Too Close to Call: Kennedy Is Key In High Court's Latest Obamacare Challenge

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By Kimberly Robinson

March 4 — The availability of affordable health care for millions of Americans appeared to hinge on the vote of swing-Justice Anthony M. Kennedy, after oral arguments March 4 in the latest U.S. Supreme Court challenge to the Affordable Care Act.

At issue is whether President Barack Obama's signature piece of legislation allows the Internal Revenue Service to make federal tax subsidies available to citizens in every state, or only in those states that have established their own health care “exchanges.”

Obama has likened these exchanges to for health insurance, allowing individuals to compare and purchase insurance coverage.

At times during the oral arguments, Kennedy appeared to agree with the law's challengers that subsidies were available only in places with an “Exchange established by the State”—as the statute says—rather than also in states that use the federally facilitated exchange,

But Kennedy expressed “serious constitutional” concerns that reading the statute that way would impermissibly coerce the states by requiring them to either follow federal commands or face draconian consequences.

Kennedy didn't appear satisfied with the third option either—that the court defer to the IRS's expertise. Allowing the agency to decide this issue when there are billions of dollars in federal subsidies at issue seems “drastic,” he said.

Chief Justice John G. Roberts Jr.—considered by many to be a possible vote for either side—was generally silent during the arguments, interjecting mainly to referee what was a spirited debate between the justices and arguing attorneys, and allowing extra time for both sides.

Wrong Direction

Michael A. Carvin, representing the ACA's challengers, and Solicitor General Donald B. Verrilli Jr., representing the federal government, each said that his reading of the statute was the only reasonable one.

“This is a straightforward case of statutory construction where the plain language of the statute dictates the result,” Jones Day's Carvin said.

No “rational, English-speaking person” intending to provide for subsidies on both state-established and federally established exchanges would use the phrase “Exchanges established by the State,” he said.

Justice Samuel A. Alito Jr. agreed. “If Congress did not want the phrase ‘established by the State' to mean what that would normally be taken to mean, why did they use that language?”

But Justice Stephen G. Breyer said that the phrase wasn't intended to be read naturally. He said that the term “Exchange” has a “technical definition.”

He explained that the act defines “Exchange” as one established under Section 1311, now at 42 U.S.C. §18031. That section requires states to establish an exchange.

But if states refuse, Breyer continued, Section 1321, at 42 U.S.C. §18041, kicks in and requires the federal government to “establish and operate such Exchange.”

So the statute tells the federal government to set up the state exchange, Breyer concluded.

Kennedy, however, didn't seem to buy that interpretation.

“So you're saying that by cross-reference to 1311, they really mean 1311 and 1321?” Kennedy later said. That seems to “go in the wrong direction.”

Will, Elizabeth & Amanda

But Justice Elena Kagan—known for fashioning hypotheticals that cut straight to the issue—offered a “simple daily life kind of example.”

“I have three clerks,” Will, Elizabeth and Amanda, Kagan began. To the first clerk, “I say, Will, I'd like you to write me a memo. And I say, Elizabeth, I want you to edit Will's memo once he's done. And then I say, Amanda, listen, if Will is too busy to write the memo, I want you to write such memo.”

“Now, my question is: If Will is too busy to write the memo and Amanda has to write such memo, should Elizabeth edit the memo?”

Carvin suggested that the hypothetical wasn't on point because Kagan was “agnostic” about who writes the memo.

But Congress wasn't agnostic about who set up the exchanges, Carvin said. The statute says in “the strongest possible terms we want States to run these Exchanges,” he argued.

The government's reading of the statute guts this strong presumption for state exchanges, Carvin said.

“That's a very important point,” Kagan interjected, “because what you're saying is that the answer to the question really does depend on context, and it depends on an understanding of the law as a whole.” It's not just a matter of interpreting four or five words, she said.

When Carvin countered that context actually supported his interpretation, Breyer seemed dubious.

If “you want to go into the context, at that point it seems to me your argument really is weaker,” Breyer said.

Under your interpretation, the exchanges “fall apart,” Breyer said.

He was referring to “death spirals” where taking away subsidies makes heath care insurance unaffordable for millions of people. As a result, only sick individuals keep their coverage. To account for that added cost, insurance premiums go up, and the cycle starts all over again, with more people dropping coverage.

How does that square with the statute's purpose, Breyer wanted to know. How “does that context support you?”

‘Neon Lights.'

But Justice Sonia Sotomayor had another concern: the intrusion on “the Federal-State relationship.”

“If we read it the way you're saying,” she said to Carvin, “then the States are going to be coerced into establishing their own Exchanges.”

Kennedy perked up at that suggestion. From “the standpoint of the dynamics of Federalism, it does seem to me that there is something very powerful to the point that if your argument is accepted, States are being told either create your own Exchange, or we'll send your insurance market into a death spiral,” he said.

How is that not the kind of coercion that we have previously said is unconstitutional? Sotomayor asked.

Kennedy seemed to agree. While you may win under the “plain words of the statute,” there seems to be “a serious constitutional problem if we adopt your argument,” he said.

That “serious constitutional question” is “in the background of how we interpret this statute,” Kennedy added.

Verrilli picked up on that. If that was really Congress's plan, you would want those consequences to be “in neon lights in this statute. You would want to make absolutely sure that every State got the message,” he said.

But the consequences to the states aren't clear, Verrilli said. Instead they are buried in a “subclause” about “the eligibility of individual taxpayers for taxing purposes.”

If all the states were “caught off guard and they were upset about this, you would expect them to file an amicus brief telling us that,” Alito said.

“But actually, of the 34” states that didn't set up a state exchange, “only 6 of them signed the brief” that makes that argument, he noted.

How “do you account for that?” Alito asked Verrilli.

Empty Promise

But Justice Antonin Scalia said that even if you believe that there is a constitutional issue here, the court's obligation to avoid constitutional questions can't make a statute say something it doesn't.

If “the only reasonable interpretation of a particular provision produces disastrous consequences for the rest of the statute, it nonetheless means what it says,” right? Scalia asked Verrilli.

Do you “have a single case in which we have said the provision is not ambiguous, it means this thing, but, Lord, that would make a terrible statute, so we will interpret it to mean something else?” Scalia asked rhetorically.

But Verrilli countered that the government's interpretation is reasonable, and actually flows directly from the text.

Moreover, he said it was consistent with the statute's overall purpose of providing affordable health care.

The challengers' position, in contrast, makes “a mockery” of the statute's “promise of affordable care for millions of Americans,” Verrilli said.

The statute may not be the statute that Congress intended, Scalia said. “The question is whether it's the statute that they wrote.”

Chevron Deference

Verrilli said that if there is any ambiguity about what the statute means, the court should defer to the IRS under Chevron U.S.A. Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837 (1984).

“But it seems to me a drastic step for us to say that the Department of Internal Revenue and its director can make this call one way or the other when there are, what, billions of dollars of subsidies involved here?” Kennedy said.

Roberts added that even if Chevron deference applied, “a subsequent administration could change that interpretation.”

To contact the reporter on this story: Kimberly Robinson in Washington at

To contact the editor responsible for this story: Jessie Kokrda Kamens at

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