The latest somersaults and contortions over Obamacare last month spread from courtrooms to the blogosphere, with another round of regulatory “adjustments” not far away. The common principle followed by the health law’s most energetic advocates appears to be the whatever-it-takes motto of the late Oakland Raiders owner Al Davis, “Just win, baby!”
A pair of federal appellate court decisions on July 21 (Halbig v. Burwell and King v Burwell) sent Obamacare backers cycling through at least the first three stages of grief (anger, denial, and bargaining) over the potential loss of tax credit subsidies for states with federal-run health exchanges, along with the likelihood of further unraveling of the health law’s interrelated scheme of coverage mandates and tighter insurance regulation. A 2-1 majority ruling in Halbig delivered the latest blow to the Affordable Care Act, by deciding to vacate a 2012 Internal Revenue Service rule that attempted to authorize such subsidies.
The loudest voices among the flock of pro-ACA court watchers had previously declared such a judicial decision all but “inconceivable.” For example, Henry Aaron of the Brookings Institution termed these legal challenges to Obamacare as absurd, crazy, and wacky in an April 1, 2014 New England Journal of Medicine article. Jonathan Gruber of MIT and a key architect of both Massachusetts-based Romneycare and its cloned twin Obamacare called the tax credit theory behind the cases “screwy,” “nutty,” “stupid,” “unprecedented,” and “desperate” (but that depends on which version of Gruber one chooses to sample).
Tim Jost of the Washington and Lee University School of Law and a frequent blogger on this issue at Health Affairs, continues to be often wrong, but never in doubt—at least until later events require some modest repositioning. In July 2012, he flatly asserted that “these claims are simply false” regarding contentions that final IRS rules to enable premium tax credits through federal exchanges are unauthorized by law. Jost further opined that the only viable challengers with legal standing to contest the IRS rule would be employers failing to offer their employees insurance (or at least affordable or adequate coverage), but that any such challenges would be barred by the Tax Anti-Injunction Act until probably sometime in 2015.
After those predictions (particularly regarding standing) did not exactly pan out in several federal district court cases, and a three-judge panel in the U.S. Court of Appeals for the District of Columbia appeared open to the plaintiffs’ arguments in the spring of 2014, Jost grudgingly conceded in early July that “[i]f that happens, their success will be short-lived” because another federal appellate court in the 4th Circuit seemed poised to uphold the IRS rule and “the entire D.C. Circuit is likely to reverse the three-judge panel if it issues such an outlier ruling.” An even-more-confident Jost concluded to Business Insider on July 8, “I don’t see this ever getting to the Supreme Court.”
The D.C. Circuit court panel ruled on July 22 that tax credits in federal exchanges were illegal. Professor Jost recalibrated quickly in a Health Affairs blog post on July 23: “This litigation poses a very serious challenge to the ACA.” But by the time he published his next article in the New England Journal of Medicine on July 30, Jost had regained his earlier confidence, arguing that “ultimately,” the courts are likely to defer to the IRS interpretation of the law. Along the way, he even managed to describe the sponsors of the plaintiffs’ lawsuits in Halbig and King as the “antigovernment” Competitive Enterprise Institute. (Can a footnote to the Alien and Sedition Acts be far away?)
In any case, Obamacare supporters now are banking on overturning the decision in Halbig through a motion for en banc review by the entire set of eleven active appellate judges in the D.C. Circuit (and the two other senior judges who sat on the case), which, if successful, thereby might head off a quick review of the legal issues in the case at the U.S. Supreme Court.
This strategy is based on several facile, but shaky, assumptions. First, it expects the D.C. Circuit to make an unusual exception to its recent history of rarely granting en banc review, particularly in cases where there is no conflict in past precedents within the circuit, no issues of constitutional law at stake, and little more than a potential disagreement on the merits of how provisions of statutory law and administrative regulation are interpreted. Second, it presumes that the Supreme Court will not decide to grant review, in any case, of the 4th Circuit’s decision in King, as the losing appellants in that case quickly requested on July 31. Third, it relies on a majority of D.C. Circuit judges to act like politically loyal subordinates, simply because they were appointed to the bench by Democratic presidents (including three Obama-selected judges finally pushed through the Senate late last year under new procedural rules limiting filibusters against administration nominees). Of course, when Republican-appointed judges rule against Obamacare provisions, that apparently constitutes “partisanship.”
