David R. Henderson  

King v. Burwell: Supreme Court Rules 6-3 in Favor of Federal Subsidies

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A quick note on Luigi Einaudi... 1937 and 2013...

More here.

Unfortunately, the outcome that I thought likely has happened.

Here's the ruling.


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COMMENTS (32 to date)
foosion writes:

It's fun to see Roberts cite the statement "Without the federal subsidies ... the exchanges would not operate as Congress intended and may not operate at all" in the opinion.

Apparently, the authors of that statement believe Congress passed a law that would not operate as intended and may not operate at all. Tell me again why Congress would do that?

Andrew_FL writes:

Apparently it is the duty of the court to make sure legislation passed by Congress works as intended!

khodge writes:

What I've read suggests that Obamacare is going to collapse under its own weight, in which case - if the Republicans back away and let it run its own course - the failure will be an economic failure and not the workings of the Supreme Court.

The prototype is the 2000 election where Al Gore clearly lost but, because the Supreme Court was somehow involved, the mainstream media could blame the Courts without resorting to accepting after-the-fact evidence that Bush won.

Andrew_FL writes:

@khodge-Judging from the precedent of Social Security it can take several decades or more for an entitlement to collapse under its own weight. "Back away and let it run its own course" has been the strategy the Republican party has pursued since Eisenhower, and it has been a miserable failure since Eisenhower.

adam writes:

foosion,

Congress routinely passes laws that do not operate as intended. For instance, Congress has enacted a number of tax and securities law provisions over the years intended to reduce CEO compensation (e.g. capping deductibility at of non-performance pay at $1M, giving adverse treatment to certain golden parachutes, requiring public disclosure of comp), but it is now widely acknowledged that these provisions either had no effect or actually increased CEO comp. That's because the only way Congress can affect people is through incentives, and Congress has to predict how people in the real world will react to those incentives. Congress obviously gets it wrong sometimes. In the case of the ACA, Congress wanted states to set up their own exchanges. Congress was predicting that by providing subsidies only in the state exchanges, it would create a huge incentive to force governors and state legislatures to create the state exchanges. It made the same sort of prediction for the ACA medicaid expansion. It predicted that by threatening to pull all medicaid funding from states that didn't expand, all states would expand. Congress predicted wrong in both cases.

Andrew_FL writes:

@adam-Quite so, but ordinarily the Supreme Court doesn't step in to protect Congress from unintended consequences.

Capt. J Parker writes:

An awful legal decision and a dark day for liberty. My quick read of the decision has me conclude that Roberts believed that the plain language of the law said subsidies are not for people in federal government established exchanges so he swept the plain language interpretation of ACA aside in favor of a legislative intent argument. But how did he decide what legislative intent was? He did it via his own ad-hoc speculation on how the insurance market would evolve if the plain language interpretation of ACA were upheld and then decided that this is not what congress would have wanted. So here the court is playing both legislator and healthcare economist even though there was no need (other than political) to do so given the law's clear wording. I cry thinking about what a disastrous outcome for personal liberty will occur when and if such presumptive legal logic is inflicted upon the first or fourth Amendment.

Underwriterguy writes:

For a real treat read Scalia's dissent. He destroys the majority ane does it colorfully.

LD Bottorff writes:

I wonder what Justice Roberts would think of a future administration that refused to enforce an increase in the minimum wage on the grounds that the plain text of the law is inconsistent with the intended consequences?

Thomas Sewell writes:

Scalia was pretty blunt... and very convincing.

Roberts seems determined to save the courts reputation for partisanship in the short term by destroying it's credibility in the long term.

Jesse writes:

Suppose all but one state set up exchanges. Further, suppose the holdout was a deep-red state, whose political support was virtually hopeless. What if the executive branch/IRS decided there was more political value in sticking it to that state, and punishing them for not building their own exchange.

Would supporters of today's decision also support the theory that the executive is currently violating the intent of congress?

I doubt it. I'm guessing the court would rule for plain language. Maybe even 9-0, but minimally the current majority 6 would flip.

