Amicus Curiae Brief — King v. Burwell, 135 S. Ct. 475 (2014) (No. 14-114)

Supreme Court brief2014

Ask Donna

What actually matters in this document.

Text

Supreme Court, US.

FILED

No. 14-114 | JAN ? 5 2015

pornos

JFFICE OF THE CLERK

3n The

Supreme Court of the Anited States

DAVID KING, et ai.,

Petitioners,

Vv.

SYLVIA BURWELL, SECRETARY OF HEALTH

AND HUMAN SERVICES, et ai.,

Respondents.

On Writ Of Certiorari To The

United States Court Of Appeals

For The Fourth Circuit

BRIEF OF AMICI CURIAE JEWISH ALLIANCE

FOR LAW & SOCIAL ACTION (JALSA), JEWISH

SOCIAL POLICY ACTION NETWORK (JSPAN),

JEWISH COUNCIL ON URBAN AFFAIRS (JCUA),

BOSTON ALLIANCE FOR COMMUNITY HEALTH,

LAWYERS’ COMMITTEE FOR CIVIL RIGHTS

AND ECONOMIC JUSTICE, AND PROFESSORS

OF HEALTH LAW AND CONSTITUTIONAL LAW

IN SUPPORT OF RESPONDENTS

ANDREW M. FISCHER

Counsel of Record

JASON & FISCHER

47 Winter Street

Boston, MA 02108

telephone (617) 423-7904

fax (617) 451-3413

afischer@jasonandfischer.com

COCKLE LEGAL BRIEPS /800) 2256-6964

WWW COCKLELEGALSRIEFS.COM

QUESTION PRESENTED

Petitioners’ interpretation of § 36B raises two

serious constitutional questions that the parties’

briefs do not address: first, whether a federal statute

may impose different substantive rules in different

states simply because some fail to establish exchang-

es, see Shelby County v. Holder, 133 S.Ct. 2612, 2624

(2013) (prohibiting “disparate geographic coverage”

absent “exceptional conditions”), and, second, wheth-

er the potentially destructive set of rules that would

apply in non-establishing states would be unconstitu-

tionally coercive, see Nat Fed’n of Indep. Bus. v.

Sebelius, 132 S.Ct. 2566, 2608 (2012).

According to Petitioners, Congress’s intent in

§ 36B was to incentivize states to establish exchanges

by threatening to withhold subsidies from non-

compliant states. But given the Affordable Care Act’s

structure, the loss of subsidies is not the only threat

embedded in that interpretation. Petitioners’ reading

also threatens non-compliant states with federal

imposition of guaranteed-issue and community-rating

requirements without federal enforcement of the

individual or employer mandates to counteract result-

ant adverse selection. Given the mandates’ accepted

role as correctives to the ACA’s otherwise-destructive

regulations and given that Petitioners’ interpretation

would cause non-enforcement of those correctives in

non-compliant states, the threat in Petitioners’ inter-

pretation is: “Establish an exchange, or the federal

government will destroy your individual insurance

QUESTION PRESENTED ~ Continued

market.” That regulatory threat plausibly violates

both the principle of equal sovereignty and the anti-

coercion constraint — two constitutional challenges

that the Court will confront in future litigation if it

rules in Petitioners’ favor.

The question presented is whether this Court

should apply the canon of constitutional avoidance to

uphold the IRS Rule, even if the Court finds that

Petitioners’ understanding comports better with the

plain language of § 36B.

