The Weekly Sift

If ObamaCare were a TV series, every episode would be a cliffhanger.

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Like a superhero’s girlfriend or a soap opera heroine, ObamaCare always seems to be in danger. It survived several apparently fatal crises on its way to passing Congress. After it passed, the new Republican House was going to repeal it or defund it. Then conservative lawyers created a completely new theory of the Commerce Clause to make it unconstitutional — and got five Supreme Court justices to agree with them — only to see Chief Justice Roberts rescue the law at the last minute by re-interpreting a penalty as a tax. (But the Court did allow states to opt out of Medicaid expansion, keeping millions of the working poor from getting health care, and probably killing thousands of them.) Then Ted Cruz was going to lead a campaign to force President Obama to accept repeal by shutting down the government and threatening to wreck the world economy.

After the program started to get rolling, the web site was never going to work, and people were never going to sign up, and the people who did sign up would be old and sick, and the rates were going to astronomical, and more people would lose coverage than gain it, and it just was all going to collapse of its own weight. Democrats would kill ObamaCare themselves, just to keep the disaster from destroying their party forever.

If ObamaCare were a TV series, every episode would be a cliffhanger.

But like TV cliffhangers, the disaster never really arrives. ObamaCare shows every sign of working more-or-less the way it was designed to, except for those minimum-wage folks in Texas (and other red states) who can’t get Medicaid.

But it’s still not out of the woods. Tuesday, two Bush-appointed judges on the D. C. Court of Appeals lobbed the latest bomb in ObamaCare’s direction: The way the law is worded, people in 36 states are ineligible for the subsidies that put the “affordable” in the Affordable Care Act. In an opinion piece at Fox News, Betsy McCaughey — the woman who created the “death panels” hoax that Sarah Palin made famous — announced that the ruling had sent ObamaCare into a “death spiral”.

I’ll get into the details of this in a minute, but first let me spoil the suspense: I don’t think this bullet is going to kill ObamaCare either. Not because the legal ruling is bogus and partisan — it is, but the Supreme Court has five conservative judges who might be happy to issue another bogus partisan ruling against ObamaCare — but because the stock price of health insurance companies didn’t budge when the D. C. Appeals Court’s surprise came out.

Politicians and pundits might predict all kinds of things, and who knows whether they really believe any of it. But what people do with their money reflects what they genuinely expect.

ObamaCare is great for insurance companies. (That’s the biggest liberal complaint about it.) And as the good news about ObamaCare has rolled in, health insurance stocks have had a nice run. United Health, for example, started 2014 at $71.65 and climbed steadily upward to open Monday at $84.68. Back on Inauguration Day, 2009, you could have bought a share for $24.16.

So the beginning of an ObamaCare death spiral would be bad for insurance companies and should have sent investors heading for the exits. (Take your profits. Sell, sell, sell!) But UNH closed Tuesday at $86.05, and closed Friday right back where it opened Monday, at $84.68. The whole week was a total non-event for UNH.

Just about by definition, investors are people with money. And people with money tend to be Republicans, who are more likely than most to live inside the conservative bubble and take bad news about ObamaCare seriously. But they’re not taking this threat seriously. So I’m not either.

Now let’s get down to the legal arguments. Fortunately, we get to look at the same facts from two different angles, because on the same day the Fourth Circuit Court of Appeals ruled the opposite way on a virtually identical case. The D.C. court’s judges vote 2-1 and the Fourth Circuit 3-0, so the net vote was 4 judges to 2 in favor of the ObamaCare subsidies.

The issue. The original plan in the Affordable Care Act was for each state to set up its own health-insurance exchange, like kynect in Kentucky or Covered California. But just in case one or two states didn’t, the law empowered the federal government to set up an exchange for a state.

At the time, I don’t think anyone in the administration expected the level of obstruction the program has faced. Common sense would tell you that a state government would jump at the chance to tailor the program the way it wants rather than have the feds make all the decisions. But these are not sensible times, so there are 36 states with federally-run exchanges.

The basic logic of ACA is achieve near-universal healthcare coverage by

• expanding Medicaid to cover the working poor.
• subsidizing insurance premiums via a tax credit for those somewhat better off.
• using a tax/penalty to push everyone who isn’t already covered by either an employer or the government to buy private insurance on his/her state exchange.

