When the D.C. Circuit invalidated the IRS Rule in July, if I had told you that Justice Sotomayor would be pressing Mike Carvin on the principles of federalism, you would have thought I was crazy. And after oral arguments, here we are. The federalism argument goes something like this: in order to avoid potential coercion problems, whereby states are “forced” to choose between establishing exchange or triggering a death spiral, the Court should vote to uphold the Rule, even if it it unambiguously limits credits to states that establish exchanges. Several of Justice Kennedy’s question seemed to suggest this troubled him, and he referred to it as a “serious constitutional problem.”
While this is now the en vogue argument, and has filled the legal blogosphere, I pause to note that the remedy is, shall we say, complicated, for the reasons pointed out in NFIB v. Sebelius. Seven Justices found that the Medicaid expansion, as written, was unconstitutionally coercive. The joint opinion (Scalia, Kennedy, Thomas, and Alito), after finding that the condition violated the principles articulated in South Dakota v. Dole, voted to invalidate the entire Medicaid expansion.
Seven Members of the Court agree that the Medicaid Expansion, as enacted by  Congress, is unconstitutional. See Part IV-A to IV-E, supra; Part IV-A, ante, at ___ – ___, 183 L. Ed. 2d, at 490-497 (opinion of Roberts, C. J., joined by Breyer and Kagan, JJ.). Because the Medicaid Expansion is unconstitutional, the question of remedy arises. The most natural remedy would be to invalidate the Medicaid Expansion. However, the Government proposes–in two cursory sentences at the very end of its brief–preserving the Expansion. Under its proposal, States would receive the additional Medicaid funds if they expand eligibility, but States would keep their pre-existing Medicaid funds if they do not expand eligibility. We cannot accept the Government’s suggestion.
The Chief Justice, along with Justices Kagan and Breyer, in the other saving construction that people don’t talk about, rewrote the statute–states that wanted to expand Medicaid would be able to, and states that did not could keep the “old” money. The new Medicaid expansion, which we are laboring under today, is at great odds with the one Congress designed.
The joint opinion made this point, however, and stressed that it is not for the Courts to rewrite statutes:
The reality that States were given no real choice but to expand Medicaid was not an accident. Congress assumed States would have no choice, and the ACA depends on States’ having no choice, because its Mandate requires low-income individuals to obtain insurance many of them can afford only through the Medicaid Expansion. Furthermore, a State’s withdrawal might subject everyone in the State to much higher insurance premiums. That is because the Medicaid Expansion will no longer offset the cost to the insurance industry imposed by the ACA’s insurance regulations and taxes, a point that is explained in more detail in the severability section below. To make the Medicaid Expansion optional despite the ACA’s structure and design “ ‘would be to make a new law, not to enforce an old one. This is no part of our duty.’ Trade-Mark Cases, 100 U.S. 82, 99, 25 L. Ed. 550, 1879 Dec. Comm’r Pat. 619 (1879).
The joint dissent labels this rewriting of the statute a “judicial usurpation”:
This analysis also shows how closely interrelated the Act is, and this is all the more reason why it is judicial usurpation to impose an entirely new mechanism for withdrawal of Medicaid funding, see Part IV-F, supra, which is one of many examples of how rewriting the Act alters its dynamics.
This brings us back to King v. Burwell, where we are faced with a somewhat analogous situation. If the Court sees fit to avoid the constitutional difficulty by construing an unambiguous statute as ambiguous, they run into the broader jurisprudential issue of rewriting a law that the Court admits Congress didn’t write. If the statute is ambiguous, and the government wins at Chevon Step II, there is no need to engage the canon of avoidance. You only go to the canon if the government loses at Chevron Step II. In other words, the only way to get to the constitutional avoidance canon is to find that the statute does not provide for subsidies. However, the result of applying the canon would be to rewrite the statute the Court just found that Congress did not enact. First, the Court would hold that Congress did not provide subsidies for states without exchanges, but then hold, we will reach that result anyway, to avoid a constitutional difficulty. This is a perverse application of the federalism, which inflicts great violence to the will of Congress.
The joint opinion makes this point very clear:
The Court severs nothing, but simply revises §1396c to read as the Court would desire. We should not accept the Government’s invitation to attempt to solve a constitutional problem by rewriting the Medicaid Expansion so as to allow States that reject it to retain their pre-existing Medicaid funds. Worse, the Government’s remedy,  now adopted by the Court, takes the ACA and this Nation in a new direction and charts a course for federalism that the Court, not the Congress, has chosen; but under the Constitution, that power and authority do not rest with this Court.
