ObamaCare Ruling May Hinge Upon 'Coercion' Debate

If ObamaCare subsidies on federal exchanges survive their brush with the Supreme Court, it may be because the law is even more coercive without them.

Chief Justice John Roberts, who saved the individual mandate by calling it a tax in 2012, has been seen as the swing vote who will determine whether ObamaCare remains viable in states without their own exchanges. But a second potential swing vote emerged during Wednesday's oral arguments in the King v. Burwell case challenging the legality of tax subsidies issued to 34 states via the federally run Healthcare.gov.

Justice Anthony Kennedy told plaintiffs attorney Michael Carvin: "If your argument is accepted, the states are being told, 'Either create your own exchange, or we'll send your insurance market into a death spiral.'

Because of other ObamaCare regulatory mandates — requiring insurers to take all comers and offer a rate without regard to one's health — exchanges could be unworkable without subsidies. That's because the population willing to pay the full cost of the policies would most likely be in disproportionately poor health — which could send premiums soaring.

Kennedy's point was that states opting not to set up an exchange could see their individual insurance markets more or less destroyed.

The threat implied by such a reading of the law amounts to coercion, Kennedy said. That would require the court to "invoke the standard of constitutional avoidance" and try to find a plausible reading of the law that protects state rights.

Hospital Stocks Rally

The possibility that a conservative justice could side with the Obama administration for reasons of federalism helped spark stocks of hospital companies, which benefit from providing charity care to fewer uninsured patients. Tenet Healthcare (THC) and HCA (HCA) both advanced 6%.

But Kennedy sent plenty of mixed signals, at one point telling Carvin, "It may well be that you're correct as to these words, and there's nothing we can do.

The words at the center of the case limit the tax subsidies to eligible consumers through an "Exchange established by the State.

The Law Is The Law

In the view of the conservative challengers, spearheaded by the Competitive Enterprise Institute, "the plain language of the statute dictates the result.

That reading reflects the desire of the 2010 Congress that passed the law to provide a strong incentive for states to set up their own exchanges, Carvin argued.

He also took issue with Kennedy's suggestion that the law is less coercive with the subsidies than without, noting that the subsidies trigger the employer mandate penalties.

"States are absolutely helpless to stop this federal intervention into their most basic personnel practices," Carvin said. "The more intrusive view of the statute" is the administration's.

Solicitor General Donald Verrilli argued that the key word is "shall," as in "Each State shall establish an American Health Benefits Exchange.

He contended that this implies each state would have a subsidized exchange, though the law allows states to stand aside and let the federal government do the work.

"It would be an Orwellian sense of the word 'flexibility'" to punish states for choosing that option, Verrilli said.

The outcome could hinge on the meaning of "such.

The Health and Human Services secretary is empowered "to establish and operate such Exchange" when a state does not.

Verrilli said "such" means that the federal government "shall establish a state exchange.

Justice Antonin Scalia wasn't buying it: "How can the government — federal government establish a state exchange? That is gobbledygook.

Kennedy questioned the idea that if there is ambiguity, then the IRS has the authority to make such a sweeping interpretation of the health law.

"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?"