Is the Affordable Care Act on Life Support? Maybe.

Here's my quick take on this and why I think the Supreme Court will agree with DC Circuit Court of Appeals and strike a lethal blow to the Affordable Care Act. 

In short, section 1411 of the Affordable Care Act specifies that premium assistance can only be given to exchanges established by a State under section 1311. An exchange established by the Federal Secretary of Health and Human Services under section 1321 does not qualify according to the letter of the law. But when the IRS issued implementing regulations the agency interpreted "established by the State" to mean any exchange operating in the State.

That's the point of contention. Today, the DC court said the IRS overstepped its authority and violated the clear letter of the law. The 4th Circuit disagreed and said section 1401 is "ambiguous" and as such the IRS was free to interpret the true meaning and the courts should defer.

I really don't think that the 4th Circuit's "ambiguous" argument will pass muster in the Supreme Court. A 5 vote majority would likely decide that section 1411 was not ambiguous and not even in error as the wording is repeated in the Definitions section of the Affordable Care Act. So twice, Congress stipulated that subsidies were only available to those who enrolled in an exchange established by the State under section 1311.

If this is upheld by the Supreme Court then much of the Affordable Care Act and the attempt to reach near-universal coverage will essentially die. There are over two dozen states that never established exchanges and millions in those states would lose their subsidies and then their insurance. And there would be no bare bones, low cost alternatives available because of the minimum benefit standards established by the law.

It would be a nightmare, but a nightmare of Congress' making. All of the normal procedures for legislating were pushed aside in the push to enact the law after losing the filibuster-proof majority in the Senate. No amendments were allowed, no conference committee appointed, no opportunity to look for problematic language. I warned of this back in March of 2010 in a post titled "Why Process Matters" in which I wrote of the Affordable Care Act "It will face years of legal challenges and likely deeply entrenched public opposition. Worse, the manner in which the bill is being pushed may allow for errors or inconsistencies in the law that could weaken or undermine it in unanticipated ways. The normal process may cause delays and be fraught with obstacles, but it exists to protect the public and to promote sound legislation.

Suddenly the 2014 midterms take on a new meaning. If the Supreme Court does strike down the subsidies Obama may have to go to a GOP House and Senate to seek a legislative solution. I expect they extract a heavy price.


Below are key excerpts from the law with certain crucial sections highlighted.

The key comes down to the use of the word "State" in SEC. 1401. REFUNDABLE TAX CREDIT PROVIDING PREMIUM ASSISTANCE FOR COVERAGE UNDER A QUALIFIED HEALTH PLAN. Which explains, "Premium assistance amount.--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."

Section 1311 specifies all the ways in which a State can establish an exchange. At no point in Section 1311 is the Federal Exchange ever mentioned.

The Federal Exchange is first mentioned several sections later in SEC. 1321. STATE FLEXIBILITY IN OPERATION AND ENFORCEMENT OF EXCHANGES AND RELATED REQUIREMENTS.

Which reads:

Failure To Establish Exchange or Implement Requirements.--
            (1) In general.--If--
                    (A) a State is not an electing State under
                subsection (b); or
                    (B) the Secretary
                determines, on or before January 1, 2013, that an
                electing State--
                          (i) will not have any required Exchange
                      operational by January 1, 2014; or
                          (ii) has not taken the actions the Secretary
                      determines necessary to implement--
                                    (I) the other requirements set forth
                                in the standards under subsection (a);
                                or
                                    (II) the requirements set forth in
                                subtitles A and C and the amendments
                                made by such subtitles;
       THE SECRETARY SHALL (directly or through agreement with a not-
        for-profit entity) ESTABLISH and operate such Exchange within
        the State and the Secretary shall take such actions as are
        necessary to implement such other requirement."

So there you have it. The law clearly says that subsidies are available to those enrolled in exchanges established by the State as the language regarding the federal exchange comes several sections later and refers to the Secretary establishing it...

The court is being presented with a case of the letter of the law v. the intent of the law. If a court thinks the letter is clear it will trump the intent.

The Real Force Behind the Hobby Lobby Decison is the Religious Freedom Restoration Act - Not Five Justices

I've been reading the majority opinion in the Hobby Lobby case and it's just fascinating. But the press coverage and talking head rhetoric is so hyperbolic, discussion of the majority's reasoning are all but absent. I wanted to understand it. What I've learned is that many folks have no idea what the case was really about or what the court was being asked to decide. Folks clearly have no knowledge of the Religious Freedom Restoration Act which is the legislation at the heart of all of this.

