Why the Supremes Need to Scrap Obamacare's Federal Exchange Subsidy

The court's job is to enforce the law as written, not fix it


Last week's oral arguments for King vs. Burwell, the latest legal challenge to Obamacare before the Supreme Court, confirmed one thing: The law, as written, is a complete mess. The justices might be tempted to take it upon themselves to straighten it out to avoid disrupting coverage for millions of Americans, but that's really not their job. The Obama administration will no doubt disagree, but the most appropriate—and the least political—course for the justices would be to overrule the contested portion of the law and let Congress rewrite it.

At issue in the lawsuit is the legality of the billions of dollars in subsidies that the Internal Revenue Service is doling out through federal exchanges in about 35 states that refused to set up their own exchanges. The challengers claim that the law explicitly limits these subsidies to state, not federal, exchanges. As evidence, they point to Section 1311 of the Affordable Care Act, which states that subsidies should flow through exchanges "established by the State"—not "for the State" or "within the State" or myriad similar constructions. The logic behind this, they note, was to give states an incentive to establish their own exchanges, saving Uncle Sam the herculean task of doing so in 50 states. Also, the administration was eager to avoid the impression that it was engineering a federal takeover of the health care system, something that might well have scared away enough legislators to derail the law, given that it squeaked through narrowly on a strict party line.

The administration hotly disputes this. It notes that Section 1311 can't be interpreted in isolation from the broader purpose and structure of the law. Federal exchanges that are barred from handing out subsidies are doomed to fail, they point out, hardly something Congress could have intended. Why? Because they would attract only sick patients, especially since the cost of coverage on them is fairly high—thanks to Obamacare's mandates requiring insurance companies to offer guaranteed coverage, regardless of pre-existing conditions. Hence, young and healthy patients, despite being mandated to purchase coverage, could well decide to simply pay a penalty and sit it out, sending the exchange into an adverse selection death spiral as coverage prices rise, driving more healthy people out of the market.

But regardless of which interpretation the court upholds, it runs into massive federalism problems.

Many states hate the law's penalties on their employers more than they love its subsidies. However, the penalties only get triggered when subsidies become available within their borders and uninsured workers who purchase coverage avail of them. Hence, so long as a state refuses to set up its own exchange and Section 1311 bars the federal government from handing out subsidies through its own exchange, they can shield their resident employers. Forcing a state to accept subsidies, they insist, would run afoul of the Constitution's commitment to federalism.

However, there are also states that have opted for a federal exchange because they simply didn't want the headache of having to set up their own. If Uncle Sam now withholds subsidies, it'll make coverage unaffordable for many of their residents, to be sure. But the bigger problem is that it'll send their exchanges into a death spiral even as their individual market has been completely upended, leaving anyone who doesn't have employer-sponsored coverage literally nowhere to go.

Indeed, making federal subsidies conditional on a state setting up its own exchange is also unconstitutionally coercive, the administration insists. It is precisely the kind of thing that the court said Uncle Sam can't do in the last

rtcosmin / Foter / CC BY-NC-SA

challenge to ObamaCare, NFIB vs. Sebelius, when it barred the administration from withholding all, not just additional, Medicaid funding from states that refused to expand the program as per its bidding. "Our reading is the pro-federalism ruling," noted Solicitor General Donald Verrilli, who argued the administration's case.

Ordinarily, when disputes over the proper reading of a statute arise, the Supremes opt for the reading that is most consistent with the Constitution—or least constitutionally problematic. But in this case, each side claims to be more constitutionally consistent than the other, so this rule doesn't offer a way out.

Courts also tend to defer to administrative agencies' interpretation of statutes—something called Chevron deference. But New York University law professor Richard Epstein has pointed out that the problem with applying Chevron deference in this case is that the court would have to ignore a straightforward reading of the statutory text that a future (possibly Republican) administration might well legitimately invoke. This would potentially put the court in the position of having to go along with "wide partisan variance" in interpreting the statute, shredding the rule of law.

But the only reason the court is confronting this huge mess, as Justice Antonin Scalia pointed out, is the unorthodox parliamentary tactics that ObamaCare supporters had to deploy in order to ram it through Congress. Because Democrats lost their supermajority in the Senate after the initial bill was passed, they didn't want to bring up for a re-vote a cleaned-up version that had gone through the normal reconciliation process in conference.