Edogg writes:

Fun fact, when you use CTRL F to search through the html file or pdf file of the text of the Affordable Care Act, it doesn't locate phrases that wrap around to a next line. Also, the important phrase under issue is "Exchange established by the state under 1311" when it should probably read "under section 1311". So, don't just search for "Exchange established by the state under section 1311", search for "Exchange established", "Exchanges established", "established by the state", "state under 1311", or "state under section 1311".

Roberts' opinion doesn't rely on legislative intent exactly. He refers to the "context" and "structure" of the statute. (Nevermind, I just found some places where Roberts refers to what Congress meant.) Of course, Scalia accuses Roberts of making assumptions of intent, and if there's a clear definition of the "structure" of a statute, I don't know it.

Whatever the merits of considering legislative intent, many people who support the King side such as Michael Cannon and seem to think it's relevant, considering the attention paid to Jonathan Gruber's statements. And Roberts quoted the opinion Scalia joined from the last healthcare case which states (“Without the federal subsidies ... the exchanges would not operate as Congress intended and may not operate at all.”)

magilson writes:

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Edogg writes:

Kudos to David Henderson for being consistent in not making any arguments based on congressional intent.

Scott Freelander writes:

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RPLong writes:

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Duncan Earley writes:

I have one of my usual dumb questions..

I understand that if your force insurance companies to accept people with pre-existing conditions then you need the individual mandate to avoid the death spiral issue. But why are subsidies needed? The judge mentioned the three legged stool metaphor in the ruling, but I dont understand why subsidies are one of the legs? People wouldn't lose insurance, just pay more for it right?

Andrew_FL writes:

@Duncan Earley-Since the mandate takes the form of what amounts to a fine, without subsidies more people will take the "tax penalty" and not buy insurance.

Michael Byrnes writes:

Andrew,

There's also a hardship provision, so the penalty does not apply if premiums exceed a particular threshhold (I think 10% of AGI or something).

Shayne Cook writes:

There are two particularly interesting statements in Justice Scalia's dissent (toward the end) that offer some predictive value ...

1.) " It diminishes the participation of the
States in the implementation of the Act.
"

I should say so. It appears to me that, after this ruling, the concept of "State Exchanges" is entirely redundant. I wonder how long it will take for States that have established their own exchanges to understand that - and eliminate their own exchange (and related costs). I also wonder if that wasn't part of the original intent of the drafters of PPACA.

2.) " ... 'established by the State'
means not established by the State) will be cited by litigants endlessly, to the confusion of honest jurisprudence.
"

This one has far more detrimental effects. This SCOTUS ruling will be cited in the future in contests arguing the supremacy of Federal over individual State rights/control. A furtherance of the concept of, the United States IS, versus the United States ARE.

I'm not impressed.


Thomas B writes:

As I read the ruling, the heart of the logic is this:

1. The law orders the States to establish exchanges. This is not optional.

2. If a State does not do what it takes to establish an exchange, the Government will establish one for it, and deem that exchange to have been established by the State. This prevents the States from choosing not to comply with the law under 1; they can default to a deemed compliance, or explicitly comply, but those are the only two options. Either way, the State will establish an exchange.

3. The Supreme Court has signed off on step 2, which is novel AFAIK.

The rest is just commentary.

Zeke writes:

@ThomasB:

I haven't made my way through Roberts' opinion, but accepting your synopsis as true, I would think that analysis potentially runs afoul of the anti-commandeering principle of New York v. United States? Maybe because in the "deemed" exchange, it doesn't require expenditures by a state and therefore does not commandeer state actors? It is odd.

Andrew writes:

Thomas B is correct.

Others are also correct.

This part of the ACA was written in such a way to force the individual states to create exchanges. This was part of the CBO scoring scheme.

Once it was realized that Red states were not going to go along with the cost, State exchanges were created whether the individual states operated them or not. Even thru the Federal exchange, each state is represented. I cannot be a resident of Wisconsin and purchase insurance in Texas via the Federal exchange. The federal exchange must follow all the individual state mandates and regulations (and yes, there are many).

SCOTUS also stated in striking down DOMA, that federal benefits cannot be restricted state by state. If SCOTUS would have decided the other way and struck down the subsidies, this would have been challenged and reversed on equal protection grounds.

