Second Wind For “Preposterous” Right-Wing Lawsuit Over Healthcare Exchanges

The New York Times reported on a dangerous legal challenge to the Affordable Care Act (ACA) brought by officials in states who refuse to implement their own healthcare exchanges, which has been widely trumpeted in right-wing media. But these lawsuits are based on a far-fetched theory that the law only authorized essential tax credits in state exchanges, not federal ones, a counterintuitive claim that has been widely discredited.

Theory Behind Challenges To The ACA Cooked Up By Conservative Legal Scholars And Members Of Right-Wing Media

The New York Times: Basis Of Lawsuits "[Grew] Out Of Three Years Of Work By Conservative And Libertarian Theorists." As the Times reports, the legal theory behind lawsuits filed by officials in Oklahoma and Indiana is that the ACA “does not grant the Internal Revenue Service authority” to subsidize insurance purchases on the federal exchange -- thereby making it unaffordable. This theory is the brainchild of conservative scholars Michael Cannon and Jonathan Adler, both regular contributors to National Review Online:

More than a year after the Supreme Court upheld the central provision of President Obama's health care overhaul, a fresh wave of legal challenges to the law is playing out in courtrooms as conservative critics -- joined by their Republican allies on Capitol Hill -- make the case that Mr. Obama has overstepped his authority in applying it.

A federal judge in the District of Columbia will hear oral arguments on Tuesday in one of several cases brought by states including Indiana and Oklahoma, along with business owners and individual consumers, who say that the law does not grant the Internal Revenue Service authority to provide tax credits or subsidies to people who buy insurance through the federal exchange.

At the same time, the House Judiciary Committee will convene a hearing to examine whether Mr. Obama is “rewriting his own law” by using his executive powers to alter it or delay certain provisions. The panel also will examine the legal theory behind the subsidy cases: that the I.R.S., and by extension, Mr. Obama, ignored the will of Congress, which explicitly allowed tax credits and subsidies only for those buying coverage through state exchanges.

“We have agencies under this administration having an attitude that they can fix a statute, that they can improve upon a statute, that they can look at a statute's clear language and disregard it,” Scott Pruitt, the Oklahoma attorney general, who is bringing one of the cases, said in an interview Monday. “The president himself has said on more than one occasion, 'I can't wait on Congress.' In our system of government, he has to.”

The subsidy lawsuits grow out of three years of work by conservative and libertarian theorists at Washington-based research organizations like the Cato Institute, the American Enterprise Institute and the Competitive Enterprise Institute. The cases are part of a continuing, multifaceted legal assault on the Affordable Care Act that began with the Supreme Court challenge to the law and shows no signs of abating.

“After the A.C.A. was enacted and after the president signed it, a lot of people -- me included -- decided that we weren't going to take this lying down, and we were going to try to block it and ultimately either get the Supreme Court to overturn it or Congress to repeal it,” said Michael F. Cannon, a health policy scholar at the libertarian-leaning Cato Institute, who helped develop the legal theory for the subsidy cases[.] [The New York Times, 12/2/13]

Originator Of the Lawsuits Is A Long-Time Anti-ACA Fanatic, Funded By The Koch Brothers

Director Of Health Policy At Cato Institute Michael Cannon: State GOP Should “Drive A Stake Through [The ACA's] Heart.” Even before the Supreme Court rejected the right-wing challenge to the ACA's individual mandate in 2012, Cannon took to the National Review Online to propose a new way to “kill Obamacare”:

Obamacare had a bad couple of days before the Supreme Court -- so bad that President Obama made some ill-considered comments about the Court from which he still hasn't totally backpedaled. Though the oral arguments over the individual mandate and severability were encouraging, we cannot count on the Supremes to kill Obamacare. Opponents must keep fighting it on all fronts.

The most important front right now is to ensure that states do not create the health-insurance exchanges Obamacare needs in order to operate. Refusing to create exchanges is the most powerful thing states can do to take Obamacare down. Think of it as an insurance policy in case the Supreme Court whiffs.

Exchanges are the new government bureaucracies through which millions of Americans will be compelled to purchase Obamacare's overpriced and overregulated health insurance. Through these bureaucracies, insurance companies will receive hundreds of billions of dollars in taxpayer subsidies. Without these bureaucracies, Obamacare cannot work.


[E]very conservative and free-market group, including the Heritage Foundation and the American Legislative Exchange Council, has advised states to refuse to create an exchange and to send all related grants back to Washington. Florida, Louisiana, Oklahoma, Kansas, and Wisconsin have already done so.

