Section 1311: How The Supreme Court Could Still Trash Obamacare

I think it’s likely that, in the future, “section 1311” be as familiar a phrase to my people1 as “hanging chad.”

Michael Cannon and Jonathan Adler are leading the charge on this issue on the right. They write:

To advance the PPACA’s goal of expanding access to health insurance, Section 1311 directs states to establish health insurance “exchanges” where residents may purchase qualifying insurance plans. Section 1321 authorizes the federal government to create Exchanges where states do not.

Due in large part to the PPACA’s insurance regulations, qualifying health plans offered through the Exchanges will be rather expensive. Thus the Act authorizes tax credits that shift much of the cost of those plans to the federal government. Those tax credits trigger additional “cost-sharing” subsidies (which further shift costs to taxpayers) as well as penalties against employers under the law’s employer mandate.

The dispute is over whether the Act authorizes the IRS to provide tax credits only in Exchanges established by states (under Section 1311) or also in Exchanges established by the federal government (under Section 1321).

Samuel Bagenstos replies:

Cannon and Adler’s argument, taken up by Oklahoma in its lawsuit, is deeply flawed as a matter of law. Their basic argument is this: In Cannon’s words, the provision of the ACA that establishes premium tax credits “explicitly and laboriously restricts tax credits to those who buy health insurance in Exchanges ‘established by the State under section 1311.’ There is no parallel language – none whatsoever – granting eligibility through Exchanges established by the federal government (section 1321).”

But that is not quite right. Although the tax-credit provision twice uses the phrase “Exchange established by the State under section 1311,” see 26 U.S.C. § 36B(b)(2)(A), (c)(2)(A)(i), that phrase does not have the exclusionary meaning Cannon attributes to it. That is because Section 1321 (codified at 42 U.S.C. § 18041) makes clear that, when a state fails to set up an exchange, the federally-operated exchange will stand in the shoes of the state exchange for purposes of Section 1311. Thus, Section 1311 provides that “[e]ach State shall” set up an exchange by January 1, 2014. 42 U.S.C. § 18031(b)(1). Section 1321 provides that if a state “will not have any required Exchange operational” by then — that is, an exchange required by Section 1311 — then the federal government “shall (directly or through agreement with a not-for-profit entity) establish and operate such Exchange within the State.” 42 U.S.C. § 18041(c)(1) (emphasis added). “[S]uch Exchange” in Section 1321 clearly refers to the “required exchange” — that is, the Section 1311 exchange. When the federal government operates an exchange pursuant to Section 1321, then, it is not operating some wholly foreign entity; it is operating the state exchange that Section 1311 required the state to set up but that the state failed to create. Because Section 1321 provides that a federally-operated exchange will stand in the shoes of a state-operated exchange created by Section 1311, there is no basis for denying participants in federally-operated exchanges the same tax credits obtained by participants in state-operated exchanges.

The IRS’s interpretation of the ACA to extend premium subsidies to participants in both state- and federally-operated exchanges thus seems to me not merely a permissible one but also the most plausible reading of the statutory text.

If this issue has legal legs – and liberals who have predicted that the Courts would refuse to grant standing have already been proven wrong – then it will eventually wind up in the Supreme Court. If the Court rules that the IRS has no right to implement subsidies for the Federal exchanges, then that wouldn’t entirely destroy Obamacare, but it would significantly gut Obamacare.

The arguments on the merits are interesting (well, to me, anyway), and if you’re interested in reading up on that, I’ve provided a whole bunch of links at the bottom of the post.

In the end, a lot of the argument boils down to what the Senate intended; Cannon and Adler argue that Senators never intended for the federal exchanges to include access to subsidized insurance.

In the New Republic, Johnathan Cohn has the same reaction I did:

…the argument strikes me as even more preposterous than the original lawsuits challenging the law. No sentient being following the health care debate could argue, in good faith, that Obamacare’s architects intended for the federal government to set up exchanges without subsidies. It would completely subvert the law’s intent.

But the thing is, the Conservatives who are arguing that are completely capable of convincing themselves of that “in good faith,” just as they’re completely capable of believing that climate change is a myth propagated by a conspiracy of lying climatologists who hate modernism and wish to bring about a new stone age in America. There are some exceptions, but generally, the more intelligent a conservative is, the more he or she is capable of convincing themselves that genuinely ridiculous propositions are true.

To his credit, Cohn goes on to say:

Then again, I didn’t expect the last lawsuit challenging the Affordable Care Act to make it all the way to the Supreme Court, let alone come within one very narrow vote of succeeding. So what the heck do I know?

Kevin Drum says “over the past decade [the Supreme Court] has become almost completely politicized. In big cases, the justices simply decide what result they want and then write language justifying it. For that reason, I suspect that the purely legal arguments here don’t matter very much.”

I agree with that, to an extent. I think there are three things influencing what the Justices believe: 1) The substantive legal arguments, 2) the judge’s desired outcome, and 3) how badly does the judge desire that outcome?

So in a case like Bush v. Gore, where the judges wanted a particular outcome very intensely (because determining who won the election would determine who appointed the next batch of Supreme Court judges, which would in turn determine the Conservative majority’s legal legacy – and that matters to them far more than any other consideration), the five conservatives were willing to make genuinely ludicrous legal arguments in service of their desired outcome. But in other cases, with less at stake, arguments on the legal merits can carry more weight.