ill

TABLE OF CONTENTS

Page

QUESTION PRESENTED......................cccseeeeeeees i

TABLE OF AUTHORITIES ........................ceeeeeee Vv

INTEREST OF AMICI CURIAE ......................... 1

SUMMARY OF THE ARGUMENT ...................... 2

STE, cid Atuitnnicontnnadiandsbindccnibiniebedinantevcanesss 6

I. PETITIONERS’ INTERPRETATION OF

§36B RAISES SERIOUS CONSTITU-

FIs CSFII iieineierecsissiscctanesesncntociness 6

A. The Lodestar for Constitutionality of

a Fiscal Punishment is Its Magnitude

as a Percentage of State Expendi-

tures — a Test that the Fiscal Threat

in Petitioners’ Interpretation Likely

HUE ads cnnasiarsidinakspusmdiedunndscecanndapuninaniaunes 8

B. Under Petitioners’ Interpretation,

Section 36B Threatens Non-Compliant

States With a Perverse Subset of the

ACA’s Reforms, Raising Intense Con-

stitutional Difficulties......................... 12

1. Petitioners’ Interpretation Gives

Rise to “Disparate Geographic

Coverage” of the ACA’s Core Provi-

SEATS P RS Eee etae scene eee! wor gen aaron 13

2. There is No Plausible — Much Less

“Exceptional” — Justification for

This Geographic Differentiation .... 17

TABLE OF CONTENTS — Continued

Page

3. This Geographic Disparity is In-

distinguishable from the Disparity

that the Court Invalidated in

FT IR ccictrrcncivnsacienpioersastan 19

4. Disparate Geographic Coverage as

an Incentive for Implementation

of Federal Policy Raises Profound

Anti-Coercion Concerns.................. 26

Il. THE GOVERNMENT’S INTERPRETA-

TION OF § 36B IS AT LEAST “FAIRLY

POSSIBLE” AND AVOIDS ANY CON-

ee Os Bs BEF EI OPE scdccensicvesccesvsscseniens 36

A. The Government’s Interpretation of

§ 36B is at Least “Fairly Possible’”...... 36

B. The Government’s Interpretation

Avoids the Serious Constitutional

Problems that Infect Petitioners’ In-

I iiccenacintsatccanvaperocastaamnniaccon 38

EID ciciatciparincsvedssennsticaizostbareusesseveeanenes 4}

TABLE OF AUTHORITIES

Page

CASES

Ashwander v. Tenn. Valley Auth., 297 U.S. 288

(Be TM actatatlonet haart alls tent etew aie Mele Be eet d 3,7

Bolling v. Sharpe, 347 U.S. 497 (1954) ................2..42- 25

Crandall v. Nevada, 73 U.S. 35 (1868) .......0...........00. 25

Crowell v. Benson, 285 U.S. 22 (1932) ............. 6, 36, 37

Edward J. DeBartolo Corp. v. Fla. Gulf Coast

Bldg. & Const. Trades Council, 485 U.S. 568

(i nil tata ATA a Ee dite a ot ARN dnt Mitel ats aE eS 7

Gade v. Nat'l Solid Wastes Mgmt. Ass’n, 505

RI MOTE UIs cuciirl cto tas cece taetaionbabnaniotesermastasssocoie 24

Garcia v. San Antonio Metro. Transit Auth.,

en a 38

Gregory v. Ashcroft, 501 U.S. 452 (1991)............. 24, 38

Halbig v. Burwell, 758 F.3d 390 (D.C. Cir.

ea aa IEE te Pe WE cere ee gH AIRE RE ae Se 6, 18, 36

Halbig v. Sebelius, 113 AF.T.R.2d 2014-548

RE RGRAY ett TLE NIA SE EE adver een Re 36

Hooper v. California, 155 U.S. 648 (1895) ...0.00. 36

Jacobellis v. Ohio, 378 U.S. 184 (1964).................2.... 29

King v. Burwell, 759 F.3d 358 (4th Cir. 2014) .....6, 12, 36

King v. Sebelius, 997 F. Supp. 2d 415 (E.D. Va.

ER ABLE AR Sh RS BESSY ONG AOR PRION OTOL A Oe Sa! 37

Nat'l Fed’n of Indep. Bus. v. Sebelius, 132 S.Ct.