If the Court strikes Obamacare down, state officials who refused to create an exchange will look prescient. If not, they will be positioned to drive a stake through its heart. [National Review Online, 4/12/12]

Politico: “Boost[ed]” By The Koch Brothers' Americans For Prosperity, Cannon Lobbied GOP State Officials To Refuse Exchange Formation. Politico reported that Cannon has happily encouraged states to obstruct the ACA, reasoning “It's your stupid law; you implement it”:

The Cato Institute's Michael Cannon's been racking up frequent-flier miles.

He's dropped in on more than a dozen states to make the case to lawmakers that they should not lift one legislative finger to implement President Barack Obama's health reform.

“It has been a fun ride,” he said.


Two years into the law's implementation, conservative emissaries have contributed to impressive stats. Almost all red states are holding off on exchange legislation at least until the Supreme Court decides on the Affordable Care Act, and in most of those states, exchange-building legislation has crawled to a stop.

Both funded partly by the Koch brothers, Cato and ALEC form the cavalry that state-based conservative organizations call in to convert Republican lawmakers who have been considering establishing exchanges. While they're no fans of the federal law, many Republicans in state government thought it was better to set up their own exchange than to let the Department of Health and Human Services do it for them if the law survives past 2012.

Some still think that -- and disagree with some of the assumptions and interpretations the fly-in conservatives are making. But Cannon and Graham are undeterred.

“Every time when I go into these states, there are usually a bunch of Republican politicians who have bought this line that creating a state exchange will protect them from Obamacare,” said Cannon. “It's fun going in there and telling them, 'No actually, if you want to protect your state, tell the federal government: ... It's your stupid law; you implement it.'”


[A]ccording to Maine Democratic state Rep. Sharon Treat, Cannon's New Hampshire visit had a chilling effect across the state line. She had been in talks with some of her Republican colleagues about an exchange bill. That stopped.

“Now, they're advancing the idea of don't do anything, because we don't want to help President Obama,” the Maine Democrat said.

This is exactly what the national conservative organizations had hoped for. [Politico, 4/18/12]

Right-Wing Media Have Celebrated The Lawsuit's Potential To “Defund Obamacare”

National Review Online Senior Editor Ramesh Ponnuru: “I'm Persuaded That The Merits Of The Case Are On The Side Of Oklahoma.” In a post cheering Oklahoma attorney general Scott Pruitt's decision to file a lawsuit challenging the ACA, Ponnuru argued that other Republican governors who have not set up exchanges for their states “should be especially eager to get on board this lawsuit”:

The attorney general of Oklahoma has filed a lawsuit that, if successful, would cripple Obamacare by challenging the lawless way the Obama administration is implementing it. (Implementing it lawfully, that is, would cripple it.) Most states have not created exchanges, and in those states the law as written does not authorize the administration to offer tax credits-and, because of that, limits its ability to impose its penalties on employers and individuals. As far as I can tell, there would be no downside for conservative attorneys general to launch their own lawsuits-or for Republican politicians at the state and federal level to support them, whether by filing briefs or speaking on their behalf.


I'm persuaded that the merits of the case are on the side of Oklahoma. I suspect, though, that courts will have an easier time seeing it that way if politicians help to create a sense that it is a respectable position and not something coming out of left field. [NRO, 9/25/13]

Forbes: “Oklahoma Deserves Our Gratitude” For Bringing ACA Lawsuit That Could “Largely Defund Obamacare.” Forbes contributor Merrill Matthews complained that “almost no one is paying attention” to Oklahoma's lawsuit, arguing that the challenge “may be the last, best hope” of defunding the ACA:

Republicans are getting ready for another round of efforts to defund ObamaCare. But the better chance of defunding President Obama's first step towards socialized medicine may rest with the great state of Oklahoma.


Oklahoma deserves our gratitude.  It is still fighting ObamaCare, and using a very solid argument for doing so.  If the state is successful, it will largely defund ObamaCare in the states that did not set up their own exchange.  Let's hope the effort to defund ObamaCare at the federal level is successful, but if it isn't -- and it probably can't be without a Republican Senate and president -- defunding it at the state level may be the last, best hope. [Forbes, 7/31/13]

Dick Morris: Oklahoma Lawsuit “Could Knock Out Obamacare.” In an editorial for The Hill, columnist Dick Morris seemed shocked that more Republican attorneys general hadn't signed on to Oklahoma's lawsuit, and wished Pruitt “Godspeed!” in his efforts to take down the ACA:

Why didn't anyone else think of it?

Scott Pruitt, the attorney general of Oklahoma, acting on the research of Jonathan H. Adler and Michael F. Cannon published in the Case Western Reserve Journal of International Law, has brought a new lawsuit, on behalf of the state, against ObamaCare.

Unlike the suit brought by 26 state attorneys general, this lawsuit does not make a constitutional objection to the Affordable Care Act. Instead, it uses the language of the law to challenge the elaborate system of subsidies, tax credits and individual or employer mandates and fines the act has spawned.


