GOP President Could Gut ACA Subsidies Even If SCOTUS Upholds Them

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March 10, 2015 6:00 a.m.

WASHINGTON — Even if Obamacare tax subsidies survive in the Supreme Court, a future president may have a lawful way of unilaterally blocking them, legal experts say.

The justices met privately on Friday, two days after contentious oral arguments, to cast their votes in King v. Burwell, a case about whether the text of the Affordable Care Act allows the Internal Revenue Service to provide tax subsidies to Americans in three-dozen states who buy insurance on the federally-run exchange.

There are three ways the justices could rule: 1) They could side with the plaintiffs and say the law unambiguously forbids the subsidies, in which case no president can provide them; 2) They could side with the government and say the law unambiguously authorizes the subsidies, in which case no president can deny them; 3) They could say the statute is ambiguous and therefore defer to the agency that implements it — in this case, the IRS — under the longstanding legal theory of “Chevron deference.”

If Obamacare subsidies survive — still an “if” — it’ll likely be because the justices find the law ambiguous and defer to the agency. That’s the basis on which the Fourth Circuit Court of Appeals, from which the Supreme Court took the case, upheld the federal exchange subsidies.

In that case, the subsidies would be safe under the Obama administration. But a future administration, perhaps under an anti-Obamacare Republican president, could legally reinterpret the law and decide the subsidies are prohibited.

“If the Court were to hold that the statute is ambiguous and defer under Chevron to the IRS, then they’d be saying that the IRS has the discretion to resolve the ambiguity in the statute,” said Nick Bagley, an administrative law and health law professor at the University of Michigan, who supports the government’s position in the King case. “And in principle the IRS could in one administration say the subsidies are allowed, and in another administration say they are not. “In order to do so, it would have to supply reasons for making the change.”

Jonathan Adler, who teaches administrative and constitutional law at Case Western Reserve University and helped craft the lawsuit, also said it’s possible.

“It would require a notice and comment rulemaking, but it would be relatively easy to do,” he said in an email. (In other words, the agency would need to go through the traditional process of proposing a rule, soliciting comments and eventually finalizing it.)

There’s one legal obstacle that could make it a bit tricky. Under the 1946 Administrative Procedure Act, a future president’s IRS would have to show that its reinterpretation of the law is not “arbitrary” or “capricious” or “an abuse of discretion.” It could try to argue that it would be fiscally prudent as it would save hundreds of billions of dollars. The administration’s reasoning would have to be persuasive enough to fend off an expected legal challenge from those harmed.

“When you decide to change a rule, you have to explain why that reversal makes sense notwithstanding the people who have structured their lives under the previous administration’s rule,” Bagley said.

The larger question was on the mind of Chief Justice John Roberts, whose silence throughout most of the argument came as a surprise to court watchers.

“If you’re right about Chevron,” he asked Obama administration lawyer Don Verrilli, “that would indicate that a subsequent administration could change that interpretation?”

Verrilli responded in the affirmative — a future administration could reinterpret the law in that scenario, but he argued that it would “need a very strong case” to prove it was a “reasonable judgment in view of the disruptive consequences.”

The primary obstacle, then, would be political.

The fallout of throwing millions of Americans off their coverage would be tough for any president, even a staunchly anti-Obamacare Republican. Denying the subsidies could also imperil the insurance markets in states that declined to build an exchange by making coverage unaffordable for many residents, compelling younger and healthier people to drop out and forcing insurers to raise costs. Health economists call this sequence a “death spiral” — it was a major topic of discussion during Supreme Court arguments in the case last week.

Even Justice Antonin Scalia, who appeared to side with the challengers’ view of the statute, spoke of “devastating consequences” that would arise under their reading, although he argued that Congress would step in to fix the problems.

But legally, it would be an option if the Supreme Court upholds the health insurance subsidies by affirming the Fourth Circuit’s judgment.

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