In oral arguments Wednesday in the case before the U.S. Supreme Court that could dismantle the Affordable Care Act, justices appeared divided over each side’s interpretation of the law’s wording, but one justice who’s widely considered a swing vote repeatedly questioned whether the challengers’ view would violate the constitution.
The challengers in King v. Burwell argue the health law’s wording prohibits federal subsidies in the 34 states that haven’t created their own online marketplaces. Questions about how to interpret the law took up much of the debate, but Justice Anthony Kennedy --widely considered a potential deciding vote out of the nine justices -- posed questions about federal authority that could offer a defense of President Obama’s signature domestic achievement.
If the challengers, four Virginia residents who oppose the health law’s mandate to buy health insurance, are successful, they will effectively cut off federal subsidies that help make coverage affordable for residents in states using the federal health exchange, HealthCare.gov. Of the 11.4 million people enrolled through that exchange, about 87 percent receive federal assistance, according to the Department of Health and Human Services. If the price of insurance exceeds 8 percent of their income, they won’t have to buy insurance by law, which many predict would lead to a cascade of price hikes that would drive people away.
States will likely be caught unprepared if a decision went in favor of the challengers, though Justice Samuel Alito suggested during arguments that the court could delay the effect of its decision until the end of the 2015 tax year to give Congress and the states time to prepare.
There are two main ways the court can make its decision, an uncertain outcome expected in June. The first would be on an interpretation of the health law’s wording.
The challengers argue the passage that speaks to subsidies limits them to “an Exchange established by the State” as set out by another part of the law that says states “shall” create exchanges. The Obama administration argues another section of the law that allows the federal government to step in if states don’t create exchanges satisfies the requirement that subsidies go to people buying insurance through an exchange. The challengers argue Congress intentionally tried to create an incentive for states to build their own exchanges through the wording of the law.
The health law gave authority to the IRS to interpret the subsidy provisions. When an agency is challenged on its interpretation of an act of Congress, justices ask whether that reading is allowable based on the wording of the law.
The other question, which 23 Democratic attorneys general raised in a brief to the court, is about the limits of federal authority. A 1984 Supreme Court case established what’s known as the Pennhurst Doctrine, which says the constitution forbids the government from setting conditions on federal funding without making those rules clear. Those attorneys general say Congress never mentioned the possibility of losing federal subsidies if their states didn't create an exchange, meaning Congress would be violating Pennhurst by not making that possibility clear. If the challengers’ interpretation is right, they argued, then that would make the law coercive.
But the Obama administration never pressed that question in its briefs and sidestepped it in oral arguments. “I think that it would be -- certainly be -- a novel constitutional question, and I think that I’m not prepared to say to the court today that [the challengers’ interpretation] is unconstitutional,” said Solicitor General Donald Verrilli.
Jonathan Adler, a law professor who helped lead the challenge, said in an interview after oral arguments that there’s a clear reason for Verrilli’s reluctance. A ruling that upholds the administration on constitutional grounds could weaken future cases in which states challenge the federal government, he argued. “If the court goes in that direction it has very serious implication for other federal programs,” he said. “I’ll admit I have some sympathy for that, but it would represent a dramatic shift.”
Kennedy questioned both the government’s statutory interpretation and the constitutionality of the challengers’ view. He called it “a drastic step” to allow the IRS to interpret a law authorizing billions of dollars in federal subsidies, and he told Verrilli at one point during a complex argument about how different sections interact "that seems to me to go in the wrong direction." But he repeatedly raised questions about the limits of federal authority under the constitution.
“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,” he told Michael Carvin, the lawyer representing the challengers.
Justice Sonia Sotomayor, among others, also brought up that question, saying the court has established through previous decisions that “we read a statute in a way where we don’t impinge on the basic federal-state relationship.” Carvin said this case is different because it doesn’t involve state police power.
“Here, all the federal government is doing is saying you want billions of free federal dollars,” he said. “That’s hardly invading state sovereignty, and it’s the kind of routine funding condition that this court has upheld countless times.”
Carvin also sought to distinguish this case from the 2012 decision that upheld the ACA but said requiring states to expand Medicaid at the risk of losing all funding was too coercive. He argued in this case states that refused to make their own exchanges still received considerable benefits from having a federal exchange that didn’t expense subsidies and considerably less harm. But liberal justices, including Sotomayor and Ruth Bader Ginsburg, challenged him, saying without those subsidies there’d be little reason to buy through an exchange.
Fellow liberal justices Stephen Breyer and Elena Kagan also questioned Carvin’s interpretation of the statute. Kagan in particular appeared receptive to the Obama administration’s argument that under the challengers’ interpretation of the law the federal exchange would be unable to certify health plans for sale or even sell them to residents of a state.
But conservative justices Antonin Scalia and Samuel Alito appeared sympathetic to Carvin’s arguments. They both challenged a reading of the law that allows the federal government to stand in for a state. Alito repeatedly pressed Verrilli on the wording of the law and asked him why so few of the 34 states in the federal exchange wrote briefs of support for the Obama administration’s interpretation. Scalia took issue with administration’s focus on the word “such” as providing a way for the federal government to create “such exchange within the State.”
“How can the federal government establish a state exchange?” he said. “That is gobbledygook. You know, ‘such’ must mean something different.”
Chief Justice John Roberts, however, rarely spoke and asked few questions of either side. Roberts, a conservative, casted the deciding vote that upheld most of the ACA in 2012 on a 5-4 vote. His most noteworthy question asked Verrilli whether another president could simply alter the IRS' interpretation of the language of the law, which Verrilli conceded. Roberts could yet be a swing vote, but he did little to indicate his opinion, said Simon Lazarus, a lawyer who wrote briefs supporting the administration.
“It bodes a lot better than his performance in  did,” he said, noting Roberts repeatedly questioned the Obama administration during oral arguments then. “No one can claim he’s solidly with the conservative bloc. But you also can’t claim that he’s against.”
Lazarus said he believes the administration can win on the strength of its interpretation of the statute, without making the decision about the constitutional question. But if it comes to that, the challengers are finished, he argued.
"Under that, what you have--irrefutably a fact--that unless Justice Kennedy concludes the plaintiffs’ subsidy-denying interpretation is unambiguously correct, then the law is unconstitutional," Lazarus said. "Unless he makes that conclusion he would have to uphold the administration's position. That turns out to be five votes."