This legal strategy by the Obama administration’s lawyers is quite different from their stance several years ago in the constitutional challenges to the ACA’s individual mandate, when there was no effort to seek an en banc review, and delay an appeal to the Supreme Court, of the 11th Circuit’s decision overturning the mandate by a 2-1 majority in Florida v. HHS. However, it is much more consistent with the Obama administration’s approach to the more recent challenges to tax credits in federal exchanges, which is to delay and drag out the resolution of those legal issues as long as possible, while implementation of the law proceeds. Indeed, Justice Department attorneys even filed an unusual motion prior to the ruling in Halbig, suggesting that any such decision would apply only to the original plaintiffs in the case—contrary to usual practices in such matters. In contrast, the private plaintiffs challenging the IRS rule authorizing federal exchange tax credits have highlighted the urgency of reaching final decisions as soon as possible at each stage of the litigation.
One indication of whether this thinly-disguised political gambit by Obamacare advocates is likely to succeed will involve the timing of any decision in the D.C. Circuit regarding the motion for en banc review. If no decision appears relatively quickly (such as by next month), it might suggest that the judges are waiting to see first if the Supreme Court will decide to grant the King appellants’ request for an appeal, when its justices reconvene for their fall term in early October.
In the meantime, Obamacare strategists are not placing all their bets on the courts. Within days of the Halbig decision, several pro-ACA voices urged HHS officials to rewrite the rules regarding what constitutes an “exchange established by a state” in order to rebrand many states currently with “federal” exchanges as eligible for tax credits after all. For example, a state could appoint a state-incorporated entity to oversee and manage its “new” exchange, while indirectly contracting with the federal government’s Healthcare.gov infrastructure to operate most of it on the back end.
On July 26, healthcare exchange consultant Jon Kingsdale, who was the founding executive director of the country’s first health benefit exchange in Massachusetts, recommended:
If it comes to this—an adverse Supreme Court ruling in 2015—CMS should re-define in regulation a State-Based Marketplace to include any public exchange established by either executive order of the Governor or state legislation that relies entirely on the FFM [Federally Facilitated Marketplace] for its operations and policy-making. So the hold-out governors would face Jon’s dilemma on steroids; either issue an executive order and appoint a fig-leaf Marketplace board in order to enable hundreds of thousands, if not millions, of their modest-income voters to maintain their tax credits—or continue to wave the bloody shirt.
His advice was echoed later that day by Joel Ario, former director of the Office of Health Insurance Exchanges at the Department of Health and Human Services from 2010-2011:
It would be good to lock down the regulatory details now and take the wind out of the Halbig sail preemptively. There are some regulatory details that have remained murky since 2011 for the good reason that the partnership policy has been an evolutionary one, but now would be a good time to be clear about precisely how easy it is for a Governor to establish an exchange.
Of course, even these proposed regulatory bypasses confront some limits. State laws may require legislative consent, not just a governor’s executive order. Local politics remain unpredictable (see “Medicaid expansion” in various states). Even a thinly established “state” exchange has to ensure that it carries out a number of ACA-required tasks. And additional state funding to operate a new exchange might be hard to find.
However, the Obama administration rarely takes “No” for an answer when it comes to ACA implementation. In the case of state exchanges, it essentially ignored several previous statutory deadlines for their approval and also invented federal partnership exchanges out of thin air. Keep in mind that it already has unilaterally delayed, ignored, or redefined dozens of other statutory requirements under the health law passed by Congress in March 2010. Just last month, administration rule makers at HHS completely reversed their own earlier interpretation of the insurance rules governing U.S. territories, in part to attempt to undercut belatedly one of the arguments against the IRS rule for federal exchange tax credits that was challenged in Halbig and King.
In short, the legal challenge ahead remains likely headed to the Supreme Court but opponents of the IRS rule must overcome four additional hurdles. (1) It is hard to keep hitting a moving, shape-shifting target. (2) The administration’s legal strategists hope to keep running out the clock while more Americans become increasingly dependent on Obamacare’s highly subsidized and heavily regulated insurance arrangements. (3) Obamacare critics need to focus more thoroughly on developing credible and sustainable health coverage alternatives to the ACA exchanges they rightfully criticize. (4) Obamacare advocates will resist at all costs allowing any votes in the Democratic-controlled Senate on an unpopular law that was haphazardly designed, deceptively marketed, and barely approved more than four years ago.
In the meantime, there is one health benefit that should be mandated for the Obama administration’s health policy makers and their remaining defenders: coordinated coverage to mitigate their gall.
Tom Miller is a resident fellow at the American Enterprise Institute.
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