Supreme Court’s new Obamacare case could be the next Bush v. Gore by Roger Parloff @FortuneMagazine November 10, 2014, 7:51 AM EST E-mail Tweet Facebook Google Plus Linkedin Share icons Make no mistake: With the Supreme Court’s decision Friday to hear the latest legal challenge to the Affordable Care Act, that law—the most significant social legislation in a generation and the signature achievement of the Obama presidency—hangs by a thread. If the Court rules for the challengers—nullifying the guts of the statute’s benefits in 34 states and sending participating insurers into an actuarial death-spiral—it will have rendered its most divisive ruling since Bush v. Gore. Whatever it does, the outcome will define Chief Justice John Roberts Jr.’s legacy more than any case since he ascended the bench nine years ago. That the Court reached out to take the case, King v. Burwell, even though there was no current split over the issue in the federal courts of appeals, suggests that at least four justices already strongly believe that the U.S. Court of Appeals for the Fourth Circuit, which rejected the challengers’ argument, came out the wrong way. (To grant review, four of the nine justices must vote to hear it.) Most observers assume that those four are the same ones who voted to strike the law down three terms ago, in June 2012, on the grounds that it exceeded Congress’s powers to enact: Antonin Scalia, Anthony Kennedy, Clarence Thomas, and Samuel Alito. The law squeaked by that time when the Chief Justice unexpectedly joined the four more liberal justices in upholding it. Most observers therefore expect the Chief Justice to be the decisive vote here again. Arguments will likely be heard in March 2015, according to Lyle Denniston of Scotusblog, and a decision should come down by the end of June. King v. Burwell is not a constitutional case. Instead, it turns on statutory construction—that is, how to interpret the words of a statute. It stems from an anomaly in the law. The anomaly relates to computation of the tax subsidies that are used to offset the cost of insurance premiums for low and middle-income people. These subsidies are the heart of the law. They are what renders the care afforded by the Affordable Care Act affordable. But the problematic language, if interpreted robotically, strips the vast majority of the law’s presumed beneficiaries of those crucial subsidies. Here’s how. The law contemplates that its beneficiaries—low and middle-income people who aren’t insured through their employers and make too much money to be eligible for Medicaid—will obtain their coverage from health insurance marketplaces called exchanges. One provision of the law mandates that every state must set up such an exchange. But a later section contradicts the first, saying that states don’t really have to. Instead, they can elect not to set one up, in which case federal officials at the Department of Health and Human Services “shall . . . establish and operate such Exchange within the State.” Those who support the law as it’s been interpreted up to now—Democrats, basically—say it’s obvious that this later section means that these federally created exchanges then stand in the shoes of the state-established exchanges for all purposes. And everyone would have to agree were it not for a problem deep within the bowels of the subprovisions defining how to compute the tax credits that health plan enrollees are entitled to under the law. (These tax credits are “advanced” to the taxpayer and then paid directly by the government to the health insurer, so the enrollee experiences them only in the form of lower premiums.) The amount of the tax credit, the law says, is to be based on something called the “premium assistance credit amount,” and that, in turn, is based on the number of “coverage months” the taxpayer incurred that year, and a “coverage month,” finally, is defined as a month that the taxpayer spent enrolled in a health plan “through an Exchange established by the State.” (Emphasis added.) Do you see the problem? Taken literally, the four italicized words seem to mean that there’s actually no tax credit available at all for anyone enrolled in a plan obtained through an exchange set up by the federal government, because that’s not an Exchange “established by the State”! And since 34 (mainly red) states declined to set up their own exchanges, most of the millions of people that everyone had assumed would be the law’s beneficiaries are actually ineligible for the tax credit that was supposed to make their care affordable. The impact of a robotic interpretation of these four surprisingly momentous words doesn’t stop there. Rather, the dominos keep toppling until every major goal of the law has been thwarted. Because no one would be eligible anymore for tax subsidies in the 34 states, most of those people would also (under an exemption based on affordability) no longer be subject to the so-called individual mandate which requires them to enroll in a health plan. This means that insurers participating in those states—who would still be subject to the law’s prohibitions against denying coverage to people with pre-existing conditions and so on—would now be sitting ducks for what health care economists call “adverse-selection death spiral,” which is what happens when too many sick people are enrolling vis-a-vis healthy people and an insurer can’t make ends meet. That will lead insurers to pull out of the program. On top of that, most employer mandates in those 34 states would also self-annihilate, since they, it turns out, are contingent upon the employer’s employees being eligible for the tax subsidies. The most amazing thing about this four-word time-bomb that now threatens to blow apart Obamacare is that no one seems to have noticed it prior to the law’s passage. No legislator, no analyst, no reporter. Every estimate of the law’s impact and costs—including one performed by the Congressional Budget Office in November 2009—assumed no distinction in benefits afforded by state- and federally-run exchanges. The significance of the anomaly appears to have been recognized for the first time several months after the law passed when a Greenville, S.C., employee benefits attorney named Thomas Christina stumbled across it. He gave a speech about it in December 2010 to the American Enterprise Institute, and, thereafter, a small group of anti-Obamacare zealots nursed the anomaly into a fresh legal assault, comprising four lawsuits including King. The suits formally take aim at a May 2012 ruling by the Internal Revenue Service, in