So, in essence, the administration is asking the court to hand it a victory that it couldn't obtain through the normal legislative process. Should the justices go along, they would not only be endorsing the administration's end run around Congress, but also putting an unelected branch of government in the position of effectively writing—or at least rewriting—the laws.

This is not their job. The least intrusive thing for the court to do would be to overrule the federal exchange subsidies and advise the administration to go back to Congress to clean up the mess. Republicans have every reason to make the rewrite as painless as possible for as many Americans as possible. In fact, they are claiming they already have a plan to avoid major coverage disruptions, and there is no reason the court shouldn't take them at their word.

In any case, subjecting the law to the rough and tumble of politics can hardly produce an outcome worse than the current mess.

This column originally appeared in The Week.

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  1. Indeed, making federal subsidies conditional on a state setting up its own exchange is also unconstitutionally coercive, the administration insists

    Hearing a prog make an argument in favor of federalism is hilarious, since they hate the idea with a fiery passion. It just goes to show what unprincipled fucks they are.

    1. Its a joke. Imagine if every state had set up an exchange in 2013 and then this summer a state decided it wanted to shut its exchange down. You don’t think the Obama administration wouldn’t be threatening them with losing subsidies? In a heart beat.

      They never mean a single word of what they say. Meanings have an expiration date.

      1. Didn’t some states set up exchanges and then shut them down?

        1. Not that I am aware of. Did they?

          1. IIRC Oregon was one, and there were others.

            1. The one in Oregon died. They were just too incompetent to set it up. I was thinking of a state shutting it down for political reasons not “we could never get ours to work”. Also, it isn’t the only state without an exchange.

              1. “Incompetence is no excuse”

                Regardless, I think you’re right. In fact, if every state had started an exchange and then several had dropped that exchange for various reasons you’d probably see multiple instances of hypocrisy from the administration. If, say, Texas threatened to drop its hypothetical exchange for political reasons, the admin would threaten to drop subsidies, without dropping mandates. If Oregon, though, threatened to drop its exchange due to incompetence, the admin would trip over itself trying to help them out.

              2. Well, of course any state that is going to stop doing their exchange is going to say something like ‘it’s not working.’

                Looks like there’s about five such states:


                1. Not necessarily. If that state sees a swing in political alignment from Dem to Rep. the new powers that be might be willing to drop an exchange as part of a campaign promise. It seems like some of the rural Reddish states caved to the bribe and tried to set up their own exchanges. We’ll see what happens over the next election cycle…

                  1. But wouldn’t that be at least couched in ‘these exchanges are not working or will not work in the future?’ I doubt they’d couch it in ‘we don’t like Obama or the ACA, so we’re going to scrap our exchange.’

                    1. Exactly that was threatened in a number of states, including here. The problem is that everyone knew the federal government would retaliate, so the states ended up backing down.

                      It’s not like opposition (not all purely political, as this system is absurdly bad from a utilitarian point of view, too) is quiet or secret. Nor is it any secret that these aren’t technical marvels, either.

                    2. But wouldn’t that be at least couched in ‘these exchanges are not working or will not work in the future?’ I doubt they’d couch it in ‘we don’t like Obama or the ACA, so we’re going to scrap our exchange.’

                      Why not?

                      “Fuck the ACA, we are shutting down our exchange” seems like perfectly reasonable wording to me. Especially if you want me vote in the future.

                      Weasel words are a good way to lose my future vote.

  2. No way in Jesus’s peachy planet can America’s ass ever appear as penetrating as that.

    1. Never change Agile.

      1. Is Agile particularly cheeky this morning or is it just me?

        1. He can be the butt of some jokes…

  3. If Republicans actually wanted to end this in Congress to avoid the pain this article claims would occur, they would have already. It involves changing literally one word. Waiting for SCOTUS to do something — without the guarantee the justices would do the “right” thing — is an idiotic argument, especially considering the justices could instead issue an opinion that completely eviscerates Congressional statute writing power through an expanded Chevron standard.