But the line in the law that authorized the tax credits was worded so that they applied to taxpayers who are

covered by a qualified health plan … that was enrolled in through an Exchange established by the State under section 1311

So if you interpret that line in a context-free way, you might think that people in those 36 states with federally-created exchanges don’t get the tax credits. That completely screws up the logic of the plan, and absolutely no one at the time the law was passed thought it would work that way. (In particular, I don’t believe this point ever came up when states were debating whether or not to establish exchanges.) But words mean what they mean, right?

How this would resolve in a sane world. This is what is known as a drafting error, and they happen from time to time. If they aren’t too serious, everybody ignores them. (If a law would happen to mis-spell Connecticut, judges wouldn’t decide that Congress intended to refer to some previously unknown state.) But if the error looks like it will cause some real issue, Congress just fixes it. Or at least it used to. Former Bush Treasury official Phillip Swagel was focused on different errors last fall when he wrote:

It should be possible for the larger (and incredibly heated) debate over the merits of Obamacare to proceed even while specific flaws in the legislation are addressed

He gave the example of a 2005 transportation bill that contained earmarks for projects that no longer existed. A subsequent bill fixed this. But Swagel makes a major understatement:

Legislation to make “technical corrections” has become relatively infrequent as Congressional partisanship has mounted over the decades

These kinds of fixes didn’t used to be partisan issues. It didn’t matter whether or not you supported the original law, you wanted mistakes fixed. But not any more. Now, the worse a law works, the better for the party that opposed it to begin with. Bad for the country, but good for the party. And the party is what’s really important.

How the IRS tried to resolve it. Implementing tax credits falls to the IRS, which now had to implement something that didn’t quite make sense. They did the sensible thing and interpreted the law so that the federal government would be acting in the role of the state when it established a state exchange. So in practice “an Exchange established by the State” meant an exchange established by the state or by the federal government acting for the State. It explained:

[T]he relevant legislative history does not demonstrate that Congress intended to limit the premium tax credit to State Exchanges. Accordingly, the final regulations maintain the rule in the proposed regulations [i.e., that policies bought on federally-established exchanges still qualify for tax credits] because it is consistent with the language, purpose, and structure of section 36B and the Affordable Care Act as a whole.

How this became a court case. Courts can’t just rule on whatever issues they feel like addressing. Somebody has to bring them a case, and the person who brings it has to have “standing”. In other words, the person who sues has to present a real injury that was caused by whoever is being sued and that a court has the power to remedy. (So “My girl friend doesn’t love me any more” might be a real injury caused by a specific woman, but what do you expect the court to do about it?)

Finding a plaintiff with standing took some doing in this case, because who exactly is being hurt if people get tax credits to help pay for their health insurance? (You might think, “the taxpayers”, but those kinds of suits are always thrown out of court. An injury needs to be more specific than just your tax money being spent in some way you find inappropriate.) Eventually, ObamaCare opponents came up with this plan: The individual mandate only applies to people who can find health insurance for less than 8% of their income. So if a guy is just poor enough that unsubsidized insurance would be more than 8% of his income, but subsidized insurance would be less than 8%, then the subsidy is what makes the individual mandate apply to him. That’s his injury.

The government argued that giving people a good deal on health insurance doesn’t really injure them, but neither court bought it. Both the D.C. Circuit and the Fourth Circuit said the suits had standing. Politically, though, it’s still a point worth making: This was the kind of legal contortion conservatives had to come up with to file this suit.

What the four judges said. Naturally, there is precedent for this kind of thing. I’ll let Judge Robert Gregory of the Fourth Circuit explain:

Because this case concerns a challenge to an agency’s construction of a statute, we apply the familiar two-step analytic framework set forth in Chevron U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837 (1984). At Chevron’s first step, a court looks to the “plain meaning” of the statute to determine if the regulation responds to it. If it does, that is the end of the inquiry and the regulation stands. However, if the statute is susceptible to multiple interpretations, the court then moves to Chevron’s second step and defers to the agency’s interpretation so long as it is based on a permissible construction of the statute.

Notice where the burden of proof lies: In order to win their case, the plaintiffs have to convince the court that the statute is unambiguous and that the IRS is just making stuff up to interpret it any other way. (Gregory, BTW, is the only judge of the six to rule opposite to the party that appointed him: Though he was originally a temporary recess appointment by Bill Clinton, he owes his permanent appointment to George W. Bush.)