The Oklahoma suit has survived a motion to dismiss and its standing to bring the suit has been affirmed by the District Court. Pruitt hopes for a judgment later this year and feels the case might reach the Supreme Court by late next year.

Godspeed! [The Hill, 10/8/13]

But Cannon's Bizarre Legal Theory Has Been Widely Discredited By Both Those Who Wrote It...

National Public Radio: Senators Who Actually Wrote The Law Confirm Tax Credits Are “Available In Both” Types Of Exchanges. Since the ACA makes clear that subsidies are available whether or not an individual state elects to open its own exchanges, the authors of the ACA told NPR that “those who are still trying to challenge the law are just out to make trouble”:

And what about Cannon's assertion that Senate Democrats gave only the state exchanges the right to provide tax credits as a way to encourage the states to create them? A quick survey of Senate Democrats involved in writing the health law didn't uncover any who recall it that way.

“No, I think they're available in both,” says Tom Harkin, the Iowa Democrat who chairs the Senate Health, Education, Labor and Pensions Committee.

Sen. Ron Wyden, an Oregon Democrat and senior member of the Finance Committee, remembers it the same way.

“That's correct, and I make that judgment based on everything that came up in the Senate Finance Committee and the fact that the exchanges were something that were popular on both sides of the aisle,” Wyden says.

In fact, Democratic senators like Ohio's Sherrod Brown say that those who are still trying to challenge the law are just out to make trouble.

“They're just going to keep trying to find things in the law that they think, for whatever reason, won't work,” Brown says. “I just think they should be ashamed of themselves.”

Harkin was more blunt. “My advice to Republicans is get over it. The law is the law and we're moving ahead with it. Quit trying to scare people,” he says. [National Public Radio, 7/18/12]

Reuters: Congressional Budget Office Stated That There Was “No Sign” The Law Meant To Limit Tax Credits To State Exchanges. Contrary to right-wing claims, Reuters reported that “the issue of restricting subsidies never arose in producing the legislation”:

In a development that could complicate Republican efforts to limit funding for a key provision of President Barack Obama's healthcare law, a top congressional researcher said the issue of restricting subsidies never arose in producing the legislation.

Congressional staff involved in the creation of the law did not suggest that federal insurance subsidies be restricted only to states that run their own healthcare exchanges, the head of the nonpartisan Congressional Budget Office said on Thursday.

“Nor was the issue raised during consideration of earlier versions of the legislation in 2009 and 2010,” CBO Director Douglas Elmendorf informed Republican Representative Darrell Issa in a letter dated December 6.

The question of how Congress intended federal subsidies to be used in healthcare exchanges lies at the heart of a political debate about whether Washington should be allowed to use premium tax credits to defray the cost of health insurance policies sold on federally operated exchanges.


But Republicans including Issa, who chairs the U.S. House of Representatives Committee on Oversight and Government Reform, argue that Congress meant to make those subsidies available only in exchanges run by states, and not by the federal government.

With analysts estimating that Washington could wind up operating exchanges in as many as 30 states, any move to choke off subsidies could threaten to cripple the reform provision. [Reuters, 12/6/12]

...And A Wide Range Of Legal And Health Policy Experts

New Republic: “Not Too Many Legal Experts Think The Lawsuit Has Merit.” As the New Republic reported, University of Michigan law professor and former Department of Justice official Samuel Bagenstos noted that Cannon's reading of the law is “unusually pinched,” and that it is “implausible to think that Congress would have intended to create a statute that was so at war with itself”:

Can one very determined libertarian and one very distorted version of history keep millions of people from getting health insurance? We're about to find out.

The determined libertarian is Michael Cannon of the Cato Institute. He was among the most vocal opponents of the Affordable Care Act, going back to the time when it was still a glint in the eyes of Ted Kennedy. The idea of universal coverage is so antithetical to Cannon's principles that he actually started an “Anti-Universal Coverage Club.” Once the law passed and took on the moniker “Obamacare,” Cannon became a leading advocate for its repeal. And since he understood the law might survive both the courts and the 2012 elections, as it eventually did, he also made the case that states should avoid complicity in its implementation--and, if possible, actively thwart it.