    Considering there is such a simple fix to what is an enormous risk of harm, I’m tempted to think Republicans don’t actually give a damn about either the pain their constituents would go through or separation of powers and this is only political.

    1. I’m not a big fan of the Republicans, but if they tried such a fix Obama would just veto it.

      1. That hasn’t stopped them on anything else.

    2. I’m tempted to think Republicans don’t actually give a damn about either the pain their constituents would go through …

      What about the pain their constituents are already going through because of the law? This is a really good example of “The Seen and the Unseen”. A few people benefit by having expanded access to affordable healthcare. The rest are harmed by suffering reduced freedom to associate and higher health insurance/care costs. Don’t get me wrong. I don’t think either political side really cares about either group of people (The Seen or the Unseen), but to pretend that the second group doesn’t exist is how we end up with laws like this one in the first place.

      1. But the second group is hypothetical. Every measure of healthcare coverage and costs has been good since the law went into effect. The cost of the law itself was just revised down by 11% because of cheaper insurance premiums than expected. Also, we aren’t currently experiencing the job-killing apocalyptic scenario we were promised by opponents.

        1. Every person who had their health insurance plan cancelled because it didn’t meet up with the ACA requirements is part of that second, ‘hypothetical’ group. Every person who had their full time hours cut to part time because of the ACA is part of the second, ‘hypothetical’ group.

          1. The existence of those two groups don’t fit the narrative, therefore they must not exist. To admit otherwise would shatter Tony’s carefully contructed fantasy world where Obama the Magnificent single handedly delivered healthcare to the masses of the objections of the EVUL RETHUGLIKKKANZ and the poor hating LIBERKOCHSUCKIANZ. Therefore, “hypothetical”.

          2. Let me tell you how much I appreciate the fact that I, as a part timer, have to make sure to only work 29.5 hrs at one of my jobs, since the other one I’m already over 30 hrs a week and still getting healthcare. It does great things for my budget, since I can’t work 34-40 hours when the job requires it, so I have to just stay extra and count 2-3 hours as lunch to make sure the job gets done in the manner it is supposed to. I really appreciate that my healthcare costs have continued to increase at the SAME RATE as before Obamacare passed. I also truly appreciate that if the second job cuts me below 30 hours a week, I will have to go onto the exchanges and pay 4 times as much for the exact same coverage because the Feds won’t let me purchase insurance across state lines (because I’d buy from the state where my parents live, their cost of health coverage went down 50% when they moved). I just can’t say how much I love living with the consequences of a law designed and built by people who obviously must be far more intelligent and honorable than I am. I am just humbled by the fact that they saw fit to enroll in the exchanges as proof that the exchanges would be so much better than their current health plans.

          3. The national uninsured rate is at its lowest level since the current CDC survey method came into existence in 1997. It’s not a perfect law and it has resulted in some anomalies in the private sector, but I was promised the apocalypse while every macro measure of outcomes has been positive.

            1. You asserted that people ‘harmed by suffering reduced freedom to associate and higher health insurance/care costs’ were ‘hypothetical’. It has been proven that you are incorrect.

              The uninsured rate is completely different, and the results are unsurprising. It happened in MA after Romneycare was signed despite the costs of insurance in MA rising faster than the national average.

        2. What Brian D said.

          Also, please remind me where the money for the subsidies comes from.


        3. The rates were better than expected? The rates for individual coverage tripled overnight. They expected worse than that?

          1. He specifically mentioned premiums. Might be true, IDK, but deductibles AFAIK are skyrocketing and they are typically left out of such analyses.

            1. It’s so much easier when you can just cherry pick a single number to make your case.

          2. Juice|3.10.15 @ 11:44AM|#
            “The rates were better than expected?”

            Hey, it sounds a lot better than ‘THE GODDAM RATES WENT THROUGH THE ROOF!’, right?
            That copy it right out of a cosmetics ad…

        4. My health insurance used to go up maybe $20 a year. Now it went up $100.

          Of course that’s after the subsidy to reduce a fucking house payment down to $100 more than I was paying for coverage through my wife’s work.

          Fuck you, cheaper premiums.