I will not engage in any discussion of the impact of the ruling. And I'm certainly not saying it was a good decision or a bad decision. Please do not read anything into what I've written. As I said, I'm just exploring the logic behind the ruling.

First and foremost, a critical thing to understand at the outset is that sole proprietorships and general partnerships were already recognized as individuals and as individuals they could seek an exemption from contraceptive mandate under the Religious Freedom Restoration Act (RFRA) of 1993.  Non-profit religious organization were also able to request exemptions. I've heard a lot of people say variations of "employers shouldn't be making health care decisions for employees." But that was already happening and was specifically allowed. It is estimated that approximately 30% of employees work for employers exempted from the contraceptive mandate. In fact, a lower court Judge argued that so many employers have been exempted from the mandate that the Obama Administration could not claim there was a compelling state interest in imposing the mandate.

Many talking heads are saying that in the Hobby Lobby case the court "again" decided that corporations were people with rights. But that's incorrect. In the Hobby Lobby case the majority didn't grant the contraceptive exemption based on corporations being "persons" with religious freedom under the RFRA. In the Hobby Lobby case, the Supreme Court acknowledged that corporations are fictitious persons. But in a closely held corporation where 5 or fewer people own the majority of the company the court majority ruled that when government compels the corporation to do something it is really compelling those 5 people to do something - there is no diffuse ownership. In that case, the RFRA protections apply. So the Hobby Lobby decision basically said that in closely held corporations the fictitious person gives way to actual persons. Remember, it's already established and accepted that individuals, sole proprietorships, and general partnerships can seek exemptions based on religious beliefs under the Religious Freedom Restoration Act. It just wasn't settled whether for-profit corporations could. Alito essentially bypassed that issue by saying that we're really dealing with individuals.

From the ruling: "A corporation, being a fictitious construct with no real existence in the context of a closely-held corporation, is too slight and gossamer a thing to put any weight upon as far as distinguishing burdens placed on it and burdens placed on its owners."

In other words, if individuals, sole proprietors, or general partnerships can seek an exemption then the owners of a closely held corporation could as well as they are little different from general partnerships.  In a general partnership and a closely held corporation - you are essentially dealing with individuals.

Justice Alito wrote in his opinion that he can't imagine there are any large corporations (many people owning the majority of stock) that would be able demonstrate eligibility for a religious exemption. Ownership of large corporations is so widely diffused that there is really no way to demonstrate that the "owners" are being asked to violate their beliefs. Alito also said that this was a narrow ruling and it would not open the door for corporations to seek exemptions from other services like immunizations or blood transfusions.

Justice Ginsburg argued in her dissent that the ruling was actually quite broad and it opened the door to all sorts of religious exemption claims. She also argued that for-profit corporations cannot claim religious exemptions because they are first and foremost organized for competition  and customers in the commercial market place and not for the primary purpose of serving their religious beliefs or serving fellow adherents to their religion. Interestingly, Justices Breyer and Kagan did not sign on to Justice Ginsburg's dissent, specifically the part where Ginsburg addressed the corporation question.

So that's pretty much it. This case was never really about the right to access to contraceptives, that wasn't the issue before the court. The case revolved around the Religious Freedom Restoration Act and whether its protections applied to corporations like the Hobby Lobby. As Paul Horowitz wrote in today's New York Times,

"The decision in Hobby Lobby was no shock to anyone familiar with the heavy weight that the Religious Freedom Restoration Act places on religious accommodation. The fate of the case was sealed 21 years ago — not by a slim majority of the court, but by virtually every member of Congress. "

The RFRA already established that folks could claim a religious exemption. And roughly 30% of all employees in the US were already exempt from the mandate. The majority of the court determined that that the owners of closely held corporations have the same protections as similar non-incorporated employers.

The real issue here is not the ruling of 5 Justices, the real issue is a very broad piece of legislation enacted in 1993 - the Religious Freedom and Restoration Act.  In my book, American Government and Popular Discontent, I write that Congress has increasingly come to rely on broadly written legislation. They do so because specificity creates openings for dissent and division. As a result of broad and ambiguous laws it often falls on the courts to determine what the law actually means.

Many of the folks who voted for the Religious Freedom Restoration Act are still in Congress (There is even an e-mail in which Elena Kagan, while working for President Clinton 1999, celebrated the act). Some are now saying they never intended it to be so broadly applied. Sorry, but that just doesn't fly. When you vote for an ambiguous law, when you opt to skip specificity just to ensure passage and avoid controversy, you must accept some responsibility when a court is called upon to provide that specificity.