Obamacare Going Back to Supreme Court

Late Thursday, lawyers challenging a key part of Obamacare petitioned the U.S. Supreme Court to take their case. The Court is very likely to grant the petition, resulting in oral argument in January or February of 2015 and a decision next June as the presidential campaign heats up.

The lawsuit does not challenge a provision in the Affordable Care Act (ACA) itself. Instead, this case challenges a regulation issued by the Internal Revenue Service, without which Obamacare will be crippled. The Supreme Court is almost certain to take the case, which could dictate the fate of President Barack Obama’s signature legislation.

The way the ACA is written, it attempts to rope the states into the federal Obamacare system in two ways. There are five central pillars to Obamacare, two of which require state participation to work. Obama and congressional Democrats understood it was vitally important to get the states onboard, in part to give all politicians (especially Republicans and state governments) “skin in the game” to make Obamacare work and to blunt the political blowback from what were sure to be significant problems.

The Constitution does not allow the federal government to command states to pass legislation or run a federal program under the Tenth Amendment’s anti-commandeering principle. So the ACA attempts to induce to the states to do so “voluntarily.”

First, the ACA essentially doubles the size of Medicaid, which is government-run healthcare at rates many doctors cannot afford. The ACA attempted to threaten the states that any state refusing to join this larger version of Medicaid could be stripped of all its Medicaid dollars, which account for almost 20 percent of state spending.

As Breitbart News analyzed in detail in 2012, this threat to strip states that don’t “volunteer” to expand Medicaid is the part of Obamacare the Supreme Court struck down in NFIB v. Sebelius, as the Court held 7-to-2 that this part of the ACA coerced the states and therefore violated the Tenth Amendment. (As Breitbart News separately reported, four justices would have struck down the entire Medicaid expansion, and on that basis struck down the entire Obamacare law regardless of the “individual mandate” commanding Americans to buy insurance.)

The second way the federal government tried to lean on the states is through tax subsidies on the state exchanges. Obamacare’s exchanges mean little if they just provide a place for Americans to buy insurance, since many people and families cannot afford to buy individual policies (as opposed to group policies) at full price.

Since Congress cannot command states to pass laws, the ACA says that if a state refuses to create an exchange, the federal government will set up one instead. That’s Healthcare.gov, the problems with which became a national embarrassment for Obama and the butt of late-night comedians’ jokes.

But this created a dilemma for Congress of how to persuade states to spend enormous money creating an exchange and staffing it, when each state knows the federal government would do so if the state doesn’t. For a state, if the Department of Health and Human Services (HHS) will do it anyway, why do all the work, spend all the money, and risk taking all the blame if it doesn’t work, especially since the program it administers is a federal program beyond the state’s control?

So Congress wrote the law in such a way to get voters to pressure state legislatures and governors to create exchanges. Section 1401 of the ACA says that a taxpayer can receive a subsidy to partially pay for their healthcare policy if it’s purchased on an “Exchange established by the State under [Section] 1311” of the ACA. “State” excludes “federal government.” And state exchanges are created by Section 1311 of the law, while federal exchanges are created by Section 1321.

In other words, if you want to get a subsidy, your governor and state lawmakers must set up an exchange. The Obama White House thought American voters would be so intent on getting tax subsidies that all 50 states would create exchanges.

Instead, 36 of the 50 states have not done so. Obama and his congressional allies fundamentally miscalculated how many Americans would demand government money for their healthcare.

This poses an enormous problem for Obamacare. The Obama administration failed to co-opt the states into Obamacare through exchanges, but it’s every bit as important to hook middle-income Americans onto federal money in order for Obamacare to endure. So in 2012 the IRS issued a regulation (the “IRS Rule”) saying that Section 1401 of the ACA grants subsidies to all policies bought on all exchanges, including federal exchanges.

Since that violates the plain language of Congress’ law, four lawsuits were filed around the country challenging the IRS Rule as a violation of the Administrative Procedure Act (APA), which, among other things, requires every regulation to be consistent with the federal statute that authorized it.

One of those four cases, King v. Burwell, has now gone to the Supreme Court. (Full disclosure: In addition to being a staff analyst for Breitbart, this author is also one of the lawyers litigating one of the other four cases; the author is not involved in King.)

On July 22, the U.S. Court of Appeals for the D.C. Circuit in Halbig v. Burwell held that the IRS Rule is illegal because it violates the APA. On that same day, the U.S. Court of Appeals for the Fourth Circuit in Richmond, Virginia, ruled the opposite way in King, upholding the IRS Rule.

Both cases were brought by Supreme Court heavyweight Michael Carvin, a partner at the mega-law firm Jones Day, and were organized and supported by the Competitive Enterprise Institute (CEI) and its top lawyer, Sam Kazman.

Late on July 31, Carvin filed a petition for a writ of certiorari at the Supreme Court in the King case. In the petition, Jones Day showcases that the federal appeals courts are now split on this issue and asks the High Court to take the case.

Unless Obama’s U.S. Solicitor General Donald Verrilli requests an extension (unlikely, and it would only delay things for a month or two), the Supreme Court will vote on September 29 whether to take King.

The justices are almost certain to take this case. If they do, the case will be argued in the first two months of 2015, with a decision by June 2015.

If the Supreme Court agrees with the D.C. Circuit and reverses the Fourth Circuit, the ripple effects will hobble the ACA. Of Obamacare’s five central pillars, two others are impacted by the IRS Rule.

Many millions of Americans cannot afford the health insurance they are required to buy under the individual mandate without subsidies. But more than that, the way the ACA is written, millions of those Americans would then be exempted from the mandate.

Moreover, under the “employer mandate” to offer healthcare, large employers are only subject to penalties if one of their employees gets an exchange subsidy. If there are no subsidies, then there is no penalty for not following the employer mandate in 36 states.

Already because of the Supreme Court’s NFIB decision which made the Medicaid expansion optional for the states, half of the states have refused to join Obamacare’s “Medicaid 2.0.” Of the five pillars of the ACA, the only one that will still be fully working is the requirement that insurers cover preexisting conditions with no option to deny coverage or charge anyone a higher premium for their individual health factors.

That’s not enough to save Obamacare. If the Supreme Court takes King and enforces the law as Congress wrote it, then Obamacare will be finished in its current form. The only way to save government-run healthcare at that point is for Congress to pass a new law to fundamentally change the Obamacare system.

With Republicans in charge of the House (and possibly the Senate by that time), it is all but certain they will not vote to save Obamacare. This is all the more true since the presidential campaign will be underway by summer 2015.

The Supreme Court may make the 2016 election in large part a referendum on government-run healthcare through its decision in King v. Burwell.

Ken Klukowski is senior legal analyst for Breitbart News. Follow him on Twitter @kenklukowski.