The Legality of Obamacare

Barack Obama and Franklin Roosevelt have something in common- highly litigated legislation. The difference is that the court cases involving the New Deal were spread across a myriad of programs whereas with Obama, the bulk of the cases center on a single piece of legislation- Obamacare. To understand the importance of recent challenges to the ACA, we need to first look at the Obamacare case previously decided. Many people look upon that decision by John Roberts as being the bane of conservatism. Many felt and still feel betrayed by that decision. However, looking at it in hindsight and re-reading the opinion, the entire program was recast as a major tax overhaul. That analysis may prove the undoing of Obamacare in the end. Unfortunately, it then throws the controversy into the arcane world of tax law. There is also the political angle. Obama stated that taxes would not go up on anyone making under $250,000 with the ACA. However, we now know that to be the first and biggest Obama lie.

The administration likes to argue that Obamacare is not going anywhere- it was passed, signed into law and upheld as constitutional by the Supreme Court. But, the latter part is only partially true. Obamacare is far from settled law as Obama claims. There are over 70 cases in the lower courts rights now involving over 200 plaintiffs challenging some aspect of the law. The Supreme Court left unquestioned whether the individual mandate was constitutional under the Commerce Clause and it was, instead, upheld under the Taxing and Necessary and Proper Clauses. A direct challenge given the right plaintiffs could force the Court to revisit that issue.

The Supreme Court is likely to take at least one Obamacare case this term. The situation is ripe for review in that there exists a Circuit Court split over one provision- the religious exemption for contraception and drugs that induce abortions that must be covered under qualified health care plans. In one such case, a business owned by Mennonites in Pennsylvania was shot down when the Third Circuit basically ruled that for-profit companies engaged in interstate commerce are not afforded the exemption allowed to qualified non-profit, religious organizations. However, the Justice Department has asked the Court to hold off on that case and take another, the Hobby Lobby case. There the lower courts ruled that although the mandate MAY not violate the First Amendment’s Free Exercise Clause, it seems to violate the Religious Freedom Restoration Act (RFRA). In effect, the Justice Department is arguing for the Court to take this case and a reversal would comport with the Third Circuit’s view. In this way, they need not reach the First Amendment questions and could instead decide the case more narrowly under the RFRA.

The basic provision of the RFRA is that any First Amendment religion case must use strict scrutiny. A law can be found constitutional if it meets two tests. First, it must further a compelling government interest. Second, it must use the least restrictive means to meet that interest. A decision could come down to splitting hairs. The government could obviously argue that health care reform in general is a compelling government interest and most could agree. The question then comes down to whether the mandate is the least restrictive means. Here, the plaintiffs may have the better case since a plethora of exemptions and waivers were granted having nothing to do with such an important area as religious freedom and obviously those freedoms trump the other “hardships” granted waivers.

Although a worthy line of attack on Obamacare, it would eat at the fringes of the law. It is hard to see a groundswell of businesses applying for religious waivers should Hobby Lobby prevail if the Court takes this case. The dark side of the whole thing is that the government, in order to determine the validity of those religious exemptions, would have to pry into the religious motivations, practices, and beliefs of business owners. Instead of death panels, we may have Religion Panels.

A second line of attack, and one that has merit, involves the government subsidies that people would receive for signing up for health care coverage using the exchanges. The ACA specifically states that these subsidies can be granted for people who purchase insurance on a state-run exchange. Thus, if you are in one of the 15 states that have a health care exchange run fully by the state (CA, WA, OR, NV, CO, ID, NM, MN, NY, CT, RI, VT, MA, KY, MD), you have nothing to worry about. If you are in one of the 6 states with a state-federal partnership, you are likely fine, but should worry a little (DE, AR, IL, MI, IA, WV). If you are in any state where the federal government has stepped in and those residents have to rely on the federal exchange, the possibility of not receiving a subsidy depends on the outcome of several cases challenging these subsidies.

Thus far, two cases have reached the courts and twice the federal government has sought dismissal. Twice the courts refused to dismiss the cases. The government argues that there is enough ambiguity and wiggle-room elsewhere in the law for the IRS and HHS to bypass the explicit wording of the law in the contested section. Because the courts have refused to dismiss and because they have ordered briefs from both sides, it becomes obvious that at least two federal judges see a potential problem here. The government’s argument may seem strange, but they have a propensity for avoiding the black and white of the law and essentially governing by bureaucratic fiat.

