King V. Burwell: Finding A Path Forward After An Executive Overreach – Guest Essayist: Grace Marie Turner

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The Supreme Court justices had a lively discussion yesterday (essay originally published March 5, 2015) during arguments in King v. Burwell about who Congress intended to get health insurance subsidies and under what conditions.

The central question is whether the Internal Revenue Service had the authority to write a rule authorizing subsidies to go to millions of people in the 37 states now operating under federal exchanges.

The plaintiffs say the language of the law is clear:  Subsidies are allowed in “an Exchange established by the State under [section] 1311of the Patient Protection and Affordable Care Act.” It doesn’t just say this once, but nine times in various linguistic forms.

The government argues that it is just a typo in legislative drafting: Congress clearly wanted subsidies to be available to citizens of all of the states, and the IRS therefore had the authority to write its rule authorizing subsidies in both federal and state exchanges.

We likely will know the Court’s decision in June.  If the justices decide against the government, the Congress will need to quickly step forward with a legislative solution.  And several options are under consideration.  Most would provide subsidies as a temporary bridge so people can keep the policies they have.  But they would eliminate the unpopular and destructive mandates and regulations that drive up the cost of health insurance for millions of people and businesses.

The Issue Before The Court

The language of the “Affordable Care Act” expressly allows tax subsidies to residents of states that establish their own health insurance exchange.  Some states have been relatively successful at this: Kentucky, Connecticut, New York, and California.  But most states decided against setting up their own exchanges, 34 in all.  Other states — Oregon, Nevada, and New Mexico — tried to set up exchanges but failed and defaulted to the federal exchange.

House Speaker John Boehner and Senate Majority Leader Mitch McConnell each have appointed high-level task forces to come up with legislative solutions should the Court strike down the IRS rule.  They are committed to making sure an estimated six million people currently receiving subsidies in the federal exchange states can maintain their coverage and have better, more affordable options for health insurance going forward.

One of the key questions during oral arguments involved the principle of federalism:  Was the Congress trying to encourage the states to set up their own exchanges by making health insurance subsidies for their citizens conditional?

The government argues no.  It says the states always had the option of whether or not to set up an exchange and that Congress clearly intended subsidies to be available to citizens in all of the states.

But that is not what the legislative history shows.  New research shows congressional committees had and discarded language explicitly authorizing tax subsidies in the federal exchanges.  An analysis by an independent attorney shows that senators who were merging two committee bills in 2009 had language in front of them that would have allowed health insurance subsidies to flow through the federally established fallback exchanges.  But they took out that language in the final bill that went to the floor.

This gets to the core legal issue of “congressional intent.”  There are few principles of statutory construction more compelling than evidence showing Congress had the language before it to achieve a stated goal but discarded the language in the final legislation.

The bill that went to the Senate floor in December of 2009 and which ultimately was enacted was the product of a number of meetings to reconcile the Senate Health, Education, Labor, and Pensions and Finance committee bills.  The HELP bill, S. 1679, explicitly tied the availability of premium credits to its federal fallback exchange, called a “Gateway.”  According to the new analysis, there was “clear and explicit authorization that premium tax credits were also available through a ‘Gateway’ established by the Secretary of Health and Human Services.”  But that language was subsequently not included in the final version sent to the floor by the Senate Finance committee as S. 1796.  The Finance Committee version only explicitly authorized subsidies to flow through exchanges “established by the State.”

That is the point that MIT economist Jonathan Gruber made when he famously said: “If you’re a state, and you don’t set up an exchange, that means your citizens don’t get their tax credits.”  Professor Gruber has since retracted the statement, but the quote captures the plaintiff’s arguments.

Wall Street Journal editorial on March 2, 2015 also said:

As the Mountain States Legal Foundation and other amici briefs point out, previous versions of the Affordable Care Act extended subsidies to the federal exchanges too.  But that language was deleted in the secret negotiations to combine various Senate bills.  After Scott Brown’s Massachusetts special election ended the Democratic supermajority, Democrats accepted and President Obama signed the final Senate bill as the last helicopter out of Saigon.

The President cannot now unilaterally revise those details because they are politically inconvenient. Blessing this lawless behavior sets a dangerous precedent, handing the bureaucracy a license to reshape statutes without the consent of Congress. King is an opportunity for the Court to rebuke this growing merger of legislative and executive power.


