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Obamacare Oral Argument: Still a Winner

The following post is written by Bill Levin, a friend and former colleague at the Office of Legal Counsel. Bill has been closely following the King v. Burwell litigation. For his previous posts, see here and here

How will the Supreme Court rule in King v. Burwell based on last Wednesday’s oral argument?

On Power Line, Paul Mirengoff judiciously concludes that the odds modestly favor the government: an implacable four-vote liberal bloc is potentially joined by a surprise vote from Justice Kennedy, on a theory of constitutional avoidance, plus the risk posed by Chief Justice Roberts, who said nothing one way or the other during oral argument to change the betting line.

An alternative view, argued here, is that oral argument justifies continued high optimism that the King plaintiffs prevail.

The key lies in the three-clerk hypothetical put by Justice Kagan to plaintiffs’ counsel, Michael Carvin:

JUSTICE KAGAN: [Can] I offer you a sort of simple daily life kind of example which I think is linguistically equivalent to what the sections here say that Justice Breyer was talking about? So I have three clerks, Mr. Carvin. Their names are Will and Elizabeth and Amanda. Okay? So my 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? (Laughter.)

While the exchange elicited a sharp laugh from the audience, it deserves serious post-argument comment for its wholly unfunny legal import.

What was Justice Kagan’s point in this far afield hypo, an exercise beloved of judges and the stuff of nightmares for practicing attorneys everywhere?

Will is the state exchange. Amanda is the federal exchange. The instruction to Will to write the memo is the so-called four words that subsidies are limited to exchanges “established by the state.” The implied instruction understood by Elizabeth to edit the memo is the infamous context. As applied to the ACA, the self-evident context is affordable care, which for liberals represents the legal warrant to pay federal subsidies. Case closed. Next.

So how did Mr. Carvin, a veteran Supreme Court litigator (Bush v. Gore, Obamacare I, among others), respond to this unexpected hypothetical:

CARVIN: If you’re going to create moneys to Will for writing the memo and Amanda writes the memo and you say, the money will go if Will writes the memo, then under plain English and common sense, no, when Amanda writes the memo.

JUSTICE KAGAN: You run a different shop than I do if that’s the way (Laughter.)…

CARVIN: [In] your chambers, you’re agnostic as to whether Will, Elizabeth or Amanda writes it. But the key point is here under Section 1311, Congress was not agnostic as to whether States or [Health and Human Services] established the Exchange.

A brief refresher makes sense of this high-stakes chess match.

Only three sections of the ACA law are directly at issue in King. Section 1311 authorizes state exchanges. Section 36B, the single section in the ACA authorizing subsidies, makes those subsidies available exclusively to “exchanges established by the State under section 1311.” If that were it, the case would not even be litigated, as only state exchanges would get subsidies.

The alleged complicating factor is Section 1321, which establishes the federal exchange alternative, but does so in the following manner: in case of a state’s “failure to establish [an] Exchange,” the Secretary of HHS “shall . . . establish and operate such Exchange within the State.” Critically, and hence the litigation, Section 1321 does not reference or tie to Section 36B subsidies.

Carvin’s rejoinder is sharp and incisive. The key to the case is who sets up the exchange, the state or the Secretary of HHS. It is the key because in Section 1321, only the Secretary of HHS can set up the federal exchange. On this ground, the government loses, and if the ACA were a run-of-the mill statute, the vote would, or at least should, be 9 to 0 confirming no federal subsidies.

For the government to prevail, it needs to persuade the Court that the federal exchange, somehow, anyhow, becomes a state exchange for purposes of Section 36B. This is no easy task (actually an impossible one if a statute means what it says) and hence the elaborate Kagan hypothetical that seeks to shift attention from the plain language to, well frankly to anything else, but politely called context. This is the role played by Elizabeth, who of course has no specifically assignable statutory section.

How well did the hypothetical work? It is Justice Alito who at this point jumps into the fray:

JUSTICE ALITO: Well, Mr. Carvin, if I had those clerks, I had the same clerks (Laughter) and Amanda wrote the memo, and I received it and I said, This is a great memo, who wrote it? Would the answer be it was written by Will, because Amanda stepped into Will’s shoes?

CARVIN: That was my first answer. (Laughter.)

JUSTICE KAGAN: He’s good, Justice Alito.

Humor aside, the debate between Justice Kagan and Justice Alito is the proxy for the final Court decision, with counsel Carvin participating in the crossfire.

Decipher the winner here and we know the outcome of the case.

The translation of Justice Alito’s comment is that he finishes the job, by highlighting that in the ACA, Will (a state) is not Amanda (the federal government) and Elizabeth (the rest of the ACA) for these purposes does not matter. The federal government cannot establish a state exchange. This is the issue that simply cannot be overcome by the government in the ACA, and it goes to the heart of the problem with Justice Kagan’s hypothetical. Amanda is not Will.

Nor can the day be saved by a definitional argument that a federal exchange becomes a state exchange due to the words “such Exchange” in 1321. This is the context for Justice Scalia’s learned formulation that it is “gobbledygook” to say the federal government can establish a state exchange: “Rather, it seems to me ‘such’ means an Exchange for the State rather than an Exchange of the State.”

In truth, this is the legal end of the argument in King. It lays bare the error of Kagan’s hypothetical. Elizabeth is not at issue, nor is the memo. The key is the author. It also explains the forlorn effort by Solicitor General Verrilli to continue the Kagan theme with the unsupported, but rhetorically necessary, statement that: “The right place to focus here is not on the who, but on the what.”