which the agency said it would grant tax credits to enrollees regardless of whether they got their insurance from a state- or federally-established exchange. (In one of the other suits challenging this IRS rule, Halbig v. Burwell, the D.C. Circuit Court of Appeals ruled 2-1 in favor of the challengers last July, though the panel’s decision was later vacated so that the full D.C. Circuit could rehear the case.) Why in the world would Congress have wanted to blow apart the very statutory scheme it was enacting? Well, under one approach to statutory construction—an exceedingly rigid one—a judge might answer: It doesn’t matter. The law is unambiguous, so I have to apply it as written. It’s up to Congress to fix it. Another school of statutory interpretation would want at least some evidence from the structure of the law that there was some rational purpose for the seemingly self-destructive language. The law’s challengers have floated the theory that perhaps Congress wanted to incentivize the states to enact their own exchanges by threatening to deny their citizens tax benefits if they didn’t. Congress merely failed to anticipate that so many states would refuse to set up their own exchanges notwithstanding the threat, the challengers suggest, which is why the whole statutory scheme is now poised to crumble. The problem with the challengers’ “incentive” theory is that there is virtually no shred of contemporaneous evidence supporting it—and what good is a threat if no one knows you’re making it? The closest thing to any corroboration is a couple off-the-cuff remarks made by health care consultant Jonathan Gruber two years after the law passed. Gruber, who had been a consultant to Congress and the Administration during the drafting of the law, has since said that his remarks were mistaken, and he doesn’t remember exactly what he meant by them. “I might have been thinking,” he told The New Republic last July, “that if the federal backstop wasn’t ready by 2014, and states hadn’t set up their own exchange, there was a risk that citizens couldn’t get the tax credits right away. … There are few people who worked as closely with Obama administration and Congress as I did, and at no point was it ever even implied that there’d be differential tax credits based on whether the states set up their own exchange. And that was the basis of all the modeling I did, and that was the basis of any sensible analysis of this law that’s been done by any expert, left and right.” Drafting errors, contradictions, and ambiguous provisions are not unusual in statutes, particularly long and complex ones, and judges have, as a consequence, developed whole schools of analysis for coping with them. But almost all of them agree that an effort should be made to avoid interpreting a law in a way that would be absurd. The Supreme Court has often said that it is a “fundamental canon of statutory construction that the words of a statute must be read in their context and with a view to their place in the overall statutory scheme.” (In this Scotusblog post, Yale Law School professor Abbe Gluck analyzes how she believes textualists, like Justice Scalia, might have been expected to rule in this case, were it not so politically freighted.) So far, judges appointed by Republican presidents reviewing these facts have decided that their hands are tied, that the four words are unambiguous, and that they must therefore be interpreted robotically—whatever the consequences. Though such a ruling would effectively nullify an Act of Congress, these judges assert that their position is, properly understood, a humble expression of their subservience to Congress. As Judge Thomas B. Griffith of the D.C. Circuit wrote in Halbig, “Within constitutional limits, Congress is supreme in matters of policy, and the consequence of that supremacy is that our duty when interpreting a statute is to ascertain the meaning of the words of the statute duly enacted through the formal legislative process. This limited role serves democratic interests by ensuring that policy is made by elected, politically accountable representatives, not by appointed, life-tenured judges.” Democratically appointed judges, on the other hand, have found that the canons of statutory construction require the opposite result. According to Senior Circuit Judge Andre M. Davis of the Fourth Circuit, for instance, the challengers’ reading of the law “has no legislative history to support it,” “runs counter to the act’s text, structure, and goals,” and “renders the entire Congressional scheme nonsensical.” To Senior Circuit Judge Harry Edwards of the D.C. Circuit, the challengers’ “incentive story is a fiction, a post hoc narrative concocted to provide a colorable explanation for the otherwise risible notion that Congress would have wanted insurance markets to collapse in States that elected not to create their own Exchanges.” The central metaphor of the last major Obamacare challenge revolved around broccoli: If Congress can force us to buy health insurance, could not it also force us to buy broccoli? The central metaphor of King will revolve instead around pizza. Judge Davis concisely summarized the Democratic perspective on the case this way: “If I ask for pizza from Pizza Hut for lunch but clarify that I would be fine with a pizza from Domino’s, and I then specify that I want ham and pepperoni on my pizza from Pizza Hut, my friend who returns from Domino’s with a ham and pepperoni pizza has still complied with a literal construction of my lunch order. That is this case.” Assuming the case does come down to the Chief Justice’s vote, what will he do? Will he save the law a second time, recognizing the damage that the Supreme Court will incur to its credibility as an institution if the Court, voting on strict party lines, destroys Obamacare over what certainly looks like a simple drafting error? Or will he follow in Judge Griffith’s footsteps, avowing that he has no choice but to read the words in a wooden fashion, and that doing so is actually the humblest, most principled action he can take, given the Court’s “limited” role in democratic government? At his confirmation hearings, Chief Justice Roberts famously likened a justice’s role to that of the neutral umpire, merely calling balls and strikes—a claim that many found unrealistic and hard to credit. For better or for worse, I suspect that Roberts, adopting that posture, will follow Judge Griffith’s example, voting to blow up Obamacare while asserting that he was forced to do so by his commitment to passivity and minimalism.