RE a SURES ga Re eee 01 Se a passim

TABLE OF AUTHORITIES — Continued

Page

Natl League of Cities v. Usery, 426 U.S. 833

(NTA ARSRL ES SS RE SER aia tre Mi RE sea Rem 38

New York v. United States, 505 U.S. 144

AAR SRE Re A Me Bb RRMC CIENT SRA ER ics 2 OF 19, 25, 40

Nw. Austin Mun. Util. Dist. No. One v. Holder,

gh Ree Aeron eee eve eet Saahe 13, 17

Peseer CO E008, GET UB. BI CRB IID eniscecvcnicccevicnccecescsosccs 25

Printz v. United States, 521 U.S. 898 (1997) ............. 40

Rust v. Sullivan, 500 U.S. 173 (1991)........................ 37

Shelby County v. Holder, 133 S.Ct. 2612 (2013)....passim

South Carolina v. Katzenbach, 383 U.S. 301

(BRU SRISTRR RIERA 8 Sa SAS ESSE Riad sess ha Bene ss ee 18

South Dakota v. Dole, 483 U.S. 203 (1987)........ passim

Spallone v. United States, 493 U.S. 265 (1990)......... 24

Texas v. White, 7 Wall. 700 (1869)...................22.2.0000e 21

United States v. X-Citement Video, Inc., 513

Be sic ntanictesercdaganmampincamien iiapasinnduabenesiats 5, 36

Yates v. United States, 354 U.S. 298 (1957)......... 36, 37

CONSTITUTION AND STATUTES

con eee ee. Ge as ccpucsusnesaaeqenienemouensidenst 24

of Gy eg f ee eee 25

ee I, SES “TOD... csonbaxnenenenauoisbientenieodenimniuited 19

Health Care and Education Reconciliation Act

of 2010, Pub. L. No. 111-152, 124 Stat. 1029 ........... 3

TABLE OF AUTHORITIES — Continued

Page

National Highway System Designation Act of

1995, Pub. L. No. 104-59, 109 Stat. 568......0.......... 27

National Maximum Speed Law, Pub. L. No. 97-

Eh. eee. 27

Patient Protection and Affordable Care Act,

Pub. L. No. 111-148, 124 Stat. 119 (2010)...... passim

rs eI iaicissisiressscnihatacsiesceenastetencennenininneiecimensietns 27

Se a, SR i ocierinaninceceieieemninteonatancoassapipdadinnnedl passim

Se Ria IEEE sitictciinesasnninatasedenubulbioninnaens 3, 15, 33, 38

Be a: We I ertithcsscenicinicessnissosenseoneraneninrveriupnincieas 3, 15, 32

Oe ee iitcicnennsinchnccisnacinacninanichnonnsniesccsvnknieaniiins 14

as ED icitscsiecertcaseceminsiravennrninidanmpniinintintgt 14

itis te INO cctpantcncicitnsdimhanonencniasginnininascndanouitonniete 14

ee Oe ND cetetininertannsicnenseennnicomnsasensessnsennnbties 14

A is eC Rescimanonnecdncesndanteendeiennndasmmnsteheaciesis 14

Se Oe EE Siccncicrepcstecsncrsionieinnennnisantanseinnnnanitnss 14

rs Oe TED vipcncllasisetinitnicncavesdaennapincacniid 14, 33

Oe ee ES ses cap cetseceeenntcencsictenndceincennetncecmantionen 16

a Oe ID setiicn ints nnccsnsesestacsucnereiocinniness 24, 32

i Oe IE wecicntiennsesiscccenncemisteicasonenaandademannia 37

ee i tenceieniasnenisisinsinetininacessencnsvedinsnan 16

I, Oe HII rnentssne icin cheenpentisninenneesinccaranninegeaetes 22

Oe ee, Oe SII encnnects centctenitncnectinenictentinswueeinnss 19, 22

Oe i Te IO ieieectencticcnencepriestindeemsenecniany 11, 38, 39

vill

TABLE OF AUTHORITIES — Continued

Page

Be Re ITD siicteneccesieestinuncenenenhintysiivontatbmodaiintin 37, 39

Ne Oe IEE eetrenseccenciicieneninvesnpenntntebiestenienseeentio 25

MISCELLANEOUS

Br. Amici Curiae America’s Health Insurance

Plans, Halbig v. Burwell, No. 14-5018 (D.C.

Cir. Nov. 3, 2014) (em bamnc)...................0....c.c000e- 7,29

Br. Amici Curiae Economic Scholars, Halbig v.

Burwell, No. 14-5018 (D.C. Cir. Nov. 3, 2014)

DSRS. OPER AS RITE ROR a aR OT Oe 7, 14, 17, 29

Br. Amici Curiae State of Indiana and 39

Indiana Public School Corporations................. 31, 38

Br. Amici Curiae State of Oklahoma et al................. 31

Br. Amici Curiae States of Kansas and Nebras-

ka, King v. Sebelius, No. 14-1158 (4th Cir.

ee ee a eiseentneelbeneniaadeesnenanenneninita 23

Br. for United States, Nat7 Fed’n of Indep. Bus.

v. Sebelius, No. M-398 (U.S. Jan. 6, 2012)............. 15

Linda J. Blumberg, Matthew Buettgens &

John Holahan, The Implications of a Su-

preme Court Finding for the Plaintiffs in

King v. Burwell: 8.2 Million More Uninsured

and 35% Higher Premiums, Urban Institute,

Jan. 2015, http://www.urban.org/publications/

BI ett iietdscteneiacedcradsnssencuiaiasecwncumdatiiies 17

TABLE OF AUTHORITIES — Continued

Matthew Buettgens & Caitlin Carroll, Elimi-

nating the Individual Mandate: Effects on

Premiums, Coverage, and Uncompensated

Care, Urban Institute, Jan. 2012, http://www.

urban.org/U ploadedPDF/412480-Eliminating-

the-Individual-Mandate. pdf

Andrew Cline, How Obama Broke His Promise

on Individual Mandates, The Atlantic, June

29, 2012, http://www.theatlantic.com/politics/

archive/2012/06/how-obama-broke-his-promise-

on-individual-mandates/259183/

Compl., Florida ex rel. Bondi v. U.S. Dep't of

Health & Human Servs., 780 F.Supp. 2d

1256 (N.D. Fla. 2010) (No. 3:10-cv-91)

Compl., King v. Sebelius, 997 F. Supp. 2d 415

(E.D. Va. 2013) (No. 13-CV-630)

Cong. Budget Office, Updated Estimates of the

Effects of the Insurance Coverage Provisions

of the Affordable Care Act (2014), https://

www.cbo.gov/sites/default/files/45231-ACA __

IIIT oi daaccantasiccpinenecassastivncncidenackemioociaoets

Cong. Research Serv., Federal Funding for

Health Insurance Exchanges, Oct. 14, 2014,

https://www.hsdl.org/?view&did=759147

Paul Grimes, Practical Traveler: The 55-M.P.H.

