(Bloomberg) A U.S. Supreme Court argument over Obamacare’s tax subsidies divided the justices along ideological lines, potentially leaving two pivotal members to decide the fate of the landmark law.
Chief Justice John Roberts, who cast the decisive vote to uphold the health-care law in 2012, asked only a handful of questions and gave little indication which way he will go this time.
Justice Anthony Kennedy, who voted to invalidate the statute three years ago, asked questions of both sides in the one-hour, 20-minute hearing in Washington. He said limiting the tax credits to 16 states, as a group of challengers urge, would create a “serious constitutional problem.”
A decision limiting the credits might unravel the Affordable Care Act, making other core provisions ineffective and potentially causing the market for individual insurance policies to collapse in much of the country. Millions of people might be unable to afford insurance, and hospitals could be left with billions of dollars in unpaid bills.
The fight centers on a four-word phrase that has become a linchpin of the law. Challengers say that phrase limits the tax credits to the 16 states that have set up their own marketplaces, or online exchanges, for people to buy insurance.
Kennedy suggested the court might have to allow nationwide subsidies to avoid trammeling the rights of the states, which he said would face a choice between setting up their own exchanges or seeing their insurance markets collapse. He mentioned the legal doctrine of “constitutional avoidance,” under which the court tries to interpret statutes so as not to render them unconstitutional.
At the same time, Kennedy indicated he saw the challengers’ reading of the law as the more natural one. At one point, he indicated he might be willing to side with them no matter the consequences.
“It may well be that you’re correct as to these words, and there’s nothing we can do,” he told Michael Carvin, the lawyer representing four Virginians seeking to block the subsidies. “I understand that.”
A ruling against President Barack Obama’s administration would put pressure on the 34 states, most of them Republican-controlled, that have refused to set up their own exchanges. Residents of those states would face the prospect of losing tax credits. Congress could step in, though it is riven by opposition to the health-care law. The Obama administration says it can do little on its own.
The measure says people qualify for tax credits when they buy insurance on an exchange “established by the state.”
The challengers say that phrase means subsidies aren’t available in 34 states that didn’t set up their own exchanges. Residents of those states instead use the federal healthcare.gov system, and an estimated 7.5 million now receive discounts.
In an otherwise fast-paced hearing Wednesday, Roberts interjected with a question only four times. His most substantive query explored U.S. Solicitor General Donald Verrilli’s contention that the court should defer to the interpretation of the Internal Revenue Service, which said the tax credits apply nationwide.
“That would indicate that a subsequent administration could change that interpretation?” Roberts asked.
Justices Antonin Scalia and Samuel Alito both expressed skepticism about nationwide subsidies. Scalia said Congress would intervene if a ruling against subsidies had major consequences.
“You really think Congress is just going to sit there while all of these disastrous consequences ensue?” he asked Verrilli. “Congress adjusts, enacts a statute that takes care of the problem. It happens all the time. Why is that not going to happen here?”
“This Congress?” Verrilli answered, drawing laughter from the packed courtroom.
Alito raised the idea of the court delaying the effective date of a ruling against the administration so it wouldn’t affect the 2015 tax year.
The court’s Democratic appointees made clear they leaned toward the administration. Justice Elena Kagan said Carvin’s position would make the law “replete” with anomalies.
Justice Sonia Sotomayor joined Kennedy in saying Carvin’s approach would improperly coerce the states into setting up their own exchanges.
“If we read it the way you’re saying, then we’re going to read a statute as intruding on the federal-state relationship,” she said.
Kennedy said repeatedly that the coercion of the states might create a constitutional problem. At another point, however, he indicated a problem with the government’s approach.
“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.
Kennedy is one of the court’s staunchest advocates of states’ rights. One lawyer who filed a brief opposing the tax credits said the justice’s questions indicated his vote is up for grabs.
“He is the big question mark,” said Cory Andrews of the Washington Legal Foundation. “That’s the big takeaway from today.”
Justice Ruth Bader Ginsburg pressed both Carvin and Verrilli about whether any of the four plaintiffs in the case has suffered the type of legal injury that entitles a person to sue.
White House spokesman Josh Earnest told reporters it would be “unwise” to draw conclusions from the justices’ questions during the argument.
If the court ruled against the subsidies, “prices would likely go through the roof,” Earnest said. “This is a fundamental part of the Affordable Care Act, and it’s at risk.”
The House and Senate’s Republican majorities oppose Obamacare, and they also “struggle mightily” to accomplish even popular goals such as funding the Department of Homeland Security, Earnest said.
Hospitals rose the most on the Standard & Poor’s 500 Index on Wednesday, as of 1:56 p.m. in New York. Tenet Healthcare Corp. was up 4.9 percent to $49.35, and HCA Holdings Inc. gained 5.6 percent to $74.77. Community Health Systems Inc. advanced 5.1 percent to $52.12.
The case is King v. Burwell, 14-114.
Register or login for access to this item and much more
All Accounting Today content is archived after seven days.
Community members receive:
- All recent and archived articles
- Conference offers and updates
- A full menu of enewsletter options
- Web seminars, white papers, ebooks
Already have an account? Log In
Don't have an account? Register for Free Unlimited Access