Coercion Versus Illegality?

But Justice Anthony Kennedy said he thinks there may be a larger constitutional question in play.  He expressed concern that if the federal government really intended only to give subsidies to states that built their own exchanges, it could be an “unconstitutional form of federal coercion.”  Justice Kennedy “expressed deep concern with a system where the statute would potentially destroy the insurance system in states that chose not to establish their own exchanges,” according to SCOTUSBlog.  Because the subsidies are so integral to making the exchanges work, the government essentially would be forcing states to build them, Kennedy asserted.

Under this view, if the Court were to rule in favor of the petitioners and uphold the law as written, it would in effect be endorsing the federal government’s unconstitutional coercion of the states.  But as noted above, if the Court were to side with the government, it would be endorsing illegal activity by an administrative agency.  And it is not clear that the destruction envisioned from the absence of a state exchange would result:  The United States managed for nearly a century to have health insurance markets operating without the help of federal exchanges.

An estimated nine million people currently have health insurance through federal exchanges, one tenth the number of people in the country with private health insurance.  Given more freedom to work with health insurance companies to offer more flexible, affordable policies, the system could relatively quickly return to equilibrium.  Subsidies would be needed, especially for those with expensive medical conditions, but a new health insurance market would emerge for those currently in the exchanges – many of whom had their policies cancelled because they didn’t comply with ACA rules and mandates.

And Congress says it is ready to take legislative action: Sens. Orrin Hatch (UT), Lamar Alexander (TN), and John Barrasso (WY) penned an op-ed for The Washington Post on Monday in which they described their “plan to protect Americans harmed by the administration’s actions” and also to give “states the freedom and flexibility to create better, more competitive health insurance markets offering more options and different choices.”

The chairmen of the three committees with jurisdiction over the issue in the House – Reps. Paul Ryan (WI), Fred Upton (MI), and John Kline (MN) – wrote about their reform plans in The Wall Street Journal on Tuesday.  “What we will propose is an off-ramp out of ObamaCare toward patient-centered health care,” they wrote. “It has two parts: First, make insurance more affordable by ending Washington mandates and giving choice back to states, individuals and families. And second, support Americans in purchasing the coverage of their choosing.”

Congress’ first job would be to provide continuity of coverage for an estimated six million people. “It would be unfair to allow families to lose their coverage,” the senators wrote. “We would provide financial assistance to help Americans keep the coverage they picked for a transitional period.”  The House chairmen offer more detail about their plans for longer-term reform involving advanceable, refundable tax credits, and say they are open to further consideration of alternative approaches.

Tom Miller of the American Enterprise Institute explained that, even if millions would lose subsidies and be unable to afford the full price of exchange coverage if the Court were to rule against the government, millions more would be protected from the individual and employer mandates in those states, avoiding financial penalties and the significant economic disruption the subsidies have created:


If the Supreme Court agrees that the statute’s language limits those subsidies only to “an Exchange established by the State under [section] 1311” of the ACA, the federal tax credits will no longer be available in as many as 37 states that have failed to establish exchanges on their own for this year. Without exchange-based tax credits, the ACA’s employer mandate penalties in those states would no longer apply and the mandate could no longer be enforced. A much larger share of the residents of those states also would become exempt from the law’s individual mandate to purchase ACA-qualified coverage. For related reasons, a good portion of the ACA’s other federally required insurance rules would be weakened, if not fully negated.  …

First, markets soon would begin to adjust and adapt. Other sources of off-exchange coverage would develop that no longer needed to comply with many ACA rules (for example, catastrophic coverage, pre-ACA grandfathered plans, re-priced insurance premiums, or reconfigured benefits packages).

Second, some automatic time lags after the Court’s ruling would delay immediate effects.


States would have the option of setting up their own exchanges or accepting an offer from Congress that would provide continuity of coverage for their citizens without the enormously cumbersome superstructure of the ACA.  Miller argued that there will not be a “death spiral,” a term used during the oral arguments. “Officeholders in Congress and the states simply cannot and will not allow it to happen,” he wrote.  We trust the political process to solve the problem.