So here is the problem: Assume you sign up for and purchase insurance through the federal exchange in Georgia which has no state exchange. The policy will cost $5,000 and because of your income, you will receive a $4,200 subsidy. Imagine if the courts decide to abide by the letter of the law. You would be counting on $4,200 that you will not receive. What happens in a case like that? It could be that two different courts come to two different conclusions. In that case, there is likely to be a Circuit split and the Supreme Court would have to step in and resolve the case. Considering that the briefs are not due until the end of December with the judges involved promising to rule by February 15, 2014 whether there is merit to the complaints- which would then entail a trial before the judge- this could be drawn into late 2014, thus keeping Obamacare squarely in the news through the midterm elections.

Now imagine you are that Georgia resident who had that $4,200 subsidy ripped out from under you. Do you simply go without insurance, roll the dice on your health, and pay a $95 penalty to the IRS? Congress can go back in and increase the penalty, but that would be politically dangerous and unlikely just because Nancy Pelosi and Harry Reid do not know how to word a law correctly. It would be somewhat amusing to see the whole financial incentive for purchasing health care on these exchanges collapse in front of our eyes because Blinky and Sleepy had to pass a law to see what was in it. It would not be amusing to the countless people relying on those subsidies that may never come.

The third line of attack is the most recent and challenges the entire law based on the Origination Clause which states that all revenue-raising bills must originate in the House. Here, a legislative sleight of hand may doom the law. John Roberts took incredible pains and contorted the law to show that it was a federal tax, not a mandate. He avoided the Commerce Clause question by doing this (where there were likely 5 votes to overturn the law). The government argues that the bill DID originate in the House as HR 3590- the Service Members Home Ownership Act. After passing the House, the Senate then gutted and amended HR 3590 and it morphed into the ACA. The Justice Department argues that the process is not elegant, but it is also not unconstitutional. In fact, they argue that the Supreme Court has heard only eight Origination Clause cases in their entire history and all eight were decided in favor of the law in question.

However, those eight cases involved House-originated bills designed to raise revenue. Under the Origination Clause, the Senate can amend a House revenue raising bill. That is what happened in the previous eight cases, but not here. HR 3590 was not a revenue raising bill in the strict sense. It was designed to address tax inequities for the purchase of primary, first-time residences of members of the military on extended duty. In order to offset the revenue losses anticipated, the timing of certain corporate tax payments was changed, but not their rates. In effect, because of these changes, the government took in more revenue in the first 5 years of the CBO’s budget window, but it then adjusts back equally in years 6 through ten. Math is math: plus ten minus 10 is always zero and zero is not a “revenue raiser.” The Congressional Research Service states: “While not changing the total revenue impact of the bill over ten years, the timing shift helps meet the PAYGO requirement of revenue neutrality.” [Emphasis added]

This case is Sissell vs. HHS and it recently took on added importance when 40 Republican members of the House signed on in support of the plaintiff. In addition, two legal heavyweights in conservative constitutional jurisprudence- the Cato Institute and the Pacific Legal Foundation- are arguing the case either directly or as “friends of the court.” As the Pacific Legal Foundation counters, those eight previous cases involved the Senate gutting and amending revenue raising bills and,in effect, substituting one revenue raising bill for another revenue raising bill. Never was there a case of a revenue-neutral bill being gutted and amended to then become a de facto Senate-originated revenue raising bill. If allowed to stand, it would render the very legitimate reason for the Origination Clause moot.

The Sissell case is potentially the best shot to judicially strike down Obamacare in one fell swoop. Because GOP legislators have signed onto the suit, it increases the gravity of the action and may sway the Supreme Court to take the case when it comes before them for consideration. No matter who wins in the lower courts, this one is destined for the Supreme Court. Ironically, it was John Roberts, by avoiding the Commerce Clause question and rephrasing Obamacare as a taxing scheme and within the government’s constitutional powers, who may have laid the groundwork for Obamacare’s ultimate demise. It would truly be satisfying if John Roberts, given a second chance, does the right thing. It would be even more satisfying to hear if the administration makes claims that Obamacare is settled law. But most satisfying would be seeing the faces and reactions of Harry Reid, Nancy Pelosi and all those smiling Democrats standing behind Obama when he signed the ACA into law. Then we will see, in the words of Joe Biden, whether this really was “a big f*#!ing deal.”