Speed Limit, N.Y. Times, Dec. 26, 1982,

http://www.nytimes.com/1982/12/26/travel/

practical-traveler-the-55-mph-speed-limit. html

de hi ee ee ee ee ee |

mers 27

TABLE OF AUTHORITIES — Continued

Page

Larry Levitt & Gary Claxton, The Potential

Side Effects of Halbig, Kaiser Family Found.,

July 31, 2014, http://kff.org/health-reform/

perspective/the-potential-side-effects-of-halbig/....... 16

Nat Ass’n of State Budget Officers, State Ex-

penditure Report: Examining Fiscal 2012-2014

State Spending (2014), http://www.nasbo.org/

sites/default/files/State%20Expenditure%20

Report%20(Fiscal%202012-2014)S. pdf ................00.. 9

8 6 TEE 3, 12, 29

Transcript of Oral Argument, Halbig v. Bur-

well, 758 F.3d 390 (D.C. Cir. 2014) (No. 14-

INTEREST OF AMICI CURIAE'

The amici Jewish organizations — JALSA,

JSPAN, and JCUA -— represent a tradition of believ-

ing that the community has an essential role in

providing for the sick. Preserving life and health is

one of the highest of communal duties in the Jewish

tradition. These amici represent a minority communi-

ty deeply committed to equity in access to healthcare

services.

Boston Alliance for Community Health is an

alliance of neighborhood health providers and com-

munity-based organizations. Achieving health equity

is an overarching goal of the organization, and health

insurance is an important part of that goal. If a

significant number of people in the country are de-

nied benefits, the whole system might be in jeopardy,

impacting residents including the people who are

most affected by health inequities.

Lawyers’ Committee for Civil Rights and

Economic Justice is a non-profit that specializes in

law reform litigation to redress race and national origin

discrimination. As part of its effort to reduce disparities

in health status outcomes, the Lawyers’ Committee

formed a partnership with Massachusetts General

' This brief is submitted with the consent of the parties, as

lodged with the Clerk per the Docket Sheets. Pursuant to Rule

37.6, counsel represent that this brief was not authored in whole

or in part by counsel for any party. Amici have borne their own

expenses, without support from any party.

Hospital in 2003 to assist eligible patients in obtain-

ing benefits. The program focuses on the “social

determinants of health,” providing representation to

refugees and immigrants who seek disability awards,

naturalization, unemployment benefits, public hous-

ing and child support. The case at bar could undo the

progress in health care access that has been achieved

over the past five years. The regulatory confusion

that would ensue puts the most vulnerable low-

income patients at risk.

Professors Abigail R. Moncrieff (Boston

University School of Law), Allison K. Hoffman

(UCLA School of Law), Sharona Hoffman (Case

Western Reserve University Schoo! of Law), Russell

B. Korobkin (UCLA School of Law), Joan H.

Krause (UNC School of Law), Stephen G. Marks

(Boston University School of Law), Kevin Outterson

(Boston University School of Law), and Theodore W.

Ruger (University of Pennsylvania Law School)

teach and write in the fields of healthcare law, feder-

alism, and constitutional law, and they have written

extensively on the federalism implications of the

ACA. They have strong professional interests in the

outcome of this case.

SUMMARY OF THE ARGUMENT

Petitioners argue that Congress included health

insurance subsidies under the Patient Protection and

Affordable Care Act (ACA), Pub. L. No. 111-148, 124

Stat. 119 (2010),’ as a “coercive” incentive for states to

establish exchanges. See Pet’rs’ Br. at 32. Indeed,

Petitioners repeatedly analogize the subsidies provi-

sion, 26 U.S.C. § 36B, to the Medicaid expansion that

this Court invalidated in Natl Fed’n of Indep. Bus. v.

Sebelus, 132 S.Ct. 2566, 2601-08 (2012). That analogy

alone ought to raise red flags under the canon of

constitutional avoidance, which counsels this Court to

disfavor any statutory interpretation that provokes

constitutional doubt. See generally Ashwander v.

Tenn. Valley Auth., 297 U.S. 288 (1936).

But the constitutional questions arising from

treating subsidies as incentives are relatively minor

compared to those that arise from the regulatory

consequences of Petitioners’ interpretation. Under

Petitioners’ view, non-compliant states will not only

suffer significant opportunity costs of forgone subsi-

dies; they will also suffer real costs from federal

imposition of a perverse subset of the ACA’s substan-

tive insurance regulations.

As the ACA makes clear, section 36B subsidies

are required to trigger federal enforcement of the

individual and employer mandates. 26 U.S.C.

§ 5000A(eXB\ii) (individual mandate); 26 U.S.C.