But why does this three-clerk scenario ensure victory, as it still leaves Justice Kennedy and Chief Justice Roberts unaccounted for?

The answer as to Justice Kennedy comes at three moments in the argument. First and most critically, in response to Mr. Carvin’s argument, he directly states that he is obliged to follow the plain meaning of the statute:

JUSTICE KENNEDY: It may well be that you’re correct as to these words, and there’s nothing we can do. I understand that.

Justice Kennedy explains himself more fully in the following, less noticed colloquy with SG Verrilli, in which he explains, contra the Kagan hypothetical, that the state exchange (1311) is not and cannot also be a federal exchange (1321) set up as a state exchange (mixing 1311 and 1321 through the “such Exchange” language).

JUSTICE KENNEDY: So you’re saying that by ­­cross­reference to 1311, they really mean 1311 and 1321?

GENERAL VERRILLI:  Yes. Well, let me, ­­and I do think that, and let me walk through why I think that’s true.

JUSTICE KENNEDY:  All right. That, ­­that seems to me to go in the wrong direction ­­

 GENERAL VERRILLI:  No, I think ­­

 JUSTICE KENNEDY:  ­­ for your case ­­

 GENERAL VERRILLI:  I think ­­

 JUSTICE KENNEDY:  ­­ not the right direction.

Finally, when SG Verrilli suggests that the statute is ambiguous, Justice Kennedy is having none of it, especially in the context of disbursing taxpayer money (but ignore the shades of Austin Powers indifference to millions and billions):

JUSTICE KENNEDY: Well, if it’s,­­ if it’s ambiguous, then we think about Chevron [i.e., ambiguous statutory construction committed to agency discretion]. 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? Hundreds of millions? … And it,­­ it seems to me our cases say that if the Internal Revenue Service is going to allow deductions using these, that it has to be very, very clear.

The last substantive component of the argument concerns anomalies. The government seeks to argue that under plaintiffs’ construction, no individuals would qualify for the federal exchange, an absurd result. The plaintiffs counter that under the government’s construction, there would be no Medicaid for the 34 states without an exchange. In a massive, poorly crafted statute, it is unsurprising that contradictions occur in unrelated sections. At oral argument, the anomaly arguments at best cancel out, as they can be found on both sides of the ledger.

But the more important legal point is that there is no anomaly, in the statute or alleged by the government, with respect to the only provision that matters, namely the subsidy and its operation in Section 36B. Or as icily put by Justice Scalia: “[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. Do you have one case where we’ve ever said that?”

That’s it. There is nothing left. The policy amicus briefs can return where they belong, to think tanks, academics, and lobbyists compensated by hospitals and insurers seeking their preferred outcomes. They have no legal bearing. The post hoc arguments by economists on exchange “death spirals” are irrelevant, for the same basic reason. Not a word exists in the legislative history that the absence of subsidies—as opposed to the loss of the individual mandate at issue in Obamacare I—would lead to a death spiral.

And what about relevant legislative history at the time of drafting? As with the death-spiral argument, there is not a single word, on either side, on the subject of subsidies flowing, or not flowing, to the federal exchange. No inference can be drawn. The statute controls.

JUSTICE SOTOMAYOR: …[D]o you really believe that States fully understood that they were not going to get,­ their citizens were not going to get subsidies if they let the Federal government? What senator said that during the hearings?

CARVIN: The same amount of senators who said that subsidies were available on HHS Exchanges, which is none. They didn’t deal with it in the legislative history just as they didn’t deal with Medicaid because the statute was quite clear.

And to conclude, what of Justice Kennedy’s concern about potentially coercive pressure on the states? There are many substantive responses, some made by Carvin in the argument and elaborated by Randy Barnett, among others, including: no briefing on the issue; absence of coercion (eight states in amicus brief opposed to federal subsidies); the wrong action (i.e. wait for a case in which a state actually complains of coercion); the wrong remedy (fix the insurance market instead); the wrong result (funding condition not an invasion of state police power); or, if an offer of funding were truly coercive, then it will be necessary to find a large swath of the modern federal-state nexus similarly unconstitutional, including Medicaid and $650 billion in annual grant-in-aid bribes to states, an abuse spectacularly exposed in James L. Buckley’s new bookSaving Congress from Itself.

And the legal point, which even Kennedy accepts, is that if the statute’s meaning is plain, the Court cannot rewrite it, even to avoid a constitutional problem. Kennedy may file a concurrence, but given the plain meaning he has no choice but to join the holding of the majority.

That leaves only Roberts, who shed no light on his position at oral argument. But here it is clear that King on statutory grounds is a simple case. Justice Kagan took her best shot with the hypothetical to win over the Chief Justice, and on the evidence from oral argument, there is no basis to conclude that it succeeded.

For lawyers and non-lawyers alike, the three-clerk hypothetical provides a surprising insight into Supreme Court argument. For Republicans and the 2016 Presidential nominee, stay the course for full Obamacare repeal, putting the King decision to best use, which is not exactly a traditional Republican legislative strength.

In the worst of all worlds, the legal victory in King will end up hurting Republican Governors and allow Democrats to make the case that Obamacare is on its way to being owned by both parties. Which of course is yet another reason, and perhaps the most important, that the Supreme Court should read statutes as written and let politics take their proper course.

As for the possibility that a heaping bowl of crow awaits those of us confident in a 5 to 4 victory, it won’t be the first, or last.

William Levin, a graduate of Yale Law School and Yale School of Management, manages an investment banking firm in New York.

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