hack into English, courts should not interpret statutes to produce transparently absurd results—unless it's a law a judge doesn't like on independent policy grounds.

The good news is that even if this three-judge panel issues a 2-1 ruling against the law (Judge Harry Edwards, a Carter appointee, appears certain to uphold the IRS's interpretation), the administration would ask for an "en banc" review by the entire D.C. Circuit. Thanks to the post-mature abolition of the filibuster for all federal courts except the Supreme Court, the D.C. Circuit now has a majority that is likely to hear the case and reject the invitation to read the law so as to produce an absurd result. Tuesday's panel, however, shows why eliminating the filibuster and getting good nominees confirmed to the D.C. Circuit was essential. As Judge Randolph so vividly demonstrated, above all the Republicans on the nation's second most important appellate court are committed to doing everything they can to ensure that the federal government can't work. Hopefully, the new majority on the D.C. Circuit will see its role as helping the people's representatives carry out their will instead.

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