Conservatives' Last Legal Option to Invalidate Obamacare

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If Republicans take the White House and both chambers of Congress in November, there’s a good chance they will repeal most, if not all, of the Patient Protection and Affordable Care Act. But after yesterday’s Supreme Court ruling, the law is safe from legal challenges, right? Not so fast. We may see one more last-ditch conservative effort to gut a major portion of the law.

Right now, there are small challenges to Obamacare that are making their ways through the courts. A 2010 suit is challenging the law’s cost-controlling review board (AKA “death panels”); another takes on the provision that Catholic institutions, like other employers, must provide birth control and other doctrinally verboten services to their employees. Neither of these, along with other smaller efforts, would do much to mess with the main intent of the law: to provide insurance to the uninsured.  

But Michael Cannon of the Cato Institute, and Jonathan Adler of Case Western Reserve University, who are Obamacare critics, argue that a much more consequential challenge is not only possible, but inevitable. Cannon and Adler's case deals with the law's employer mandate, which stipulates that businesses of 50 or more employees must provide health benefits to their employees, or pay a penalty. They're not arguing that such a mandate is unconstitutional. Rather, they contend that in certain cases, the text of the law does not permit the federal government to levy such a penalty on stingy employers.

Here's why: The employer mandate--the thing that's keeping the Walmarts of the world in line--is conditional upon the existence of tax credits and subsidies that are administered through state-run insurance exchanges (marketplaces that will allow state residents to shop comparatively for insurance; without the subsidies, insurance would remain too expensive for many people.) Right now, however, since several states are refusing to create those exchanges, the federal government has decided to create the exchanges on their behalf.

It's here that the problem arises. Cannon and Adler argue that the law doesn't permit the federal government, through those exchanges, to administer the subsidies and tax credits that are currently required of the states. And if the creation of federally-run exchanges would make it illegal to provide any subsidies at all, they argue that it would also be illegal for the government to penalize employers who refuse to provide adequate health benefits in those states.

Cannon and Adler explain their admittedly complex argument in a recent Op-Ed:

The Act's "employer mandate" taxes employers up to $3,000 per employee if they fail to offer required health benefits. But that tax kicks in only if their employees receive tax credits or subsidies to purchase a health plan through a state-run insurance "exchange."

This 2,000-page law is complex. But in one respect the statute is clear: Credits are available only in states that create an exchange themselves. The federal government might create exchanges in states that decline, but it cannot offer credits through its own exchanges. And where there can be no credits, there is nothing to trigger that $3,000 tax.

So, if their argument stands, those states that refuse to implement exchanges could effectively subvert huge portions of the law: Not only would many low-income residents of those states not be able to afford insurance, but employers would be free of the mandate to cover their employees.

But would the argument hold up in court?

Timothy Jost of Washington and Lee University School of Law says that due to a simple "drafting error" it’s unclear whether the text of the law grants the federal government the ability to provide subsidies through these exchanges. (It fully intended it to.) And in such casesones that deal with textual interpretation rather than constitutionalitythe Supreme Court usually defers to the administration implementing the law. In this case, assuming a Democratic administration is in power, Obamacare would stand.

But even if the case ever made it to the Supreme Court, says Jost, he’s skeptical the federal government will even need to set up its own insurance exchanges. By the time it got there, Jost says, “states will have realized that they are better off doing the exchanges themselves, and there will be few federal exchanges left.”

Still, one expert takes the case more seriously. “It’s fairly decent textual case,” says Kevin Outterson, a professor at Boston University Law School, and health care blogger for The Incidental Economist. And if it stood, he says, the consequences could be disastrous. Outterston, using data from the Kaiser Family Foundation, estimates that as many as six million people would be denied insurance, assuming fifteen or so states opt-out of the insurance exchanges. From an email:

“Let's assume (NOT predict) the former Confederate states + Arizona refuse [state subsidies.] They have a total of 6.182 million uninsured residents between 139% and 399% Federal Poverty Line (i.e., eligible for subsidies in the exchanges).  Not all of these would have been insured even with perfect exchanges, but that puts an upper boundary on the number.”

There’s no challenge brewing now, and experts like Tim Jost don’t think the case has legs. That may be heartening to some liberals, but it’s exactly what everyone said when Randy Barnett and other libertarian legal thinkers began dreaming up unorthodox challenges to the Affordable Care Act two years ago.

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