The Role of State Coercion in King v. Burwell

Since the Supreme Court heard oral arguments in King v. Burwell last week, discussion has focused on Justice Kennedy’s inquiries whether the plain-text reading of the ACA would raise a “serious constitutional issue”: states allegedly might have no meaningful choice but to establish Exchanges, because otherwise their insurance markets would be subject to the ACA’s costly insurance reforms like guaranteed-issue and community-rating without the countervailing relief of federal subsidies. And that pressure could allegedly raise a constitutional problem under the “coercion” theory developed by the Court’s Medicaid holding in NFIB v. Sebelius, thus encouraging the Court to adopt a different statutory interpretation to avoid the coercion problem.

In response, those who support the King plaintiffs have principally made four points:

• First, to the extent that this scheme does raise a novel constitutional issue, it would be odd to resolve that issue in a case where neither side has briefed or argued it and where the states are not parties. (Indeed, the Solicitor General refused to take the position that there was any constitutional problem.)
• Second, a number of states have filed amicus briefs in support of the plaintiffs or even filed independent challenges to the IRS regulation. As Oklahoma’s Attorney General has explained, there are reasons why states might not want subsidies within their borders, e.g., due to their expansion of the ACA’s intrusive mandates. That belies the notion that states, under the plain-text reading, would have no genuine choice but to accede to Congress’s request to establish Exchanges.
• Third, doctrinally, a “coercion” argument here would clearly lack merit. Not only do many federal schemes work in exactly the same way, and not only does New York v. United States hold that no Tenth Amendment problem exists if Congress imposes conditional burdens on state residents rather than “on the State as a sovereign” (as Prof. Jonathan Adler has noted); but the NFIB Court less than three years ago let stand a condition on federal funds for expanded Medicaid that threatens states in with at least as substantial a burden as conditional subsidies. A state rejecting the Medicaid expansion would deprive many millions more of health care than would a denial of § 36B subsidies, and do so for a more needy and vulnerable group.
• Fourth, from a remedial perspective, finding § 36B’s plain text to be unconstitutional does not advance the IRS Rule. To the contrary, the proper remedy would be to cut off subsidies everywhere (as the joint NFIB dissent, joined by Justice Kennedy, stated concerning the Medicaid expansion), and that in turn might lead to invalidation of the entire ACA, as Prof. Josh Blackman has noted. Alternatively, it is arguably the ACA’s insurance-reform provisions that should be invalidated to avoid the “coercion” problem, since they are truly responsible for the pressure allegedly visited on states. (Without those provisions driving up premium costs, states that turned down the “subsidy deal” would be no worse off than they were in 2013, before the ACA took effect.)

In response to those devastating points, supporters of the ACA have objected that they need not show the plain-text construction of § 36B is actually unconstitutional—only that it implicates a serious constitutional issue and thus warrants adoption of the IRS’s reading of the statute as a matter of constitutional avoidance.

That “relaxed” version of constitutional avoidance does not work either, for a number of reasons. At the threshold, constitutional avoidance is permissible only if a statute is ambiguous. Justice Kennedy has said so himself in Salinas v. United States: “Statutes should be construed to avoid constitutional questions, but this interpretative canon is not a license for the judiciary to rewrite language enacted by the legislature.”

Moreover, interpreting the ACA to provide unconditional subsidies, as the Government urges, does not avoid a constitutional issue. To the contrary, it creates two, more serious constitutional problems.

First, it requires expenditure of federal funds absent clear congressional authorization. But as Justice Kennedy has held elsewhere and pointed out at the King argument—if tax credits are to be paid, Congress “has to be very, very clear” to that effect in the statute.

Second, accepting the Government’s argument creates its own, distinct federalism issue by effectively conscripting state employers into the ACA system without providing any route for states to opt out. Imposing a penalty “tax” on another sovereign to interfere with its control of its own workforce raises fundamental questions under basic principles of federalism and inter-governmental tax immunity. The Government’s interpretation thus raises at least an equally serious federalism question.

In short, the “strong” version of the coercion argument does not help sustain the IRS rule at issue in King, and the “weak” version simply substitutes a constitutional violation of the separation of powers and a serious federalism issue for, at most, a question about federalism. So much for attempting to avoid constitutional controversies.