§4980H (employer mandate). If any state were

ineligible for subsidies, that state would be subject to

the ACA’s intense market controls ~— including the

* Amended by the Health Care and Education Reconcilia-

tion Act of 2010, Pub. L. No. 111-152, 124 Stat. 1029.

guaranteed-issue and community-rating require-

ments — without the offset of federally-enforced

mandates. The result of that regulatory mix, as this

Court recognized in NFIB, could be rampant adverse

selection that shrinks or destroys individual insur-

ance markets. 132 S.Ct. at 2585; id. at 2626 (Gins-

burg, J., concurring in part and dissenting in part).

Importantly, the states would not be able to cure that

problem by providing their own subsidies because

only § 36B subsidies count in the mandates’ enforce-

ment formulae.

Petitioners’ interpretation of §36B thus causes

“disparate geographic coverage” of the individual and

employer mandates, Shelby County v. Holder, 133

S.Ct. 2612, 2622 (2013), and it contains an embedded

threat of regulatory punishment for a state’s non-

compliance with federal policy. Petitioners’ ACA tells

states that they must set up an exchange, or the

federal government will purposefully impose a perverse

subset of the ACA’s regulations within their borders —

a subset perversely designed to promote adverse

selection. The threat is, “Establish an exchange, or

the federal government will destroy your market.”

Both the disparate geographic coverage of the

mandates and the threat of regulatory punishment

arise uniquely from Petitioners’ interpretation, and

each alone renders the statute constitutionally prob-

lematic. Although disparate geographic coverage of

federal funds (like the subsidies) is common in coop-

erative federalisr., disparate geographic coverage of

substantive rules (like the mandates) is unheard of —

and likely unconstitutional under Shelby County. Id.

Similarly, although fiscal threats are common and

only sometimes unconstitutional, a regulatory threat

of the kind embedded in Petitioners’ interpretation

looks much more problematic under the anti-coercion

constraint. NFIB, 132 S.Ct. at 2601.

Congress has never before threatened to impose

different, and intentionally destructive, substantive

rules in states that refuse to implement federal laws.

Because such a threat is likely unconstitutional, this

Court should not hold that Congress intended the

ACA to operate in this unusual way. See United

States v. X-Citement Video, Inc., 513 U.S. 64, 73

(1994) (holding that the Court should not “impute to

Congress an intent to pass legislation that is incon-

sistent with the Constitution”).

Even if the Court concludes that Petitioners’ is

“the most natural interpretation” of § 36B, the avoid-

ance canon instructs the Court to resort to every

reasonable alternative to avoid constitutional defects.

NFIB, 132 S.Ct. at 2594. Petitioners therefore bear a

high burden in light of their interpretation’s constitu-

tional infirmities. They cannot merely show that their

reading is superior to the government’s; they must

show that the government’s is so unreasonable that

the Court should not resort to it to avoid unconstitu-

tionality.

But the government’s interpretation is, at mini-

mum, a “fairly possible” construction of the statute's

text and structure, and it successfully avoids

constitutional pitfalls. See Crowell v. Benson, 285

U.S. 22, 62 (1932). We urge the Court to affirm the

Fourth Circuit in order to avoid further constitutional

htigation.

ARGUMENT

I. PETITIONERS’ INTERPRETATION OF § 36B

RAISES SERIOUS CONSTITUTIONAL

DOUBTS.

Throughout this litigation, Petitioners have

argued that § 36B intends to “coerce” the states into

establishing their own exchanges. See King v. Bur-

well, 759 F.3d 358, 372, 375 (4th Cir. 2014). Indeed, in

his oral argument in Halbig v. Burwell, 758 F.3d 390

(D.C. Cir. 2014), Petitioners’ attorney repeatedly

analogized § 36B to the Medicaid expansion, arguing

that the only difference is that Medicaid imposed

“more draconian consequences if the states says [sic]

no.” Transcript of Oral Argument at 20-24, Halbig v.

Burwell, 758 F.3d 390 (D.C. Cir. 2014) (No. 14-5018).

But that is neither a genuine difference nor the only

difference — and the others raise serious constitution-

al difficulties that did not arise for Medicaid.

If the Court adopts Petitioners’ reading, it will

not just hold that Congress intended non-compliant

states to forgo subsidies (a traditional fiscal punish-

ment that nevertheless raises doubts under NFIB). It

will also hold that Congress intended those states to

become subject to a federally-enforced set of policies

apparently designed to destroy individual insurance

markets (a novel kind of regulatory punishment that

raises serious doubts under both NFIB and Shelby

County). See Br. Amici Curiae Economic Scholars at

3-6, Halbig v. Burwell, No. 14-5018 (D.C. Cir. Nov. 3,

2014) (en banc) (“Economic Scholars Br.”) (predicting

dire consequences from Petitioners’ interpretation);

Br. Amici Curiae America’s Health Insurance Plans at

24-35, Halbig v. Burwell, No. 14-5018 (D.C. Cir. Nov.

3, 2014) (en banc) (“Insurance Plans Br.”) (same).