        5. Tony, how is the second group hypothetical? And why are you using averages for everyone to dispute the contention that some individuals were adversely affected? For three consecutive years my premiums rose by 5% or less. Then, the ACA kicked in, my policy was cancelled for non-compliance, and my new policy had premiums that were 41% more, with inferior coverage and co-pays. And it wasn’t just me. This happened to many people.

        6. The insurance premiums aren’t cheaper, they’re just rising more slowly. And not as many people became covered as previously thought. So the federal government (if projections are true) will spend less on subsidies.

          Since premiums and out of pocket costs are expensive to begin with, there’s no savings here. you either buy an expensive plan with our own money, or buy a really expensive plan that’s made manageable through government assistance.

          Medicaid expansion is already becoming an issue for CA –



          If you’er on medicaid, the federal government doesn’t have to spend subsidies on you! But the state and the tax payers have to pay for your healthcare.

      2. This article mentions the harm of people suddenly losing their subsidized health insurance and some Republicans claiming to wanting to do something about that. That’s all I was referencing.

    3. Dragging their constituents through a little pain is necessary to get popular sentiment on the right side here. It’s tough live, for sure, but it’s necessary.

    4. If they tried to fix it now they wouldn’t have any leverage to get anything through, including the status quo. Rolling the dice to see what the court does means they wont be any worse off than they are now but they might get a much bigger opportunity.

  4. Nice ass. But the Janet Jackson face is bleh.

    1. I just wish they would remember that some of us browse H&R from work.

      1. “I just wish that they’d remember that I have my kids in the car when they use foul language and talk about sex on the radio station that I listen to.”

  5. At issue in the lawsuit is the legality of the billions of dollars in subsidies that the Internal Revenue Service is doling out through federal exchanges in about 35 states that refused to set up their own exchanges.

    Hmm. I would dispute on two counts:

    (1) What’s at issue in the lawsuit is whether an agency can disregard statutory language and issue the rules it wishes the statute authorized, not the rules the statute actually authorizes.

    (2) A level above that, this is at least as much about whether businesses in states that didn’t establish exchanges are subject to OCare penalties triggered by one of their employees getting tax subsidies.

  6. The LA Times is on roll about this. A headline from a few days ago read (I think I have this right) “Supreme Court Threatens Heath Care Subsidies” and this “Obamacare challengers’ ridiculous claims head to the Supreme Court”.


    Had the public known that the insurance subsidies wouldn’t be available if their states didn’t set up an exchange, the debates in state capitals over whether to do so would have been far more consequential ? and presumably, much harder fought.

    Translation: some rubes look a gift a horse in the mouth. And who is eating my line feeds?

    1. And who is eating my line feeds?

      Oops, only on the preview.

    2. You think that lion is going to tow itself? Lions are notoriously lazy.

      NPR has been basically doing the same thing all month. They only ever interview people from the admin’s side of the argument. I haven’t been lucky enough to catch Nina’s coverage of the hearings, but I’m assuming she turned her incredulity up to 11 for this one.

      1. Get better Republicans. No affirmative action for half-assed transparent political bullshit.

        1. Of course. Only republicans could possible have a problem with this law and then only for political reasons. Right?

          1. I’m a Democrat and I’m not terribly fond of the law, except as an alternative to the prior status quo.

            1. Yeah, we all know that in your deluded brain, medical care is a right tantamount to free speech.

              Oh, who am I kidding, you don’t care about free speech.

  7. But in this case, each side claims to be more constitutionally consistent than the other

    How unusual.

    This case exists because anti-ACA activists (recall that the plaintiffs don’t actually have standing) combed the law looking for some inconsistency they could exploit, and they sort of found one. I’m surprised they couldn’t find a better one. At best this is a case of ambiguity necessitating Chevron deference. Congress can fix the language regardless, if it wanted to.

    1. Isn’t there a “reasonableness” condition to Chevron deference? There is considerable evidence that the subsidies were meant to coerce States into forming their own exchanges.

      Regarding whether the plaintiffs have “standing”… it’s debatable. But why not just get this over with now? Everyone knows there are people out there who do have standing. If this gets shot down for “no standing” then new plaintiffs will be found and we’ll just go through this whole thing again next year.

