Follow the FreeStater Blog by Email

Tuesday, July 22, 2014

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.