Constitutional Arguments in King v. Burwell

In King v. Burwell the government contends that the ACA requires the government to provide subsidies for families to purchase health insurance in all the states, while the challengers assert that the statute authorizes subsidies only in those states that established their own exchanges for the purchase of health insurance.

In this post I set forth the relevant statutory provisions and describe some of the powerful constitutional arguments that the government raised during oral argument in King v. Burwell that were intended to sway practical men like Justice Kennedy and Chief Justice Roberts. In a later post I will address some of the more subtle textual arguments that were intended to persuade a textualist like Justice Scalia.

Section 1311 of the Affordable Care Act provides that "Each state shall ... establish an ... 'Exchange' ... for the state that facilitates the purchase of qualified health plans."

Section 1321, entitled "State Flexibility in operation and enforcement of Exchanges and Related Requirements" provides that if a state elects not to create an exchange or if the federal government determines that a state has not taken sufficient steps to create an Exchange, then the federal government "shall, directly or through agreement with a not-for-profit entitly) establisha and operate such Exchange within the State ...."

Section 1401 of the Affordable Care Act governs the "refundable tax credit" -- basically the federal subsidy -- that families may use to purchase health insurance. Subsection (a) of Section 1401 says that this credit "shall be allowed" to any "applicable taxpayer."  Subsection (b)(2) defines the amount of the tax credit that the government must pay. That subsection states:

The premium assistance amount determined under this subsection with respect to any coverage month is the amount equal to the lesser of (A) the monthly premiums for such month for 1 or more qualified health plans offered in the individual market within a State which cover the taxpayer, the taxpayer's spouse, or any dependent (as defined in Section 152) of the taxpayer and which were enrolled in through an Exchange established by the State under 1311 of the Patient Protection and Affordable Care Act, or (B) the excess (if any) of (i) the adjusted monthly premium for such month for the applicable second lowest cost silver plan with respect to the taxpayer, over (ii) an amount equal to 1/12 of the product of the applicable percentage and the taxpayer's household income for the taxable year. (emphasis added)

The persons challenging this law contend that the words I placed in boldface in Section 1401 should be interpreted to mean that the government's tax credits for health insurance are available only to taxpayers in one of the 16 states that set up their own exchanges, and that these credits are not available in the 34 states that use HealthCare.gov as their exchange.

Here are several of the government's most visible arguments in support of the proposition that the Affordable Care Act should be read as meaning that the subsidies are available to taxpayers in every state. Each involves an element of Constitutional Law. These include:

1. The "Pennhurst" argument. In Pennhurst State School v. Halderman (1984) the Supreme Court prohibited the federal government from withholding funding from Pennhurst State School and Hospital, a state institution for persons with developmental delays. The Pennhurst Court stated;

Congress must express clearly its intent to impose conditions on the grant of federal funds so that the States can knowingly decide whether or not to accept those funds.

In this case the "conditional withhold" of federal funds from citizens who live in states served by the federal Exchange is not "clearly expressed" in the federal statute. Instead it is hidden away in a technical provision defining the amount of the subsidy. Accordingly any "conditional withhold" of those funds violates the "clearly expressed" requirement of Pennhurst.

2. The "No Coercion" argument. In NFIB v. Sebelius the Supreme Court struck down a provision of the Affordable Care Act that provided that the federal government could take away all of a state's funding for Medicaid unless the state agreed to expand Medicaid to include all persons earning below 133% of the Federal Poverty Level. In an opinion written by Chief Justice Roberts the Supreme Court ruled that expanded Medicaid was a different program than original Medicaid, and that the government could not punish the state for not accepting funding for one program by cutting off funding for a different, unrelated program. Justices Scalia, Kennedy, and Alito took a much broader view of the "no coercion" rule, and would have struck down the entire expansion of Medicaid on the ground that the states had no choice but to accept the massive amounts of federal funding associated with that program.

Furthermore the burden on the states that chose not to set up an Exchange would not be limited to its citizens losing their tax credits. As a consequence, healthy people would no doubt decide not to purchase health insurance, triggering a "death spiral" of higher premiums and additional adverse selection. The attorney for the challengers in this case admitted as much when he argued against the Affordable Care Act in 2012, a point that Justice Kagan, Justice Ginsburg, and Chief Justice Roberts reminded him of during oral argument.

Obviously the federal government did not wish to argue that the entire system of tax credits established by the ACA was "coercive" on states and therefore unconstitutional -- only that such an interpretation likely did not reflect the intent of Congress which had promised "State flexibility in operation and enforcement of Exchanges."

3. The "Constitutional Avoidance" argument. In a number of cases in recent years the Supreme Court invoked the "Canon of Constitutional Avoidance." Northwest Austin Municipal Utility District 1 v. Holder (2009) (Roberts, C.J.); Ricci v. DeStefano (2009) (Kennedy, J.) This is a rule of statutory construction that requires that if a statute is susceptible of two interpretations -- one constitutional and the other unconstitutional -- the courts must adopt the interpretation that renders the statute constitutional. The principle can also be taken to mean that if one reading of the statute would raise "grave constitutional difficulties" then the other "more safe" interpretation should be adopted.

If the Supreme Court were to invoke this canon it would help the federal government -- it would influence the Court to interpret the law to permit or require the federal tax subsidies to be paid to American citizens in all the states in order to avoid the constitutional difficulties presented by the doctrine of Federalism under the Pennhurst argument and the "no coercion" rule.

4. The "Chevron" argument. Another argument that apparently appealed to Justice Kennedy and Chief Justice Roberts during oral argument was the "Chevron" argument, named after the decision of the Supreme Court in Chevron USA v. Natural Resources Defense Council (1984). In that case the Supreme Court ruled that if a statute is ambiguous then an administrative agency that is charged with the authority to enforce that statute has the power to adopt any "reasonable" or "permissible" interpretation of it. The federal government argued and Justice Kennedy and Chief Justice Roberts appeared to agree that the Internal Revenue Service had the authority to construe this provision of the Affordable Care Act, and the federal government conceded that Section 1401 of the Act, standing by itself, was ambiguous. In response to a question from Chief Justice Roberts, however, the federal government, however, did not concede that the provision was ambiguous when viewed in context, taking into account the law as a whole:

Chief Justice Roberts: If you're right about Chevron, that would indicate that a subsequent administration could change that interpretation?
General Verrilli: I think a subsequent administration would need a very strong case under step two of the Chevron analysis that that was a reasonable judgment in view of the disruptive consequences. So as I said, I think you can resolve and should resolve this case because the statute really has to be read when taken as a whole to adopt the government's position.

These four practical arguments are likely to appeal either to Justice Anthony Kennedy (who is deeply committed to Federalism and limiting the power of the federal government) or to Chief Justice John Roberts (a careful jurist drawn to narrow grounds of decision in the mode of former Justice Felix Frankfurter).

In the next post I will focus on a couple of the government's textual arguments that have flown under the radar, but that greatly strengthen the government's position and that might even persuade Justice Scalia to uphold this law.