John Davidson: King v. Burwell Reveals The Threat Of The Administrative StatePosted: March 5, 2015
What happens to the subsidies should not be the court’s concern. The only question that matters in King is whether the administration used the IRS to rewrite a law Congress passed
“Over and over, the law says premium subsidies are only to be disbursed ‘through an Exchange established by the State.’ It says this nine times.”
At the heart of King v. Burwell is whether the text of the Affordable Care Act (ACA) means what it says. Specifically, the case hinges on what the word “state” means. Does it mean one of the fifty states, or does it mean the states and the federal government?
At issue are the tax credits (subsidies) the law doles out to help Americans pay for health insurance premiums sold through the exchanges. Over and over, the law says premium subsidies are only to be disbursed “through an Exchange established by the State.” It says this nine times.
“Their assumption was that states would set up the exchanges and federal subsidies would flow through them, as described in the law. When 37 states opted instead to let the federal government set up exchanges, it exposed the weakness of the law’s reliance on cooperative federalism.”
If Obamacare is to be faithfully executed, say the challengers in King, then federal subsidies for health insurance are not allowed in the 37 states that failed or refused to set up a state-based exchange and instead have federal “default” exchanges. Two different sections of the law authorize exchanges and distinguish in statute between an exchange a state has established (section 1311) and an exchange the Secretary of Health and Human Services has established in states that fail to create one (1321). Subsidies are available only to those who purchase coverage on a state-based—section 1311—exchange.
Cooperative Versus Competitive Federalism
Suffice to say that Obamacare’s exchanges are built on the idea of cooperative federalism: the federal government, unable to simply commandeer state agencies, invites states to implement federal policies in return for federal funding or favorable regulatory treatment.
“It comes down to a question about the rule of law and whether, in an advanced administrative state, laws can have a fixed meaning.”
States carry out a great many federal policies and programs using this scheme, like Medicaid, Common Core, and a host of environmental regulations. Because Obamacare meddles so much with health insurance markets, which states traditionally regulated, it relies on the practice of cooperative federalism to an astonishing degree. Congress had hoped to induce states to cooperate by making subsidies contingent on states setting up their own exchanges—a policy proposition that, like Medicaid expansion, could bring millions or even billions of federal dollars into a state. At least, that’s what the Kingchallengers contend.
That’s where Obamacare’s legislative history comes into play. When Senate Democrats passed the ACA in December 2010, they hadn’t a vote to spare. When Republican Scott Brown won a special election the very next month to fill the seat vacated by Sen. Edward Kennedy’s death, Senate Republicans gained enough votes to filibuster a conference report on the House and Senate bills. Congressional Democrats therefore had to resort to the budget reconciliation process to pass the final version of the law: they opted for an imperfect bill, one that didn’t go as far as many Democrats had originally wanted, instead of no bill at all.
Their assumption was that states would set up the exchanges and federal subsidies would flow through them, as described in the law. When 37 states opted instead to let the federal government set up exchanges, it exposed the weakness of the law’s reliance on cooperative federalism.
A ‘Term of Art’ For No Rule of Law?
That’s when the Obama administration stepped in with an Internal Revenue Service rule that allowed for subsidies on federal exchanges. In effect, the IRS rule proclaimed that “Exchange established by the State” meant any exchange, regardless of whether a state or the federal government established it. In subsequent court challenges to the IRS rule, including King, the government maintains that subsidies “are available on all Exchanges because the phrase ‘Exchange established by the State under Section 18031’ is a term of art that includes a federally-facilitated Exchange.”
John Davidson is a writer in Austin, Texas, and the director of the Center for Health Care Policy at the Texas Public Policy Foundation. Follow him on Twitter.
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