The Little Known Court Case That Might Kill Obamacare

There are still many Obamacare cases making their way through the courts, everything from the Hobby Lobby case to the case asking to strike down the bill because it was a tax/spending bill originating in the Senate, but there is a very little known case that may actually kill Obamacare.  There is nowhere in the bill that authorizes the payment of subsidies to those who are buying their insurance through the federal exchange.

At issue are the federal subsidies for individuals buying insurance in their state’s health care exchanges. The law stipulates that those subsidies should be allotted for plans purchased “through an Exchange established by the State under Section 1311” (italics added), a reference to the section of the law that establishes state-run exchanges.

It may seem like a small problem, but if true, it spells disaster for the Affordable Care Act. Without subsidies, health care on the individual market becomes unaffordable. Without an affordable option, the individual and employer mandates disappear. In other words, the entire law could come crashing down in the 36 states that have opted not to run their own exchanges.

Since its passage in March 2010, the Obama administration has set about implementing the law by making the subsidies, in the form of premium assistance tax credits, available in every exchange no matter who was running it. The Internal Revenue Service, which oversees this piece of the law, finalized a rule allowing subsidies in every state in May 2012.

The effort is being led by Jonathan H. Adler, a conservative law professor at Case Western Reserve University in Ohio, and his friend Michael Cannon, a health policy expert at the  Cato Institute. Adler and Cannon recorded their finding in a Wall Street Journal op-ed in November 2011. The IRS was acting against the plain language of the law, they argued. As Cannon tells it, the duo then decided to do more research, which led them to believe that this was not, as they had called it in the WSJ, a “glitch.” Instead, they argue Congress intentionally decided to withhold subsidies from federal exchanges. If the courts agree with them its going to cause huge problems for Obama's signature legislation.

Constitutionally, the federal government cannot order states to create the exchanges, so Adler and Cannon contend that Democratic lawmakers intentionally withheld premium assistance to strong arm states into implementing their own exchanges. Though this is not explicitly stated in the law, Cannon and Adler point to a handful of comments that they argue infer subsidies were intended for state-run exchanges – but there is no explicit evidence. Now that 36 states decided not to create their own exchange, Cannon and Adler maintain that the IRS is not carrying out the letter of the law.

...The two drafted a paper in the first half of 2012 on their findings, but didn’t publish because they thought the Supreme Court might overturn the whole thing anyway. When the court largely upheld the law, the two published their paper in July 2012. Over a year later, there are now four cases challenging the subsidies in federally-run exchanges. One of them, Halbig v. Sebelius, was argued in D.C. district court this month by premier conservative litigator Michael Carvin.

“This is literally the simplest case I’ve ever had in 30 years of practicing law,” Carvin said at a Cato event this summer. “No one but a lawyer could seriously stand up here and tell you that north means south, black means white and state means federal. And all you need to do is read the statute and know that that is what the law is.”

Carvin may be confident, but critics have variously called Cannon and Adler’s theory “preposterous,” “screwy” and a “Republican fantasy.”

“I think it’s a case without merit,” said Sara Rosenbaum, a health care expert at George Washington University. “The plaintiffs have seized on a few words in a statute, they’ve taken the words completely out of context, and they have ignored numerous other parts of the statute that make their interpretation of the law basically senseless.”

Like many of the other lawsuits this one faces an uphill battle.  Remember the argument against the mandate was that it was a penalty...and that was actually the congressional intent, it was the Supreme Court who decided it was a tax.

Lazarus, who watched the oral arguments in Washington this month, said Carvin spent a considerable amount of time on the issue of congressional purpose because “the text argument just doesn’t get him across the finish line,” as he put it. “They need this purpose argument. They can’t just get away with saying there was a glitch in the statute.”

Under longstanding Supreme Court precedent, agencies have broad authority to implement laws according to their reading of the statute. So it is not enough for opponents of Obamacare to prove there are ambiguities in the statute. To win, Carvin must convince the court that the meaning of the text is beyond doubt.

Cannon, Adler and Carvin argue that Congress uses the carrot-and-stick approach all the time to induce states to enact programs they cannot simply require them to enact, the most famous example being Medicaid, which states administer in order to receive funding.

The bottom line is this is going to be a very interesting case, after Roberts changed his mind at the last minute after first voting to overturn the law, there is no way to predict the way this or any other court may rule.