How argument used against Affordable Care Act might now save it

It would be a historic irony if the argument the U.S. Supreme Court adopted in 2012 to derail federally enforced expansion of Medicaid — leaving nearly 4 million low-income Americans without health coverage — now came to the rescue of government-subsidized insurance for 7.7 million Americans.

But there’s a fair chance it could happen, judging from comments by the justices — particularly Justice Anthony Kennedy — at a March 5 hearing before the court of a case that could undo the Affordable Care Act. And, in another note for the history books, the argument seems to have originated with a law student.

The court first considered the health care law three years ago and upheld its core provision, requiring most uninsured adults to buy insurance or pay a tax penalty, by a 5-4 vote. But in the same ruling, a 7-2 majority stripped the law of its requirement that states expand Medicaid coverage for the poor — known as Medi-Cal in California — or forfeit all their federal Medicaid funding, which pays more than half the cost of the existing program.

States have occasionally challenged the conditions that the federal government attaches to its funding. The court has usually sided with the feds, as it did in 1987, when a 7-2 majority led by Chief Justice William Rehnquist upheld a requirement that states raise their drinking age to 21 or lose 10 percent of their federal highway funds.

But in the 2012 ruling, Chief Justice John Roberts said the threat to take away all federal Medicaid funding was so coercive — “a gun to the head” — that it exceeded Washington’s constitutional authority over the states. The court struck the forfeiture provision and left states with the option to accept federal funding, 100 percent in the initial years, to extend Medicaid to adults with incomes 33 percent above the federal poverty line. California and most other states have opted in, but 22 states, including most of the South, have refused.

The current case involves a challenge to another critical provision of the law, federal tax credits to moderate-income consumers who buy insurance through the newly established statewide marketplaces known as exchanges. A previously little-noticed phrase says subsidies will be provided to participants in exchanges “established by the state.”

Opponents say it restricts financial aid to the 13 states, including California, that have set up their own exchanges, and excludes the other 37 states in which exchanges are partly or wholly operated by the federal government. If the court agrees, the likely result in those states would be havoc in the insurance market.

But why would such an important statute be drafted in such an apparently self-defeating way? Justice Sonia Sotomayor offered a skeptical answer at the March 5 hearing, telling plaintiffs’ lawyer Michael Carvin that, if his reading of the law is correct, “the states are going to be coerced into establishing their own exchanges,” raising the same constitutional concerns the court cited in 2012.

Kennedy, often the swing vote on a divided court, picked up on the point, asking whether the government could take other intrusive actions against states, like threatening to eliminate their federal highway funding unless they lowered their speed limit to 35 mph.

While Carvin’s interpretation of the law seemed plausible, Kennedy said, it would mean that “the states are being told, either create your own exchange, or we’ll send your insurance market into a death spiral. ... There’s a serious constitutional problem if we adopt your argument.” And under established legal doctrine, the court tries to interpret laws in ways that avoid constitutional problems.

In Massachusetts, a first-year lawyer named Joel Dodge was silently applauding, as was his former Boston University law professor, Abigail Moncrieff. A year ago, when the case was in a lower court, Dodge raised the coercion issue in a classroom discussion, and later on his blog.

“I realized how important it might be as a way to sway conservative judges,” said Moncrieff, who was then preparing to work on a Supreme Court brief for the Jewish Alliance for Law and Social Action and other groups. “It was a way for Justice Kennedy and Chief Justice Roberts to stand by their conservative credentials while nevertheless preserving the statute.”

And, as she noted, it was an argument that had to come from a private party rather than the Justice Department, whose lawyers usually refrain from describing federal laws as potentially unconstitutional.

The brief depicts the plaintiffs’ view of the law as a threat to “establish an exchange, or the federal government will destroy your individual insurance market.” And on Page 27, it asks how far the federal government could go to induce states to lower their speed limits — virtually the exact question Kennedy posed to Carvin.

That doesn’t necessarily mean the court will rule for the government. Kennedy, after all, voted with the dissenters in 2012 to overturn the entire health care law. Roberts spoke little and was seemingly noncommittal at the hearing. Fellow conservative Justices Antonin Scalia and Samuel Alito blandly suggested Congress or the states could fill any funding gaps. Justice Clarence Thomas was silent as usual.

If the question is whether the federal government’s threats of financial penalties are severe enough to amount to unconstitutional coercion, “where do we draw the line?” asked Michael McConnell, a Stanford law professor and former federal appeals court judge. “Is the remedy to extend the program to a bunch of people Congress hasn’t extended it to?”

On the other hand, asked David Gamage, a UC Berkeley law professor who worked on implementing the health care law as counsel in the Obama administration’s Treasury Department, why interpret an ambiguous law “in a way that would create massive chaos and hardship in the states affected”?

We’ll see what the court says by the end of June. The odds, for now, seem to tilt in the same direction as the overall ruling in 2012 — finding some reason, or assortment of reasons, to leave the president’s signature achievement in effect.