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The Constitutional Question Lurking In King v. Burwell


On Wednesday the Supreme Court heard oral arguments for King v. Burwell, the case challenging an Internal Revenue Service rule to allow subsidies in the federal health insurance exchanges Obamacare created. The government says the rule is consistent with the law and with congressional intent, while the challengers say the Affordable Care Act (ACA) plainly states that subsidies are only allowed in exchanges states created. (For a summary of the case, see my previous post.)

Many observers seemed to think oral arguments went well for the Obama administration. The four liberal justices hammered away at the challengers’ attorney, Michael Carvin, and will almost certainly side with the government and vote to uphold the subsidies. Justices Scalia, Alito, and Thomas will likely side with the challengers.

That leaves two possible swing votes, Chief Justice John Roberts and Justice Anthony Kennedy. Roberts hardly said a word, but it was Kennedy’s remarks that mattered most. (Recall that Kennedy voted against the administration in NFIB v. Sebelius, the last major Obamacare case to come before the court, and joined Scalia, Alito, and Thomas in the opinion that the entire Medicaid expansion should be struck down along with the rest of the health care law.)

Justice Kennedy Jumps In

Kennedy jumped in during an exchange between Justice Sonia Sotomayor and Carvin about whether the challengers’ reading of the statute would lead to the conclusion that it’s “coercive in an unconstitutional way,” as Sotomayor said.

If federal government really did design the law so that subsidies only went to states that established exchanges, the theory goes, then states never really had a choice because without subsidies the law would cause a death spiral in their insurance markets and millions would lose coverage. Then Kennedy said this:

Let me say that from the standpoint of the dynamics of federalism, it does seem to me that there is something very powerful to the point that if your argument is accepted, the states are being told either create your own exchange, or we’ll send your insurance market into a death spiral. We’ll have people pay mandated taxes which will not get any credit… on the subsidies. The cost of insurance will be sky-high, but this is not coercion? It seems to me that under your argument, perhaps you will prevail in the plain words of the statute, there’s a serious constitutional problem if we adopt your argument.

It’s possible that Kennedy’s skepticism here could be a good sign for the Obama administration. As The Washington Post’s Jason Millman suggested, it “could show that Kennedy is more sympathetic to the federal government’s argument that all exchanges provide subsidies, so there wouldn’t be such a severe penalty to the states that refused to set up their own.”

But it’s more likely that something else is going on. The “constitutional problem” Kennedy referred to is the same problem he had with the ACA’s Medicaid expansion in NFIB, back in 2012: the statute amounted to federal coercion of the states because if they didn’t expand they would lose all federal Medicaid funds—tens of billions of dollars in some states, with disastrous consequence for state budgets. Hence the law’s Medicaid expansion violated the constitutional principle of federalism—a “gun to the head,” in Roberts’ words—and the court struck it down.

Although Carvin protested that “the government has not made that argument,” Kennedy shot back, “sometimes we think of things the government doesn’t,” and insisted that the constitutional question “is in the background of how we interpret this.” As Scotusblog noted, Kennedy later brought up the issue with the government’s lawyer, Donald Verrilli, and again suggested that the challengers’ interpretation of the statute would present a constitutional problem.

King v. Burwell Could Still Bring Obamacare Down

Oklahoma Attorney General Scott Pruitt dismissed Kennedy’s concerns in an op-ed in the Wall Street Journal yesterday, arguing that “there is no legal precedent for a finding of coercion based solely on the fact that a federal program does not work well when the states decline to assist in its implementation.” Using a carrot-and-stick approach to fund federal programs, he went on, “isn’t antithetical to federalism, it is federalism.”

‘Ccooperative federalism’—the dubious scheme upon which Medicaid and countless other federal-state programs are based.

Better to call it “cooperative federalism”—the dubious scheme upon which Medicaid and countless other federal-state programs are based. Programs that attach conditions to federal funds might be, as Pruitt says, sprinkled through U.S. Code, but at what point do those conditions become coercive—especially as states become more dependent on federal funds?

Prior to NFIB, the court hadn’t found conditions on federal funding to be coercive, and indeed past precedent affirmed that some conditions on federal funds are perfectly fine. In South Dakota v. Dole the court upheld a federal statute that withheld highway funds to states that didn’t establish a legal drinking age of 21.

But if some conditions are allowed and others are not, what constitutes coercion? We don’t know yet, but NFIB established a threshold beyond which the federal government cannot go. Medicaid expansion was merely cooperative federalism on steroids, and Pruitt is too clever by half if he thinks otherwise. The major weaknesses in his argument is that NFIB left the door open to a finding of coercion in other federal-state funding schemes.

That brings us back to Kennedy and the exchanges. Kennedy’s comments suggest that he views coercion as inherent in the challengers’ argument. That will only be a problem for the challengers if the court decides the language of the statute is ambiguous, in which case the court would follow the doctrine of “constitutional avoidance,” as Jonathan Adler and others noted, and interpret the law to allow subsidies on federal exchanges.

Kennedy’s comments suggest that he views coercion as inherent in the challengers’ argument.

But if a majority of justices find the language is clear and unambiguous, as the challengers maintain, and conclude that Congress really meant to deprive states of billions in federal subsidies if they didn’t establish an exchange under Obamacare, then Kennedy might decide that this, too, is coercion—another federal “gun to the head” of the states.

If that’s where both Kennedy and Roberts land, Obamacare might well come crashing down this summer. Stay tuned.