Will the Conservative Obamacare Creation Story Backfire?

The perils of pairing a semantic argument with one about congressional intent.

U.S. Supreme Court Chief Justice John Roberts arrives prior to President Barack Obama's State of the Union speech on Capitol Hill on Jan. 28, 2014 in Washington, D.C.

Photographer: Larry Downing-Pool/Getty Images

Three years ago the first Supreme Court challenge to the Affordable Care Act questioned whether Congress had the constitutional authority to require individuals to acquire health insurance. Chief Justice John Roberts joined the four liberal justices to uphold the individual mandate as an exercise of congressional taxing power. In King v. Burwell, the second anti-Obamacare salvo to reach the court, the president’s foes are trying a statutory argument rather than a constitutional one. Their target is the law’s provision of federal tax subsidies to people who otherwise might not be able to afford insurance premiums.

On one level the challenge, led by the Competitive Enterprise Institute, a conservative Washington advocacy group, dwells on a trivial-seeming semantic flaw in the ACA. Lawyers take semantics seriously, of course, and this one could undermine coverage for millions of newly insured Americans. The statutory attack makes sense, however, only when combined with a story conservatives have concocted about how the ACA became law—a story that rings false. Whether Roberts believes it could determine whether Obamacare survives.

The ACA has a three-part structure. First, it bans insurers from denying coverage based on preexisting conditions. Standing alone, that provision would cause many consumers to postpone seeking insurance until they get sick, a tendency that would cause carriers to hike prices, deterring more people from buying policies. To prevent this fatal dysfunction and assure that healthy people jump into the insurance pool, the individual mandate upheld in 2012 requires that everyone obtain coverage. The third component—the one now under fire—is the provision of tax subsidies to allow less-well-off consumers to participate.

Congress instructed the states to establish online marketplaces, or exchanges, through which residents can buy health policies. In states that don’t comply, the ACA provides for the federal government to set up exchanges. The act authorizes tax benefits for people who purchase insurance through an “exchange established by the state.” At last count, only 16 states and the District of Columbia had set up exchanges. In 34 other states, mostly led by Republicans, the U.S. Department of Health & Human Services has had to step in to get exchanges working.

Of the more than 8 million customers who’ve signed up for insurance via federal exchanges, more than 85 percent qualified for subsidies. The Internal Revenue Service interprets the law as making tax subsidies available to anyone of modest income, regardless of whether their state set up its own health exchange. Many other parts of the 900-page statute refer to both federal and state exchanges without so much as a hint that legislators meant to bestow tax subsidies only on customers of state exchanges.

The plaintiffs in King v. Burwell, however, contend that since the ACA explicitly mentions tax subsidies only for people who buy insurance through an “exchange established by the state,” those living in the 34 states that haven’t created their own exchanges shouldn’t receive tax subsidies. Excluding them would blow a gaping hole in the ACA, effectively denying millions of Americans their newly obtained coverage. The main brief for conservative activists, written by Michael Carvin, a former official in the Reagan Justice Department, insists that Congress deliberately intended to booby-trap the ACA as a way to induce states to set up their own exchanges. “Any English speaker would immediately understand that no subsidies are available for coverage obtained on an exchange established by HHS,” Carvin writes.

This is where the legal challenge to the ACA relies on a highly suspect conservative narrative of how it was passed. Carvin argues in his brief that “political realities” drove Congress to threaten the states with denial of tax subsidies if they didn’t establish their own exchanges. For certain moderate Democratic senators, the brief adds, “it was important to keep the federal government out of the process.”

The problem with that contention is that it’s devoid of support in the congressional record. As Solicitor General Donald Verrilli points out in the administration’s brief, during the time Congress considered the ACA, not a single member—not one—“ever suggested the tax credits would be available only in states that established their own exchanges. … Any such suggestion would have produced a firestorm of controversy, but there was none.”

Tellingly, Carvin tries to bolster his narrative by quoting Jonathan Gruber, a Massachusetts Institute of Technology professor who advised the White House on health reform. Gruber gained notoriety for videotaped comments he made in 2013 suggesting that the ACA had passed because “stupid” voters didn’t understand it. In 2012, the Carvin brief recounts, Gruber asserted that “if you’re a state and you don’t set up an exchange, that means your citizens don’t get their tax credits.”

Gruber has since publicly disavowed his look-at-me outbursts, and in any event, his opinions are beside the point. He didn’t vote on the legislation. It’s difficult to envision a Supreme Court ruling grounded in kibitzing from Cambridge.

In contrast, there are the highly relevant assessments of the ACA’s fiscal consequences by the Congressional Budget Office and the Joint Committee on Taxation. Those analyses were critical to the act’s passage and are referred to in the law itself. They were based on an understanding that tax subsidies “would be available in every state, including states where the insurance exchanges would be established by the federal government,” according to a Dec. 6, 2012, letter from CBO Director Douglas Elmendorf to Republican Representative Darrell Issa of California.

The bottom line is that conservatives intent on ruining Obama’s signature domestic legislation could have stuck to a simple position: that when a law says “state,” it can’t be interpreted to mean “state or federal government.” The Supreme Court, this argument would go, shouldn’t rewrite flawed legislation, no matter what the consequences.

But conservatives pushed their luck with a dubious story about congressional intent. That fairy tale ought to offend members of the court. If it has that effect on Chief Justice Roberts, it could push him toward another surprise alliance with the liberal wing, allowing Obamacare to persevere—at least for now.

Also on Bloomberg Politics: The Return of the Death of Obamacare