William Levin: Obamacare death throes

William Levin, a graduate of Yale Law School and former clerk on the D.C. Circuit, manages an investment banking firm. He writes to comment on the case involving the legality of Obamacare subsidies on the 36 federally facilitated exchanges provided to states that have not established their own. Last week D.C. District Judge Paul Friedman ruled that the subsidies provided on these exchanges were legal despite statutory language to the contrary. Judge Friedman’s opinion is posted online here. Mr. Levin comments:

There are several plans for ending Obamacare, from defunding to selective repeal, but only one already underway that will be effective. No later than June, 2015, the Supreme Court will hold that subsidies cannot be paid to individuals enrolled in the federal health exchange covering 36 of 50 states.

Absent subsidies, 16 million people in the 36 affected states will face increased annual premium costs totaling $85 billion, based on Congressional estimates. The federal health exchange will have no option but to disclose the full, unsubsidized cost of policies, contributing to the so-called death spiral caused by too few young enrollees. Employer penalties can be assessed only after workers enroll in a subsidized exchange. No subsidy, no lawful penalty.

This is an issue of national importance. Obamacare authorizes subsidies for exchanges “established by a State.” Without a federal exchange subsidy, the legislation fails in practice because so few states elected to set up an exchange. Does this mean the act cannot be read as plainly written?

Last week federal Judge Paul Friedman in Halbig v. Sebelius upheld the IRS regulations authorizing the federal exchange subsidy. Judge Friedman admits that “looking only at the language of the statute” the plaintiffs’ argument prohibiting subsidies to the federal exchange “may seem the more intuitive one.” He goes still further: “On its face, the plain language of [the statute], viewed in isolation, appears to support plaintiffs’ interpretation. The federal government, after all, is not a ‘State.’”

So how does he reach the contrary conclusion and will it be persuasive to five Justices on the Supreme Court? According to Judge Friedman, the Obama administration makes “a credible argument” that the federal government can create an exchange “on behalf of that State,” therefore the federal exchange must be viewed as equivalent to a state exchange and therefore the federal exchange is eligible for a subsidy. Or, in the words of the Obama Justice Department, “Congress envisioned the federally-facilitated Exchange to be the same entity as the state-operated Exchange.”

The reversible error is clear in logic and the law. The federal government acting on behalf of a state does not become a state. Nor in truth does the federal government act on the state’s behalf. The “federally-facilitated exchange” is a phrase of pure invention by the IRS. Under the statute, the federal exchange comes into existence when the state elects not to act, and does so without benefit of a subsidy. To reach the contrary conclusion, the Obama administration will need to persuade the Supreme Court that in the fictional world of Obamaland the federal exchange is “the same entity” as a state exchange.

Even the implementing IRS regulations grudgingly acknowledge that “[c]ommentators disagreed on whether the language in [the relevant provision of the ACA] limits the availability of the premium tax credit only to taxpayers who enroll in qualified health plans on State Exchanges.” The best the IRS can muster in response is that ACA provisions, taken in combination, “support the interpretation” that all exchange payments are allowed.

So here is the crux of the matter, on which Obamacare in practice may survive or fail. Everyone, including Judge Friedman, agrees that “the ACA takes a state-established Exchange as a given.” Judge Friedman’s tack is to conclude that this assumption is unworkable and therefore must be read as inconsistent with the purposes of the ACA, which after all is affordable health care.

The hard truth is that Congress erected a statutory scheme premised on the assumption that the states would elect to establish exchanges. Had the states complied, the legal challenge to federal subsidy payments would not exist. Whether the state-exchange-only assumption was implemented due to hasty drafting, hubris, legislative log-rolling or well-thought out purpose is pure speculation and beyond judicial review. It is the choice that Congress made. It is a choice to be corrected only in new legislation.

Judge Friedman acknowledges that Obamacare is no model of legislation, that it was “synthesized through a reconciliation process.” This could be the greatest cover in judicial history. When the case reaches the Supreme Court, neither Chief Justice Roberts nor Justice Kennedy, or three other votes for that matter, will rewrite the ACA statute to expand taxpayer funding. In reaffirming that the statute limits subsidies to state exchanges, the Court properly leaves the resolution to the legislative process. The end of Obamacare is not the end of politics.

“Don’t get cocky, kid” is eternally good advice, but that still leaves reason to hope (pray?) that repeal really can happen, as Obamacare falls under the weight of its own poorly conceived, monstrous impracticality.

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