Obamacare was under assault from two directions this week in the courts. The Supreme Court heard the Hobby Lobby religious-liberty case, a dispute over whether corporations could be forced to supply contraceptives as part of their health plans. But a far more serious threat to the heart of Obamacare — a challenge to the state exchanges through which subsidies to buy insurance are issued — played out in the D.C. Circuit Court of Appeals courtroom a few blocks away.
That threat has the administration very, very afraid. Now we know why Democrats were so eager to use the “nuclear option” that changed the minimum number of senators needed to confirm judges from a filibuster-proof 60 to a mere majority. The first use of the nuclear option was to confirm three judges to the D.C. Circuit, which would soon have to hear the challenge to the exchanges.
In 2012, the IRS issued a regulation allowing the distribution of insurance subsidies through the health exchange set up by the federal government in the 36 states that failed to establish their own exchanges. But that flew in the face of the clear language of the Obamacare law, which specified that the subsidies are available “through an Exchange established by the State.” Why did the Obamacare law insist that the subsidies flow only to state exchanges? Nebraska’s Democratic senator Ben Nelson (of “Cornhusker Kickback” fame) was a former state insurance commissioner, and he insisted on a strong role for the states in implementing the law. Without his vote, the bill would have been DOA, because it needed all 60 Democrats to break a GOP filibuster.
Democrats didn’t think empowering the state exchanges presented a problem, because the states would be eager to join in taking credit for a popular program. Wrong: Obamacare was and still is deeply unpopular. A total of 34 states opted out, and two others failed to meet the deadlines for signing up.
Rather than let the two-thirds of Americans living in those states be denied subsidies, thus wrecking the heart of Obamacare, the administration asked the IRS to interpret the law in a Rube Goldberg manner. The IRS came through, simply asserting that any exchange set up for a state by the feds was the functional equivalent of one set up by the state itself.
This went against both the plain meaning of the law and the legislative history behind Obamacare. So a total of four lawsuits have been launched against the IRS regulation. Federal judge Paul Friedman, a Clinton appointee, ruled in favor of the administration in January. But the appeal was heard on Tuesday before a three-judge panel of the D.C. Circuit. Its members were Judges Thomas Griffith and Ray Randolph (Republican appointees) and Harry Edwards (a Jimmy Carter appointee).
The arguments on Tuesday didn’t go well for the administration. Judge Randolph noted that the Obamacare-exchange language was very similar in its structure to that of other laws passed by Congress that conditioned federal subsidies upon states’ meeting certain federal requirements. As much as courts often defer to Congress in letting sloppily written provisions of laws stand, Congress’s intent in Obamacare — that only state exchanges get subsidies — seems clear. As Judge Randolph observed, there is no “stupidity” principle requiring courts to save stupidly drafted laws.
Judge Griffith followed up by noting to the Obama-administration lawyers that they have a special burden in defending the IRS’s rule, given that the language of the law specifies “only state exchanges” a total of seven times. Judge Edwards was much more solicitous of the Obama administration’s arguments, suggesting that any complaints about the distinction between state and federal exchanges was simply part of an attempt to gut Obamacare.
What worries the Obama administration is that it may well lose a 2–1 vote on the D.C. Circuit panel. They are free to ask for an en banc ruling of the full eleven-member Circuit, on which Democratic appointees form a majority thanks to the “nuclear option.” En banc hearings are rare and frowned upon in the D.C. Circuit, but the Obama administration would no doubt ask for one in order to delay matters and the case’s ultimate resolution before the Supreme Court.
In a sign that the Obama Justice Department fears a defeat, it took the highly unusual step of asserting last week that the D.C. appeals court lacks the jurisdiction to invalidate its interpretation of Obamacare. The Wall Street Journal noted: “In other words, even if the court finds that the administration is acting illegally, it cannot strike down the IRS-HHS rule and the executive branch will continue to ignore both Congress’s law and the law of the courts. There are few if any precedents for such a remarkable argument.” Judges will clearly not be amused by arguments that the executive branch thinks they are superfluous.
Scott Pruitt, the attorney general of Oklahoma, is spearheading one of the four cases challenging the IRS rule. He told me yesterday that the Justice Department’s move is “just confirmation we are in the midst of a constitutional crisis. When an administration can ignore the plain language of a law, insist on the opposite, and then assert the courts can’t overrule them, that is an assault on our very system.”
The Obama administration is clearly ignoring the Rule of Law in favor of something that might be called the Rule of Making It Up as We Go Along. With each passing month, more and more people can sense its desperation and deplore its methods. This week’s court arguments in both the Hobby Lobby case and the state-exchanges case show they may soon be getting a comeuppance at the hands of the judiciary.
— John Fund is a national-affairs columnist for National Review Online.