The Corner

The ‘Tooth and Nail’ Doctrine

Over on the Balkinization blog, Indiana University law professor, Gerard N. Magliocca, notes that,

while most of the media’s attention yesterday was focused on Hobby Lobby, the D.C. Circuit was hearing argument in a case that poses a mortal threat to the Affordable Care Act. As readers of this blog know, the subsidies to those participating in the federal exchange are being challenged on the ground that the statute authorizes subsidies only for exchanges run by states.  Since only fourteen states have set up their own exchanges, that would leave most of the country out in the cold and (I gather) throw insurance premiums out of whack.

This case is Halbig v. Sebelius, and Magliocca is by no means exaggerating its potential. Reviewing the oral arguments, the Washington Examiner’s Philip Klein concluded that “it’s time for [the] White House to start sweating.” In particular, Klein highlighted a contentious moment:

The judge prodded Carvin to explain why Congress saw it as such an advantage to have states rather than the federal government manage the exchanges. “Why does it matter who establishes the exchanges?” he asked. “Your argument makes no sense.”

He said, “Who cares?”

At that point, Randolph jumped in and said, “Ben Nelson.”

Carvin agreed, arguing that Nelson, the former senator from Nebraska, was withholding support for Obamacare, in part, because he wanted exchanges to be state-based rather than federally-run. To get the law across the finish line, the Senate voted to make exchanges state-based, with the powerful inducement of generous subsidies.

This exchange, short and seemingly minor as it was, reminded me of a recent Supreme Court case, Abramski v United States. On trial in that instance is an ATF rule that renders so-called “straw purchases” of firearms illegal. The plaintiff, who was convicted of making such a purchase, argues that there is nothing in the text of the 1968 Gun Control Act to support that agency’s rule, noting that the “straw man” doctrine did not come into play until at least a quarter century after the legislation was passed. Naturally, the ATF disagrees, the government’s lawyer contending that Congress had clearly not intended to pass a law that would, in his estimation, have been useless.

During questioning, Chief Justice Roberts slightly irritably asserted that

it’s very problematic to talk about the overriding purpose [of legislation] when you’re dealing with a very sensitive compromise. There’s, as far as I can tell, nothing in the language of the statute that talks about straw men or actual buyers or anything like that.

The lawyer representing the state agreed, but insisted nonetheless that there was ample room for maneuver:

You’re right, Your Honor, just as there’s nothing in the mail or wire fraud statute that talks about Ponzi schemes. That — a Ponzi scheme is simply a way . . .

Roberts wasn’t buying it, interrupting:

. . . there wasn’t a strong lobby in Congress saying we’re the group that supports Ponzi schemes, so maybe it makes more sense to have a broad construction of that provision. This language is fought over tooth and nail by people on the, you know, gun control side and the gun ownership side. And to say — you look at it and say well, the purpose is this, even though there’s no words in the statute that have anything to do with straw purchasers, I think, is very problematic.

Roberts’s argument here is simple: That statutes that are “fought over tooth and nail by people” should be looked at more critically by the court that those that are passed with unanimous consent. If Halbig goes all the way to the Supreme Court, this is potentially extremely dangerous for the administration. There is little to suggest that Roberts will approach the question in a different manner, and even less to suggest that the lawyers for the plaintiffs will underplay what is clearly a profitable line of inquiry. Indeed, as the Volokh Conspiracy’s Jonathan Adler observes, those arguing that Congress intended to establish federal exchanges all along have thus far “had difficulty providing much by way of justification beyond vague references to congressional intent.” Adler reaffirmed this week that,

the plain text PPACA authorizes tax credits and cost-sharing subsidies for the purchase of qualifying health insurance plans purchased in health insurance exchanges “established by the State under section 1311” of the Act. PPACA supporters believed every state would create its own exchange. They were mistaken, however, and over thirty states have refused. In response, the IRS promulgated a regulation authorizing tax credits and subsidies in all exchanges, whether or not they were “established by the State under 1311.”

That IRS regulation, critics charge, lacks statutory justification and is therefore illegal. Cato’s Michael Cannon, who has led the charge in this in this area, yesterday explained the potential consequences of a loss for the government:

Obamacare authorizes the IRS to provide health-insurance subsidies (nominally, tax credits) to consumers who purchase health insurance “through an Exchange established by the State.” That’s not a drafting error. The subsidy-eligibility rules employ that language a total of nine times, without deviation. The rest of the statue is fully compatible with this language.

The statute is therefore clear and unambiguous: the IRS may issue subsidies in the 14 states that established an exchange, but not in the 34 states that left the job of establishing and operating their state’s exchange to the federal government. Congress’ purpose is likewise clear. It wanted states to operate the exchanges, so it conditioned subsidies on state cooperation. Medicaid and countless other federal programs do the same.

The IRS’s philosopher-kings have decided to issue subsidies in those 34 states anyway.

Is he right? Very possibly. Magliocca, who has had nothing whatsoever to do with the case, sided with Cannon and Adler today on his blog, remarking that:

I must say that, as I matter of statutory construction, I am not persuaded by the arguments made in favor of reading the Affordable Care Act to authorize subsidies to the federal exchange.  I think this interpretation is not much more than a statement that the consequences of reading the law as written would be terrible, thus it should not be done.  Granted, statutes should not be read in a literal way to produce absurd results.  In this case, though, I think Congress just assumed that most, if not all, states would not set up their own exchanges.  I don’t see why courts are obligated to correct this design flaw.

If you’re interested in this, I would watch Abramski v United States extremely carefully. No two cases are the same, of course. But if the Roberts court proves to be generally sympathetic to arguments that the federal government must adhere closely to the text of hotly contested laws, Obamacare will once again be in trouble.



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