Furthermore, when we talk about “the judges desired outcome,” that desire isn’t only partisan. Judges desire partisan outcomes, but they also desire to be perceived as objective authorities, rather than perceived as partisan hacks. Roberts, as Chief Justice, wants not only himself as an individual but the Roberts Court as an institution to not be seen as an arm of the GOP. My guess is that Roberts didn’t overturn the ACA when he could is that he worried that openly destroying a sitting Democratic President’s primary political objective, based on novel legal arguments, would cement the impression that Roberts and his court, far from being wise and objective judges above the political muck, are just another grubby bunch of partisans.

Which brings us to where I disagree with Drum. Drum writes:

There’s a sense in which Chief Justice John Roberts “owns” Obamacare, since he was the swing vote that ruled it constitutional last year. Given this, how likely is it that a mere year or two later, he’ll be willing to cast a vote that cripples the law? Sure, this time around the legal case is different, but it still boils down to the same basic question: will the law go forward? Having already ruled once that it can, I’m not sure he’ll be open to letting opponents take a second bite at the same apple. Stripped to its core, conservative lawyers are pressuring Roberts to admit that he was wrong in 2012, and I’m not sure he’ll be willing to cave in to that pressure.

Of course, speculating what’s going on in any judge’s mind is a fool’s game. But so is blogging, so speculate I will. And we do know how John Roberts wishes to be seen by the public, because he told us so himself, during his confirmation hearings:

Judges are like umpires. Umpires don’t make the rules; they apply them.

The role of an umpire and a judge is critical. They make sure everybody plays by the rules. […]

I have no agenda, but I do have a commitment. If I am confirmed, I will confront every case with an open mind. I will fully and fairly analyze the legal arguments that are presented. I will be open to the considered views of my colleagues on the bench. And I will decide every case based on the record, according to the rule of law, without fear or favor, to the best of my ability. And I will remember that it’s my job to call balls and strikes and not to pitch or bat.

It is unquestionable, looking at his record, that Roberts is a committed conservative. But he doesn’t want to be seen that way; he wants to be seen as without agenda, an umpire merely calling the balls and strikes without regard to his own desired outcomes.

So, contrary to Drum, I don’t think Roberts sees himself as owner and defender of the ACA. Rather, I think it will be very tempting for Roberts – who, in his own view, has now firmly established that he is NOT a partisan hack on the subject of Obamacare – to do whatever damage to the ACA he can. This will both be good for Robert’s desired image as a neutral umpire (“neutral” in the sense of being willing to be either pro- or anti- ACA), and also also good for his desire to have conservative outcomes on the Court.

There are also other factors at play, so maybe Roberts will again vote against gutting Obamacare. But I think Drum’s analysis overestimates by miles Robert’s incentive to defend Obamacare. If the five conservatives on the Court decide that the Senate clearly intended that subsidized health insurance would not be available on the Federal exchanges, I would be appalled – but not shocked.


Further reading, from folks on all sides of the Section 1311 issue:

  1. Congressional Research Service: Legal Analysis of Availability of Premium Tax Credits in State and Federally Created Exchanges Pursuant to the ACA (note that this is a pdf link).
  2. Tax Credits In Federally Facilitated Exchanges Are Consistent With The Affordable Care Act’s Language And History – Health Affairs Blog
  3. Health Reform Law Makes Clear That Subsidies Will Be Available in States with Federally Operated Exchanges — Center on Budget and Policy Priorities
  4. How the Court Case Against Obamacare Subsidies Stacks Up | RealClearPolitics
  5. ObamaCare’s Next Legal Challenge – Executive Branch Project
  6. The Illegal IRS Rule To Expand Tax Credits Under The PPACA: A Response To Timothy Jost – Health Affairs Blog
  7. Obamacare’s Next Bout: More Legal Challenges — The American Magazine
  8. Yes, the Federal Exchange Can Offer Premium Tax Credits : Health Reform Watch
  9. The Illegal IRS Rule on Health Insurance Exchanges – A Reply to Bagenstos | The Volokh Conspiracy
  10. Balkinization: The Legally Flawed Rearguard Challenge to Obamacare
  11. Obamacare Repeal Unlikely Now, Critics Are Trying to Cripple It | New Republic
  12. Disability Law: A Rejoinder to Michael Cannon Re the Rearguard Challenge to Obamacare
  13. First, Last, and Always, Obamacare is About Politics | Mother Jones. (I know I already quoted from this in my post, but Drum says quite a lot that I don’t quote or address.)

The cartoon at the top of the post is by the great Tom Toles.

  1. By “my people,” in this instance, I mean those of us who are addicted to watching the ins and outs of US politics, even though we’d be far better off as people if we engaged in some other activities instead. Need our fix. Need our fix. Gotta have our fix. Check for updates. []
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One Response to Section 1311: How The Supreme Court Could Still Trash Obamacare

  1. 1
    RonF says:

    No sentient being following the health care debate could argue, in good faith, that Obamacare’s architects intended for the federal government to set up exchanges without subsidies. It would completely subvert the law’s intent.

    That would be believable if what had happened was that the bill was read through in it’s entirety, thoughfully considered and it’s intent, mechanism and expected outcomes were thoroughly debated by all the legislators involved. But when you have the Speaker of the House telling the world “We have to pass the bill to find out what’s in it”, I think that basing a judgement of the intent of the bill based on what the legislators’ understanding of it’s content was is specious.