      I’m surprised they couldn’t find a better one.

      Well, the taxation one was much better inconsistency. But Roberts saved the law from that one by saying “Sure it’s a tax. The fact that it is a tax just means that Congress and the President have been lying through their teeth for years. So what?”

      1. some guy lived his life
        like a candle in the wind

        1. Sometimes I can’t resist. It’s not that I want to argue with him. It’s that I have nothing better to do right now…

          1. It’s that I have nothing better to do right now

            You poor bastard…

      2. There is considerable evidence that the subsidies were meant to coerce States into forming their own exchanges.

        It is certainly a reasonable interpretation that subsidies were meant for both cases, since the law doesn’t ever indicate otherwise. If such coercion were meant to be part of the law, it would not have been buried in an obscure subsection and politicians would have been debating on those grounds, and it would apparently be unconstitutional as well.

        Everyone knows there are people out there who do have standing.

        Then why didn’t they find some? This is a pretty casual approach to jurisprudence.

        1. Well, seeing as only the most leftist justice gave any consideration to the issue of standing and none of the others thought that such an issue was even deserving of consideration, I think it’s pretty safe to say that the vast majority of SCOTUS think that the plaintiffs have standing. Thus, they have standing.

          1. “The law doesn’t indicate otherwise”. No, but the legislative history most certainly does. It turns out that SCOTUS cares about such things when addressing issues of Constitutionality. There is an enormous amount of precedent on this sort of thing. It’s extraordinarily well-established jurisprudence.

            1. Also there is a great deal of coercion in the law. In the “penaltax” case the SCOTUS threw out the coercion to the states over Medicaid. Obama lost, period full stop. In the Hobby Lobby case there was the coercion to business and Obama lost to tightly held companies. (Partial stop). Now there is the ample evidence that coercion was applied to subsidies because the plain text of the law does not refer to the federal exchanges but to state exchanges. It is not “four little words” that is the issue- it was the intent of the bill to apply coercion.

              I enjoy the pain that Obamacare has applied to Congress and the executive and Kagan is correct, the SCOTUS is going to get challenge after challenge. Poorly thought out, coercive, single party, legislative process challenged solutions SHOULD NOT be part of the law of the land. Fuck off slavers!

              1. It keeps coming back to the simple point that government is coercion.

  8. I don’t like the obamacare law or its implementation either but frankly this case is a joke. There was obvious intent in the law for this to happen from the beginning. The better case was the fine I mean tax that went on the people for not getting insurance, but that one failed. Just get the law overturned by the legislative process if you want rid of it.

    1. It’s not so clear. I followed the passage of the law closely. It was clear back then that the subsidies were to be used to coerce States into forming their own exchanges. There was a time when the Federal Gov’t expected every state to form its own exchange.

      1. Yup. The only thing that made this into a case was so many states taking the unprecedented step of standing up to the feds on an issue of federal funding with strings attached. The tactic of offer cash with strings attached has always worked in the past.

  9. It’ll be interesting to see what kind of mental gymnastics the nazgul use to find for the government this time. I have little doubt that they’ll side with the administration, the only question is how much of a pretzel they’ll twist themselves into to do it.

    1. The letter of the law interpretation is unconstitutionally coercive, therefore we are forced to interpret the law according to the administration’s wusses…

      1. *wishes

        1. Correct either way.

  10. There is no ambiguity….there is only deceit. It would be politically stupid not to fix it, but only after the president shows up to a meeting with congressional leaders with his hat in his hands. What I wouldn’t give to see that arrogant bastard squirm.

    1. What I wouldn’t give to see that arrogant bastard squirm.

      That would never happen. He’d rather watch his signature law go down in flames. He can always blame Republicans for the law’s failure.

  11. “can hardly produce an outcome worse than the current mess”

    That is a very optimistic statement.

  12. In fact, they are claiming they already have a plan to avoid major coverage disruptions, and there is no reason the court shouldn’t take them at their word.

    The fact that this sentence is printed in a magazine called Reason is hilarious. I’d assume the editors allowed it to go through as a joke, except I see no evidence of a sense of humor anywhere in this publication.

  13. I only clicked here to make the pic larger.

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