Again, the only way to get to the avoidance canon is to find that Congress did not intend to provide subsidies for states without exchanges. But rewriting the statute would do just that. The Court would be enacting a statute directly at odds with what Congress intended. As the joint opinion notes, citing many recent cases including PCAOB, this is not how severance jurisprudence works.
The Court has applied a two-part guide as the framework for severability analysis. The test has been deemed “well established.” Alaska Airlines, Inc. v. Brock, 480 U.S. 678, 684, 107 S. Ct. 1476, 94 L. Ed. 2d 661 (1987). First, if the Court holds a statutory provision unconstitutional, it then determines whether the now truncated statute will operate in themanner Congress intended. If not, the remaining provisions must be invalidated. See id., at 685, 107 S. Ct. 1476, 94 L. Ed. 2d 661. In Alaska Airlines, the Court clarified that this first inquiry requires more than asking whether “the balance of the legislation is incapable of functioning independently.” Id., at 684, 107 S. Ct. 1476, 94 L. Ed. 2d 661. Even if the remaining provisions will operate in some coherent way, that alone does not save the statute.The question is whether the provisions will work as Congress intended. The “relevant inquiry in evaluating severability is whether the statute will function in a manner consistent with the intent of Congress.” Id., at 685, 107 S. Ct. 1476, 94 L. Ed. 2d 661 (emphasis  in original). See also Free Enter. Fund v. Pub. Co. Accounting Oversight Bd., 561 U.S. 477, 130 S. Ct. 3138, 177 L. Ed. 2d 706 (2010) (the Act “remains fully operative as a law with these tenure restrictions excised”) (internal quotation marks omitted); United States v. Booker, 543 U.S. 220, 227, 125 S. Ct. 738, 160 L. Ed. 2d 621 (2005) (“[T]wo provisions . . . must be invalidated in order to allow the statute to operate in a manner consistent with congressional intent”); Mille Lacs, supra, at 194, 119 S. Ct. 1187, 143 L. Ed. 2d 270 (“[E]mbodying as it did one coherent policy, [the entire order] is inseverable”).
Second, even if the remaining provisions can operate as Congress designed them to operate, the Court must determine if Congress would have enacted them standing alone and without the unconstitutional portion. If Congress would not, those provisions, too, must be invalidated. See Alaska Airlines, supra, at 685, 107 S. Ct. 1476, 94 L. Ed. 2d 661 (“[T]he unconstitutional provision must be severed unless the statute created in its absence is legislation that Congress would not have enacted”); see also Free Enterprise Fund, supra, at ___, 130 S. Ct. 3138, 177 L. Ed. 2d 706 (“[N]othing in the statute’s text or historical context makes it ‘evident’ that Congress, faced with the limitations imposed by the Constitution, would have preferred no Board at all to a Board whose members are removable at will”); Ayotte v. Planned Parenthood of Northern New Eng., 546 U.S. 320, 330, 126 S. Ct. 961, 163 L. Ed. 2d 812 (2006) (“Would the legislature have preferred what is left of its statute to no statute at all”); Denver Area Ed. Telecommunications Consortium, Inc. v. FCC, 518 U.S. 727, 767, 116 S. Ct. 2374, 135 L. Ed. 2d 888 (1996) (plurality opinion) (“Would Congress still have passed § 10(a) had it known that the remaining provisions were invalid” (internal quotation marks and brackets omitted)).
Avoiding the constitutional issue would yield far greater constitutional difficulties than striking down the IRS Rule. In truth, the only way to apply the principles of the joint opinion here would be to invalidate ALL of the subsidies. No state, whether it established an exchange, or not, would get any tax credits. The joint opinion explains this approach would be preferable to rewriting the law.
An automatic or too cursory severance of statutory provisions risks “rewrit[ing] a statute and giv[ing] it an effect altogether different from that sought by the measure viewed as a whole.”Railroad Retirement Bd. v. Alton R. Co., 295 U.S. 330, 362, 55 S. Ct. 758, 79 L. Ed. 1468 (1935). The Judiciary, if it orders uncritical severance, then assumes the legislative function; for it imposes on the Nation, by the Court’s decree, its own new statutory regime, consisting of policies, risks, and duties that Congress did not enact. That can be a more extreme exercise of the judicial power than striking the whole statute and allowing Congress to address the conditions that pertained when the statute was considered at the outset.
At the end of the day, the avoidance canon creates more problems than it solves.