The Galen Brief

The Galen Institute submitted an amicus brief  in King.  We argue that the IRS usurped its authority and overturned longstanding norms of federalism in ruling that health insurance subsidies could be available through federally created exchanges.  Citing a significant number of previous decisions, the brief argues that Congress is expected to “speak clearly if it wishes to assign to an agency decisions of vast ‘economic and political significance.’” Instead, the IRS illegally made “major policy decisions properly made by Congress” in ruling in May of 2012 that health insurance subsidies could be available to those who enroll through federally-created exchanges.

Twenty-one state legislators joined the brief “based on their interest in opposing efforts by the federal government’s Executive Branch to impose policies in violation of the Affordable Care Act’s unambiguous text, under the overarching limits imposed by the Constitution.” All were in office when their states were deciding whether to create state health insurance exchanges. Their states have federally operated exchanges.  The brief argues that “the notion that the Federal Government may establish and operate astate agency ‘on behalf of the state’ is itself foreign to the concept of dual sovereignty.”

Regulation of health insurance has traditionally been a responsibility of the states, and the Affordable Care Act contained a number of provisions that reinforced that authority, including a choice of whether or not to establish an exchange. If a state did so, its citizens would receive subsidies, but its insurance markets would be subject to much greater federal control. The trade-off is that if the state did not establish an exchange, citizens and businesses in the state would be protected from most of the ACA’s mandates and financial penalties.

“The IRS Rule eliminated the statutory choice by imposing those tax burdens in all States – even those that declined to establish their own Exchanges.  The result is a more expansive exertion of federal regulatory control over health insurance than the statue authorized,” the brief states.  It cites previous case law that says, “If Congress intends to alter the ‘usual constitutional balance between the States and the Federal Government, it must make its intention to do so ‘unmistakably clear in the language of the statute.’”

Congress did not do that, making a strong argument that the Supreme Court should decide that the IRS Rule is illegal.

Grace-Marie Turner is president of the Galen Institute, a public policy research organization that she founded in 1995 to promote an informed debate over free-market ideas for health reform.

Originally published on Health Affairs Blog, March 5, 2015

Editor’s note: Watch Health Affairs Blog for more posts on King v. Burwell and the Supreme Court oral arguments in the case by Tim JostSara RosenbaumBill SageIlya Shapiro, and others. 

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4 replies
  1. Barb Zack
    Barb Zack says:

    THIS is what happens when you pass a bill before reading it, in essence, “passing the bill so you can see what’s in it”. Talk about government over-reach!!!

    the essay is long and complicated, and must be read more than once. The arguments before the Supreme Court are equally long and complicated. Will what is actually Constitutional prevail, or will this leviathian tax stand and get even worse?

  2. Ralph Howarth
    Ralph Howarth says:

    “It would be unfair to allow families to lose their coverage…” is too late as the ACA structurally caused millions to lose coverage by virtue of invalidating existing policies as unqualified to meet the ACA rules.
    The ACA is unconstitutional on 8 counts:
    Origination Clause A1 S7 C1–The ACA did not originate in the House.
    Uniform Tax Clause A1 S8 C1–The ACA makes taxes not apply equally among the states.
    General Welfare Clause A1 S8 C1–The ACA bail out provisions on health insurance companies encourages a moral hazard in business and impacts the particular welfare of a state jurisdiction rather than the general welfare of the whole country.
    Commerce Among the States Clause A1 S8 C3–The meaning of the word “regulate” here is “to make regular” and “to publish”. The ACA does not make health insurance industry all-or-none, regular by stipulating how rules are applied based on state behavior. And what about states that do not setup an exchange; but make it illegal for a federal exchange to operate? What about states that attempted to run an exchange and failed? What about states that run an exchange but statutorily shut it down? SCOTUS in NFIB v. Sebelius 2011 actually ruled this unconstitutional; but deferred the law as a tax.
    3 counts on the Limited Direct Tax Clause A1 S9 C4 –SCOTUS excused NFIB v. Sebelius 2011 as a “tax” but failed to examine just what kind of tax is constitutionally permissible. The fact is that the ACA rules are not taxes on income; but rather the Employer & Individual Mandates make a qualified direct tax on employers that do not provide coverage and people who do not buy insurance. Subsidies make a direct tax on full time employment. The constitution requires all direct taxes to be apportioned unless it is a tax on income.
    Reserved Powers Clause 10thA C1–The ACA causes the federal government to become a health insurance marketing establishment, something that is not enumerated in A1 S8 and so is reserved to the states.


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