Thursday, July 24, 2014

Could the ACA exchanges go the way of the Medicaid expansion?

If the D.C. Circuit panel ruling in Halbig stands, and the state exchanges currently run by the federal government are deemed unable to grant subsidies to health plan buyers who qualify for them under the ACA's criteria, Nicholas Bagley posits that "the states with federally established exchanges will come under enormous pressure to establish their own exchanges." The federal government could make it easy for them, Bagley suggests, essentially allowing them to decree that they've "established" exchanges while letting continue to run them.  Thus the ACA would likely prove indelible after all:
True, not every state would accept the invitation to establish its own exchange, even if doing so were more or less a formality. But lots of states would, especially as voters started to howl about losing their tax credits. If so, even a bad outcome in Halbig might not matter that much in the end.
That quasi-forecast recalls the argument that all states will ultimately come round to accepting the ACA Medicaid expansion, albeit in their own sweet time (Arizona, the last state to implement Medicaid itself, did so 17 years after Congress established the program).

While this thought might be expected to soothe ACA proponents, for me it had the opposite effect. The Medicaid scenario might provide cover for the Supreme Court to uphold the D.C. Circuit panel in Halbig.

When Chief Justice John Roberts held in June 2012 that the ACA's individual mandate exceeded Congress's power under the Commerce Clause but was a legitimate exercise of Congress's taxing power, he justified the recourse to "the Government's alternative argument" by citing SCOTUS precedent that “every reasonable construction must be resorted to, in order to save a statute from unconstitutionality.” He would not thwart Congress's intent by destroying the law's ability to function if he could avoid it.

He showed no such reluctance, however, with regard to the ACA's requirement that states expand Medicaid eligibility to a new class of beneficiaries or else stand to lose federal funding for their existing Medicaid programs. He deemed that requirement coercive, and was joined by six other justices in striking the requirement down and making the Medicaid expansion voluntary for the states.

The arguments backing this finding do not apply directly to federal funding of the subsidies offered to qualified Americans buying health insurance on state exchanges, because they hinged on the states' role in  funding Medicaid -- and the states do not contribute to the exchange subsidies. Nor have the Halbig plaintiffs argued that Congress Congress had no right to to empower a federal exchange to grant subsidies; their argument is simply that the law's drafters did not stipulate that such subsidies could be awarded in an exchange "established" by the federal government rather than a state (and, more preposterously, that Congress did not intend to fund subsidies in exchanges run by the federal government). The complaint alleges only that individuals and businesses, not states, are hurt by the IRS rule authorizing payment of subsidies to buyers in federally run exchanges.

Nonetheless, should the Supreme Court's five conservative justices wish to uphold a narrowly literal reading of an isolated passage of the ACA, finding that the law only authorizes subsidies to be credited to citizens buying insurance in an exchange "established by a state," the notion that the decision to form an exchange would best be left to the states could provide an attractive policy justification.  Particularly, perhaps, for Roberts, who in his 2012 decision showed himself at once reluctant to destroy the law in its entirety and eager to preserve the states' sovereignty in its implementation. He is well known as a zealous champion of states' rights, most notably in his opinion striking down a key provision of the Voting Rights Act in the name of an alleged tradition of "equal sovereignty" among the states. His affirmation of state sovereignty in the context of the Medicaid expansion strikes me as suggestive:
...“the Constitution has never been understood to confer upon Congress the ability to require the States to govern according to Congress’ instructions.” New York, supra, at 162. Otherwise the two-government system established by the Framers would give way to a system that vests power in one central government, and individual liberty would suffer.

That insight has led this Court to strike down federal legislation that commandeers a State’s legislative or administrative apparatus for federal purposes. See, e.g., Printz, 521 U. S., at 933 (striking down federal legislation compelling state law enforcement officers to perform federally mandated background checks on handgun purchasers); New York, Supra , at 174–175 (invalidating provisions of an Act that would compel a State to either take title to nuclear waste or enact particular state waste regulations). It has also led us to scrutinize Spending Clause legislation to ensure that Congress is not using financial inducements to exert a “power akin to undue influence.” Steward Machine Co. v. Davis, 301 U. S. 548,590 (1937). Congress may use its spending power to create incentives for States to act in accordance with federal policies. But when “pressure turns into compulsion,” ibid., the legislation runs contrary to our system of federalism.

“[T]he Constitution simply does not give Congress the authority to require the States to regulate.” New York, 505 U. S., at 178. That is true whether Congress directly commands a State to regulate or indirectly coerces a State to adopt a federal regulatory system as its own (NFIB v. Sebelius, pp. 47-48).
Once more, the specific argument here is not directly relevant to Halbig, as the suit does not argue per se that the federal government is coercing the states by establishing exchanges for them. Rather, I'm envisioning a bit of a two-step:  1) the ACA did literally limit tax credits to exchanges established by a state, and 2) holding Congress to that literal reading would not kill the ACA, it would just devolve the decision whether to implement to the states -- where it belongs in any case.

Update: by email, Nicholas Bagley agrees that the scenario laid out here is plausible (if not, I would hope, likely), and adds, with respect to states nominally taking over their exchanges while leaving the operation to HHS, "The potential ease of switching may make the court more likely to do something crazy in Halbig."