Never before has this Court confronted a cooper-

ative federalism scheme that threatens states with

regulatory, rather than fiscal, harm if they refuse to

implement federal policy. That structure raises a

stickier set of constitutional difficulties than the

fiscal incentives that Congress typically uses. It not

only plausibly violates equal sovereignty but also

complicates the anti-coercion constraint by requiring

the Court to assess economic impacts of a regulatory

punishment (an extraordinarily difficult task).

Applying the canon of constitutional avoidance,

the Court should interpret § 36B to avoid this consti-

tutional morass. See Ashwander, 297 U.S. 288; Ed-

ward J. DeBartolo Corp. v. Fla. Gulf Coast Bldg. &

Const. Trades Council, 485 U.S. 568 (1988).

A. The Lodestar for Constitutionality of a

Fiscal Punishment is Its Magnitude as

a Percentage of State Expenditures - a

Test that the Fiscal Threat in Petition-

ers’ Interpretation Likely Fails.

In both South Dakota v. Dole, 483 U.S. 203

(1987), and NFIB, 132 S.Ct. at 2601-08, tl s Court

confronted the question of whether Congress may

punish a state that refuses to implement federal

policies. The Court’s conclusion was that negative

incentives are permissible as long as they are not as

severe as “a gun to the head,” NFIB, 132 S.Ct. at

2604, but the Court found “no need to fix a line” for

distinguishing permissible from impermissible pun-

ishments. Jd. at 2606-07.

What the Court did appear to “fix” is that the

lodestar for constitutionality is a punishment’s mag-

nitude as a percentage of state expenditures. As the

Court noted, the Dole punishment amounted to “less

than half of one percent of South Dakota’s budget,”

id. at 2604, while the Medicaid punishment amount-

ed to “over 10 pertent,” id. at 2605. Notably, that test

applied only to punishments given the plurality’s

remedial holding, which allowed Congress to make a

new offer of Medicaid expansion grants as long as a

state’s refusal did not endanger preexisting Medicaid.

Id. at 2607-08.

It was presumably on a simplistic application of

these rules that Petitioners felt comfortable raising

their coercion theory despite its constitutional

infirmities. According to the Congressional Budget

Office, subsidies would amount to about $2 billion per

state per year, which is about 6 percent of 2014 state

expenditures.’ See Cong. Budget Office, Updated

Estimates of the Effects of the Insurance Coverage

Provisions of the Affordable Care Act (2014), https://

www.cho.gov/sites/default/files/45231-ACA Estimates.

pdf (estimating a national cost of $1.032 trillion from

2015-2024); Nat'l Ass’n of State Budget Officers, State

Expenditure Report: Examining Fiscal 2012-2014

State Spending at 8, Table 1 (2014), http://www.

nasbo.org/sites/default/files/State%20Expenditure%20

Report%20(Fiscal%202012-2014)S. pdf (projecting 2014

state expenditures of about $1.78 trillion: about $36

billion per state).

That figure looks awfully close to the 10 percent

figure’ that the Court deemed “economic dragooning”

in NFIB, 132 U.S. at 2605 — and a far cry from the

.05 percent figure that the Court upheld in Dole —

but, under Petitioners’ interpretation, the subsidies

* This figure might overestimate somewhat. It takes the

average annual subsidies expenditure from a 10-year period and

compares it to estimated state expenditures in 2014 alone. State

budgets will likely grow over those ten years, making the

subsidies’ percentage slightly smaller. Unfortunately, states do

not project budgets over CBO’s timeframe.

* The NFIB opinions make reference to 20 percent, which is

aggregate spending on Medicaid from state and federal sources.

The threat was loss of only federal dollars, which ranges from

50-83 percent of aggregate spending. The relevant amount is

thus half or more of 20 percent, which is “over 10 percent,” as

the plurality makes clear.

constitute a conditional offer of new funding rather

than a withdrawal of preexisting funds.

The problem is that newness does not assure

constitutionality under NFIB. The test for determin-

ing whether a condition is a punishment or an offer

is not whether it threatens preexisting money. It is

whether a condition on funds restricts the use of those

funds or instead restricts some other behavior. As

Chief Justice Roberts explained, “We have upheld

Congress's authority to condition the receipt of funds

on the States’ complying with restrictions on the use

of those funds, because that is the means by which

Congress ensures that the funds are spent according

to its view of the ‘general Welfare.’ Conditions that do

not here govern the use of the funds, however, cannot

be justified on that basis.” Jd. at 2604. Under this

rule, the Court allowed the Medicaid expansion as a

freestanding offer not because it did not threaten

preexisting funds but because, that way, the expan-

sion money is an incentive to play by the money’s own

rules. It is not an incent..e for states to implement

some other federal program.

If subsidies are an incentive to establish ex-

changes, they violate this limitation on conditional

grants. Under Petitioners’ interpretation, subsidies

are not an incentive to play by the subsidies’ rules;

they are an incentive to take on the separate task of

establishing and operating an exchange — a task that

has no bearing on the subsidies’ success or failure.

