Friday, November 14, 2014

The Remedy to the State Exchange Subsidy Cases

Sometimes lawyers forget things.  Big things.  Like what should a court do when it decides who wins and who loses?  We think we have a solution to the cases arguing that the Obamacare premium subsidies are invalid in most states.

It all comes down to the remedy.

We've been tracking the various challenges to Obamacare's subsidy scheme for some time.  In fact, we're glad we included a small section in The Small Business Guide to Obamacare covering the issue.  Whether you call it Obamacare, PPACA or the Affordable Care Act, the subsidies are a critical component to fulfilling the dream of universal health insurance coverage.

The Supreme Court's decision to hear King v Burwell jeopardizes not only the subsidies, but the enforceability of the employer and individual mandates.  Most of the commentators out there see this as a black and white issue--either the subsidies survive or they don't.  And if they don't, millions will have to pay more for their health insurance.  If they do, shame on those evil Republicans for even trying to take away the subsidies.

But if we know anything about this Supreme Court, especially Chief Justice Roberts, they like to intervene only when necessary and even then as little as possible.  Knowing that makes me believe neither side will land a knockout blow.  Here's how to get to a sweeping, legally sound, but more limited ruling.

First, understand the basic argument of the businesses interests involved, the plaintiffs with the strongest cases.  The employer mandate requires every employer with 50 or more employees to offer affordable insurance to all of their full-time employees.  However, the penalties for failing to make an affordable offer do not kick in until an employee does not get the required offer AND then obtains insurance on an exchange AND gets a subsidy.  No subsidy means no penalty for violating the employer mandate.

Here's the problem.  As written, Obamacare provides subsidies only to people who live in states that have their own exchanges.  The IRS decided to go ahead and offer subsidies to everyone anyway.  If your state relies on the federal exchange, the statute says you don't get the subsidies.  If that interpretation is right, it means the employer mandate is unenforceable in those states because no employee can get a subsidy that causes their employer to be subject to the penalty.

The individual plaintiffs make a somewhat different argument.  They say that they make so little income they fall below the amount for people who have to pay the individual mandate penalties.  The subsidies, however, make the insurance cheap enough so that they are now subject to the penalty for failing to buy insurance.  It's a bit squirrelly, but basically the argument is "your invalid subsidies make my insurance unfairly affordable."

The government argues that the distinction between the state and federal exchanges is merely a typo, which the IRS has the authority to fix by executive action.  Obamacare architect Prof. Jonathan Gruber, is now infamous for calling the American people "stupid" and boldly stating exactly the opposite, that the distinction was there to force states to build exchanges on penalty of losing subsidies.  Remember the good old days when MIT economists only got their names in the paper for winning Nobel Prizes?

Anyhow, there's a good chance the government is going to lose that argument.

Suppose the Supreme Court says the statute says what it says and therefore the IRS tax collectors cannot just usurp the spending power to fix the problem.  Is that the end of all of Obamacare?  No subsidies, no employer mandate, no individual mandate?

I think there's a solution that the Chief Justice might like.  It goes back to the basics.  If the court finds a legal violation, it always needs to decide what to do about it.  That's the remedy.

Courts like to fix problems with money.  Ordering the wrongdoer to pay the victim is clean and easy.  Judgment for the plaintiff, defendant is ordered to pay damages, end of case.

Courts don't like to order people around, especially if it will require further monitoring.  It's a hassle to say "judgment for the plaintiff, defendant must do the following acts."  Why?  Because what if the defendant does a bad job?  Or does not comply at all?  Court orders, which we call injunctions, are a hassle to enforce.  The rules for issuing injunctions generally say that the court should order the least burdensome and intrusive remedy to fix the problem.

How can a court fix the King v Burwell problem?  Focus on the plaintiffs.  The plaintiffs only have a case because the invalid subsidies harm them.  Can we prevent that harm while still having the subsidies in the federal exchange states?

Yes.  The Court could issue an order saying that the employer and individual mandates are invalid in the federal exchange states.  That directly addresses the complaints of the plaintiffs.  But the court could then refuse to order the federal government to stop paying out the subsidies.  You can have your subsidies, IRS, but you can't collect the penalties on individuals and employers.

That solution avoids the sweeping damage to millions of people that aren't even parties to the litigation.  It avoids the institutional confrontation between the executive and judicial branches.  It makes the court appear to be saving as much of this screwed up statute as possible.  It also sends the message to the President that we have a government of divided powers and the executive cannot just do whatever he feels like.  Wiping out the unpopular employer and individual mandates in 30+ states would be a big deal, but not so big as wiping out the subsidies in those states.

And as a happy bonus, it upholds the law as Congress wrote it.  It upholds the constitutional principle that the spending power resides with Congress, not the IRS.

I'm hoping someone, somewhere, will pick up on this argument and that it will find its way into the public discourse and maybe even into the briefs.  Please throw me a bone with a citation if you're the kind of person in a position to make that happen!

Is this a winner?  Please leave your comments!  Thanks for reading.