Not too many legal experts seem to think the lawsuit has merit. ... Among the skeptics is Samuel Bagenstos, a professor at the University of Michigan and a widely respected expert on constitutional law. In a recently posted series of blog posts, Bagenstos says Cannon and Adler are reading the statute in an unusually pinched way. The law may not specify that the federal government may offer subsidies when it operates exchanges, Bagenstos says, but elsewhere it talks about the federal government running exchanges in lieu of recalcitrant states. Clearly, Bagenstos says, the Senate bill's architects wanted these substitute exchanges to be fully functional, complete with subsidies. The whole point was to have the feds do what the states would not. “It is implausible to think that Congress would have intended to create a statute that was so at war with itself,” Bagenstos concludes, “and that rendered largely useless its crucial backup provision for federally-operated exchanges.” [New Republic, 12/5/12]

Center on Budget and Policy Priorities: The Argument Advanced In Oklahoma's Suit “Rests On A Distorted And Incorrect Reading of the ACA.” As the nonpartisan Center on Budget and Policy Priorities pointed out more than a year ago, the plain language of the ACA refutes Cannon and Pruitt's tortured reading of the statute:

The argument that premium credits are not available to purchase coverage offered through a federally operated exchange rests on a distorted and incorrect reading of the ACA.


Congress anticipated that some states would forgo setting up their own exchange or might not be ready to begin operations on January 1, 2014 as required.  The ACA thus includes a fallback so that all eligible people can have access to affordable coverage, regardless of where they live.  Under ... the ACA, if a state elects not to establish its own exchange or will not be ready to operate its exchange in 2014, “the Secretary shall (directly or through agreement with a not-for-profit entity) establish and operate such Exchange within the State and the Secretary shall take such actions as are necessary to implement such other requirements.”

In other words, if a state elects not to operate an exchange, the federal government will establish and operate the exchange on the state's behalf.

Despite this language directing the Secretary to establish “such Exchange within the State” and to take actions necessary to implement “such other requirements,” critics of health reform have seized on the reference ... of the Internal Revenue Code to an exchange “established by the State” in the definition of a coverage month.  This reference, they contend, means that individuals in states with a federal exchange cannot qualify for premium tax credits.

However, the Treasury Department flatly rejected this claim when it adopted final regulations to implement the ACA, explaining that the ACA's legislative history, structure, and purpose all make clear that premium tax credits are available to taxpayers who obtain coverage in a federally operated exchange[.] [Center on Budget and Policy Priorities, 7/16/12]

Mother Jones: Exchange Expert Says “Stupid” Oklahoma Legal Challenge Based On A “Screwy Interpretation” Of The ACA. As Mother Jones reported, drafters of the ACA and healthcare law experts agree that Cannon's legal theory is not based on a sound, contextual reading of the statute as a whole:

Jonathan Gruber, who helped write former presidential candidate Mitt Romney's Massachusetts health care law as well as the Affordable Care Act, calls this theory a “screwy interpretation” of the law. “It's nutty. It's stupid,” he says. And beyond that, “it's essentially unprecedented in our democracy. This was law democratically enacted, challenged in the Supreme Court, and passed the test, and now [Republicans] are trying again. They're desperate.”

Gruber and [health care law scholar and professor Timothy] Jost both say the interpretation conservatives are peddling has nothing to do with congressional intent. There is language scattered throughout the bill, Jost says, that refers to state-established exchanges, but as a whole, it's obvious that the law treats state and federal exchanges equally. “If you don't know anything about reading statutes, you assume that the way courts do it is by taking a sentence here and a sentence there,” he says. “But if you look at it in context, the whole statute hangs together.” If Cannon's interpretation is right, Jost says, it would mean that Congress wrote “the law to set up federal exchanges and then said they can't do anything.” [Mother Jones, 1/24/13]

Constitutional Accountability Center: This New Attempt To Gut The ACA Is “In-Your-Face Preposterous.” Simon Lazarus, senior counsel of the non-partisan Constitutional Accountability Center, pointed out that this “new guerilla assault” is using a coordinated strategy with the GOP and right-wing media that almost took out the individual mandate:

However such maneuvers play out in court, the administration and its allies need to play their game out of court as well. Specifically, they need to not repeat their near-death experience with the individual mandate challenge, when they left their adversaries free to frame the legal issues, unanswered, for the media, politicians, and the public, long before Solicitor General Donald Verrilli faced off against a phalanx of hostile justices. Health reform opponents have this point down pat. Just last month, Randy Barnett, architect of the strategy that blew past literally centuries of precedent and won four Supreme Court votes to throw out the ACA, counseled an American Enterprise Institute conference to “take very seriously” the lesson that, “an argument that many other people thought was frivolous is only going to get traction in the courts if there's a political valence that allows it to get traction.”

For sure, the team behind this new guerilla assault takes that lesson very seriously. They have pushed out their message through conservative blogs, Fox News, and some major mainstream media outlets. Countering their message will not require public relations wizardry. To observers across the political spectrum, their upside-down core contention--that the Congress that enacted Obamacare actually “intended” to deny benefits necessary for millions of low-income Americans to afford health insurance--can be portrayed as just as in-your-face preposterous as, in fact, it is. But the truth won't prevail, if it isn't told. [New Republic, 5/13/13]

See more on this right-wing lawsuit here, here, here, and here.