The condition on the subsidies, according to Petition-

ers, is not that the states use the money consistently

with Congress’s conception of the “general Welfare.”

It is just that the states do a job that the federal

government would rather not do.

One could argue that the subsidies and exchang-

es are more of a single program than were the two

parts of Medicaid, in which case exchange-

establishment could arguably be part of Congress’s

vision for the proper use of subsidies. But the central

factor on which NFIB relied in arguing that the

Medicaid expansion was separate from preexisting

Medicaid was the programs’ separate administrative

features. See id. at 2506. Applying that factor, the

subsidies and exchanges are separate. The states

administer the exchanges (according to Petitioners)

while the Internal Revenue Service administers

subsidies. Furthermore, although the subsidies and

exchanges arose from the same Act of Congress, they

are codified in separate titles. Compare 26 U.S.C.

§36B with 42 U.S.C. § 18031. Most importantly,

state-based exchanges simply are not necessary for

subsidies to function as Congress intended. If Con-

gress thought state leadership was necessary for

exchanges, it was for separate federalism reasons.

Under Petitioners’ interpretation, then, the subsi-

dies would be conditioned on states’ implementation

of a program other than the one being funded.

NFIB holds that this kind of condition — a fiscally

significant condition that does not “govern the use

of the funds” — falls beyond Congress’s power to

condition its grants. 132 S.Ct. at 2604. If the Court

follows Petitioners’ interpretation, it can expect a

constitutional challenge along these lines — which it

could avoid by affirming the Fourth Circuit.

There are thus serious constitutional doubts

associated with a $2 billion opportunity cost in for-

gone subsidies, highlighted by Petitioners’ references

to Congress’s “coercive” intent. The fiscal implications

of Petitioners’ interpretation toe the line of “economic

dragooning,” justifying application of the avoidance

canon to disfavor it. Jd. at 2605.

These doubts, however, are relatively minor

compared to those that arise from the interpretation’s

regulatory impacts.

B. Under Petitioners’ Interpretation, Sec-

tion 36B Threatens Non-Compliant

States With a Perverse Subset of the

ACA’s Reforms, Raising Intense Con-

stitutional Difficulties.

As Petitioners acknowledge, see Pet’rs’ Br. at 15,

one consequence of their interpretation is that the

ACA would impose an odd and potentially destructive

subset of its regulations in states that fail to establish

exchanges — while applying the full corpus of its

regime in compliant states. See King, 759 F.3d at 374-

75. This “disparate geographic coverage” of the ACA’s

core provisions might be unconstitutional whether or

not it is a condition of states’ acquiescence in federal

prerogatives. See Shelby County, 133 S.Ct. at 2622-24

(discussing the “fundamental principle of equal

sovereignty” and high bar for justifying “disparate

geographic coverage” of a federal law). As means of

incentivizing state participation in a federal program,

threats of such differentiation raise extraordinary

difficulties.

1. Petitioners’ Interpretation Gives Rise

to “Disparate Geographic Coverage”

of the ACA’s Core Provisions.

Under Petitioners’ interpretation, the ACA cre-

ates a two-track regulatory regime, differentiated by

state. Like the Voting Rights Act (VRA) provisions

that this Court invalidated in Shelby County, Peti-

tioners’ ACA would give rise to disparate geographic

coverage of its core provisions, and like the VRA,

Petitioners’ ACA would select states for unusual rules

based on states’ choices to follow federally-disfavored

policies. See Part I.B.2, infra. Under the VRA, state

choices to use exclusionary “tests or devices” trig-

gered peculiar federal treatment while under Peti-

tioners’ ACA, state choices to rely on the federal

exchange would trigger peculiar treatment. The

biggest difference between the VRA and Petitioners’

ACA is that Congress unambiguously intended the

VRA’s “‘disparate geographic coverage,” Shelby

County, 133 S.Ct. at 2627 (quoting Nw. Austin Mun.

Util. Dist. No. One v. Holder, 557 U.S. 193, 203

(2009)), while the disparities arising from Petitioners’

interpretation are hidden in a domino effect. But that

difference just means that the Court can avoid the

constitutional difficulty here, as it did in Northwest

Austin but could not in Shelby County.

Here’s how disparate geographic coverage arises

from Petitioners’ interpretation:

The ACA creates several new rules for insurance

companies. Most famously, it requires guaranteed

issue, 42 U.S.C. § 300gg-1 (issuance); 42 U.S.C.

§ 300gg-2 (renewability), and community rating, 42

U.S.C. § 300gg, but it also bans preexisting condition

exclusions, 42 U.S.C. § 300gg-3, coverage rescissions,

42 U.S.C. § 300gg-12, and coverage caps, 42 U.S.C.

§ 300gg-11. It also imposes a minimum medical loss

ratio that limits insurers’ administrative costs, in-

cluding profits. 42 U.S.C. § 300gg-18.