The argument over what Congress intended was wide-ranging, covering how similar words are used in other parts of the law, how this provision fits or doesn’t fit with other provisions, how it works in the overall structure of ObamaCare, and the “legislative history”, i.e., what the Congresspeople were actually talking about when they passed it.

Unfortunately, Congress never argued about whether or not the subsidies should apply on federal exchanges — probably because no one involved ever conceived that they wouldn’t; it just wasn’t an issue. But that means there is no clear legislative history. It’s like that down the line: Judge Gregory allows that the IRS interpretation seems more likely to him, but that there’s not a smoking gun either way. But …

when that is so, Chevron dictates that a court defer to the agency’s choice.

and so the subsidies stand.

Senior Judge Andre Davis was even less persuaded by the plaintiffs:

They have a clear choice, one afforded by the admittedly less-than-perfect representative process ordained by our constitutional structure: they can either pay the relatively minimal amounts needed to obtain health care insurance as provided by the Act, or they can refuse to pay and run the risk of incurring a tiny tax penalty. What they may not do is rely on our help to deny to millions of Americans desperately-needed health insurance through a tortured, nonsensical construction of a federal statute whose manifest purpose, as revealed by the wholeness and coherence of its text and structure, could not be more clear.

What the two judges said. Judge Thomas Griffith of the D. C. Circuit also cited the Chevron case, but placed the bar of interpretation much higher:

We therefore give the absurdity principle a narrow domain, insisting that a given construction cross a “high threshold” of unreasonableness before we conclude that a statute does not mean what it says. Cook, 594 F.3d at 891. A provision thus “may seem odd” without being “absurd,” and in such instances “it is up to Congress rather than the courts to fix it,” even if it “may have been an unintentional drafting gap.” Exxon Mobil Corp. v. Allapattah Servs., Inc., 545 U.S. 546, 565 (2005)

Griffith goes on to examine all the places in the law where differentiating between the state-established and federal-established exchanges might seem odd, and is able to find possible (though occasionally convoluted) meanings that Congress might have intended.

Senior Judge Raymond Randolph agreed, but the dissent by Senior Judge Harry Edwards is blunt:

This case is about Appellants’ not-so-veiled attempt to gut the Patient Protection and Affordable Care Act (“ACA”). … The majority opinion ignores the obvious ambiguity in the statute and claims to rest on plain meaning where there is none to be found. In so doing, the majority misapplies the applicable standard of review, refuses to give deference to the IRS’s and HHS’s permissible constructions of the ACA, and issues a judgment that portends disastrous consequences. … Simply put, §36B(b) interpreted as Appellants urge would function as a poison pill to the insurance markets in the States that did not elect to create their own Exchanges. This surely is not what Congress intended.

What happens next? The next step is to appeal the D. C. court’s ruling to the full court, rather than the three-judge panel. Since this is a partisan ruling that only a partisan Republican judge will uphold, the full court will reverse it.

One of the Republican moves that pushed the Senate’s Democratic majority to eliminate the filibuster on judicial nominations (other than the Supreme Court) was the blanket filibuster on any judge President Obama might appoint to the D. C. circuit. At the time, the court had a 4-4 balance of Republican and Democratic appointees and three vacancies. Republicans charged that filling the vacancies (as the Constitution instructs the President to do) would be “court packing“. After the filibuster change, Obama’s nominees were approved, so the full court has a 7-4 majority of Democratic appointees.

If the two appeals courts remained in disagreement, the case would have to go the Supreme Court (because you can’t have a law mean one thing in one circuit and another somewhere else). But if the full D. C. court reverses its three-judge panel’s ruling, the Supremes could decide whether or not they want to get involved.

If they do, I don’t think they’ll overturn the subsidies. The Roberts Court practices conservative activism, but prefers to do it by stealth. (That’s why Roberts nixed the first attempt to skewer ObamaCare in the courts, IMHO.) This would be a nakedly political, we’re-sticking-it-to-the-Democrats ruling. WaPo’s Paul Waldman summarizes:

Now pause for a moment and consider what it is Republicans are asking the courts to do here. They want millions of Americans to lose the subsidies they got this year, in many if not most cases making health insurance completely unaffordable for them, and their justification is this: We found a mistake in the law, so you people are screwed.

I can imagine Thomas, Alito, and Scalia going that way, but Roberts and Kennedy will be reluctant. ObamaCare will escape this cliff, and survive until the next episode.