SCOTUS also saved the GOP from itself. As they didn't have any replacement plan ready, and have show no willingness to create one, the status quo is actually a benefit to them politically as we can see from the posturing being done by GOP candidates and talking heads.

"We" are getting what we wanted/deserved and "we" are getting it good and hard.

AlexR writes:

The SC is not a co-equal branch of government; it can easily be bullied or ignored (as evidenced by Jackson, FDR and Obama). I think Roberts is trying to "do the right thing" as best he can given the severe constraints he faces.

To best see this, read Cass Sunstein's analysis of the decision at

http://www.bloombergview.com/articles/2015-06-25/the-catch-in-the-obamacare-opinion

Sunstein rues the fact that the SC, while affirming the lower court's finding that all enrollees should get subsidies, rejected the lower court's reasoning that the IRS has the power to interpret the statute as it sees fit.

Conditional on a political "need" to save the ACA, what's lesser of evils for Roberts? Affirm that executive agencies have limitless ability to interpret laws? Or engage in tortured logic about interpretation that Scalia rightly describes as absurd? I think the latter.

The same applies to the first SC ruling on ACA. Again, conditional on a political "need" to save the ACA, what's lesser of evils? Expand the commerce clause to establish a new right for Congress to require people to purchase goods? Or engage in tortured logic that reinterprets a "penalty" for failure to comply with a "mandate" as merely a garden variety "tax"? Again, I think the latter course is less bad.

That's not to say I'm happy with the decision. I think it's best viewed as a reminder of how little power the SC has, and, by implication, how weak are the constitutional restraints on government rapacity.

Thomas B writes:

@Zeke,

I'm no constitutional scholar, and I did ponder the point you raise.

The issue of "commandeering" is usually moot because the Government can tax the residents of the States, then return the money conditional on the States doing what they're told (see 55mph speed limit, etc., etc., etc.) However, that's not at issue here; there's no quid pro quo, just a direct order.

A related issue is whether the Government can do something not within its Constitutional authority, but within the Constitutional authority of the States, by ordering them to do it. I don't believe it can, and again that doesn't seem to be at issue here.

The Government can impose universal health care regulations; it chose not to, and to continue to respect a wide swathe of State regulations, by ordering the States to do something that would have been (is) within the Government's own authority to do itself - even if that authority relies on some fairly sketchy previous rulings. It avoids any need for a quid pro quo by ensuring that the States don't actually need to expend any resources to comply with the order. Thus, it is the "deeming" of the Federally-supplied-"State-established" Exchange that allows this to comply with the Constitution at all.

But, I'm no expert!

R richard Schweitzer writes:

I do not concur with the opinion, but --

Keep in mind this "Opinion" is NOT one of LAW, but of judicial evaluation of a regulatory interpretation action under Rules of Policy, not an issue of Law.

The opinion is not likely to be decisive on the Rules of Policy, themselves. Political determinations freight Rules of Policy. They are forming and yet to come.

AntiSchiff writes:

David,

What is your solution, if any, to the inability of some Americans to get healthcare, and in a relatively efficient way? Do you have a viable alternative to Obamacare, or are you just okay with millions of Americans lacking healthcare?

David R. Henderson writes:

@AntiSchiff,
My proposals are too extensive to lay out here. I do it in the relevant chapter of my book The Joy of Freedom: An Economist’s Odyssey.

khodge writes:

@Andrew_FL - while it is true that government programs never die, with skillful manipulation (I know...try getting that with congress) this program could be pushed over the edge quite easily. This whole program depends on the cooperation of the insurance companies. Pass some of the pain to them and the whole house of cards will collapse.

ThomasH writes:

Does anyone who disagrees with the SCOTUS decision really believe that Congress intended to deny subsidies to citizens whose state governments did not establish state run exchanges? Roberts's opinion lays out very clearly reasons for knowing denial could not have been Congress's intent.

Todd Kreider writes:

ThomasH, the answer to your question is "no"

David R. Henderson writes:

@ThomasH,
I just noticed your question. Todd Kreider is wrong. The answer to your question is “yes.” I’m someone in that category.

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