The Birth of (Another) Challenge to Obamacare

December 17th, 2013

Newsweek (which apparently is still in business) offers this account of how Jon Adler and Michael Cannon hatched yet another constitutional (update: it is not constitutional) challenge to Obamacare. Alas, it was not in the Mayflower, and I was not there:

Obamacare may have its problems, including more bugs than you can find in the cornfields of Nebraska, but its legal worries were meant to end after the Supreme Court upheld the individual mandate, the heart of the Affordable Care Act.

Now, as the technologists charged with making work report progress, lawyers are re-entering the fray. A little-heard of challenge currently making its way through the court system may represent opponents’ last best hope of, as they are fond of saying, driving a stake through the heart of the law.

It all started in 2011, when Jonathan H. Adler, a conservative law professor at Case Western Reserve University in Ohio, shot an email to his friend Michael Cannon, a health policy expert at the libertarian Cato Institute in Washington, D.C. Adler thought he had spotted an error in Obamacare that could unravel a significant portion of the law.

At issue are the federal subsidies for individuals buying insurance in their state’s health care exchanges. The law stipulates that those subsidies should be allotted for plans purchased “through an Exchange established by the State under Section 1311” (italics added), a reference to the section of the law that establishes state-run exchanges.

Adler wondered: Did the law provide subsidies for only state-run exchanges and not federal ones? The law requires that the federal government step in to create an exchange when a state declines to do so. But does it fail to give subsidies to the residents of those states?

It may seem like a small problem, but if true, it spells disaster for the Affordable Care Act. Without subsidies, health care on the individual market becomes unaffordable. Without an affordable option, the individual and employer mandates disappear. In other words, the entire law could come crashing down in the 36 states that have opted not to run their own exchanges.

Since its passage in March 2010, the Obama administration has set about implementing the law by making the subsidies, in the form of premium assistance tax credits, available in every exchange no matter who was running it. The Internal Revenue Service, which oversees this piece of the law, finalized a rule allowing subsidies in every state in May 2012.

Meanwhile, Adler and Cannon recorded their finding in a Wall Street Journal op-ed in November 2011. The IRS was acting against the plain language of the law, they argued. As Cannon tells it, the duo then decided to do more research, which led them to believe that this was not, as they had called it in the Journal, a “glitch.” Instead, they argue Congress intentionally decided to withhold subsidies from federal exchanges.

Constitutionally, the federal government cannot order states to create the exchanges, so Adler and Cannon contend that Democratic lawmakers intentionally withheld premium assistance to strong arm states into implementing their own exchanges. Though this is not explicitly stated in the law, Cannon and Adler point to a handful of comments that they argue infer subsidies were intended for state-run exchanges – but there is no explicit evidence. Now that 36 states decided not to create their own exchange, Cannon and Adler maintain that the IRS is not carrying out the letter of the law.

“President Obama is trying to do the exact opposite of what the law says,” Cannon said.

The two drafted a paper in the first half of 2012 on their findings, but didn’t publish because they thought the Supreme Court might overturn the whole thing anyway. When the court largely upheld the law, the two published their paper in July 2012. Over a year later, there are now four cases challenging the subsidies in federally-run exchanges. One of them, Halbig v. Sebelius, was argued in D.C. district court this month by premier conservative litigator Michael Carvin.

And don’t forget. Take these things seriously.

Opponents may dismiss the conservative argument as a joke, but no one is laughing at the risk the case poses for the health care law. That’s a lesson they learned the hard way. During the first challenge to Obamacare, liberals scoffed at the legal arguments created to undo the law, only to see the law nearly toppled by the Supreme Court.

“I think you have to take every case seriously,” Rosenbaum said. “You have to take courts very seriously.”

The narrative for Unraveled continues to ravel together.