Together, these rules create a strong incentive for

consumers to wait until they are sick to buy insur-

ance. The strategies that insurers once used to avoid

sick enrollees — and to avoid paying for particular

sicknesses — are now illegal, eliminating any risk that

a patient will become “uninsurable” if she waits to

buy coverage. In q world with only these rules, insur-

ers would expect primarily “bad risks” to buy insur-

ance, and that “adverse selection” would undermine

insurance’s risk-pooling function. Moreover, given the

medical loss ratio and community-rating, insurers

cannot simply raise premiums to avoid losses. As a

result, many insurers would likely stop writing

policies in individual markets if the ACA’s reforms

went into effect without mandates. The withdrawal of

major insurers would be the culmination of the

“death spiral” that economists predict when modeling

the effects of eliminating the individual mandate. See

generally Economic Scholars Br. If a state reached

that point, many of its patients would be unable to

find health insurance even if they wanted and could

afford it.

That's why Congress included the individual and

employer mandates. 26 U.S.C. § 5000A (individual);

26 U.S.C. §4980H (employer). As the government

argued at length in NFIB and as the Court accepted,

the mandates are “integral partis) of [the ACA’s]

comprehensive scheme of economic regulation.” NFIB,

132 S.Ct. at 2591 (quoting Br. for United States 24);

see also id. at 2585. “Without the individual man-

date,” Justice Ginsburg explained, “guaranteed-issue

and community-rating requirements would trigger an

adverse-selection death-spiral.” Jd. at 2626 (Gins-

burg, J., concurring in part and dissenting in part).

But both the individual and employer mandates

explicitly depend on the subsidies — not for their

success but for their applicability. The employer

mandate applies only if “at least one full-time em-

ployee” has enrolled in a health plan for which a

“premium tax credit or cost-sharing reduction is

allowed or paid.” 26 U.S.C. § 4980H(a)(2). In a state

whose citizens are ineligible for subsidies, that man-

date can never be triggered. Likewise, the individual

mandate contains an exemption for anyone whose

“required contribution” to the cost of insurance ex-

ceeds 8 percent of his household income, 26 U.S.C.

§ 5000A(e)(1)(A), and the “required contribution” for

anyone purchasing on the individual market is offset

“by the amount of the credit allowable under section

36B,” § 5000A(e)(1)(B Xii).

Congress decided on the 8 percent affordability

threshold with the subsidies in mind, calibrating the

two provisions carefully to give the mandate wide-

spread applicability. Absence of the subsidies’ offset

therefore relieves most purchasers on the individual

market of the obligation to insure. See Larry Levitt &

Gary Claxton, The Potential Side Effects of Halbig,

Kaiser Family Found., July 31, 2014, http://kff.org/

health-reform/perspective/the-potential-side-effects-of-

halbig/ (estimating that 83 percent of the otherwise

subsidy-eligible population would cross the affordabil-

ity threshold). This, indeed, is Petitioners’ theory for

standing. Without subsidies, they will not be required

to purchase insurance. See Compl., King v. Sebelius,

997 F. Supp. 2d 415 (E.D. Va. 2013) (No. 13-CV-630).

One consequence, then, of Petitioners’ interpreta-

tion is that the statute would create disparate geo-

graphic coverage of the ACA’s substantive rules.” The

market reforms would go into effect everywhere,’ but

the offsetting mandates would go into effect only in

those states that establish exchanges. Petitioners’

ACA says, “If you get subsidies, then you’re bound by

* Disparate fiscal treatment of states is common in coopera-

tive federalism. See, e.g. 42 U.S.C. § 1396d(b). Disparate

regulatory coverage in a cooperative federalism scheme would

be, as far as amici know, entirely novel.

* The ACA authorizes the states to enforce the market

reforms themselves, but it obligates the federal government to

enforce in states that cannot or will not. 42 U.S.C. § 300gg-22.

mandates. But only some states get subsidies, so only

some states’ citizens are bound by mandates.”

As this Court understood in NFIB, 132 S.Ct. at

2585, 2626, and as the best available data show, see

Economic Scholars’ Br., the result of the mandate-free

ACA would be that many insurers would refuse to

write individual plans in mandate-free states. Those

states’ individual markets would shrink or collapse,

leaving many citizens unable to find or afford insur-

ance. See Linda J. Blumberg, Matthew Buettgens &

John Holahan, The Implications of a Supreme Court

Finding for the Plaintiffs in King v. Burwell: 8.2

Million More Uninsured and 35% Higher Premiums,

Urban Institute, Jan. 2015, http://www.urban.org/

publications/2000062.html.

2. There is No Plausible - Much Less

“Exceptional” - Justification for

This Geographic Differentiation.

Even if some states prefer the mandate-free

regulatory bundle, “disparate geographic coverage” of

a federal statute raises constitutional red flags under

the “fundamental principle of equal sovereignty.”

Shelby County, 133 S.Ct. at 2622-24 (quoting Nw.

Austin, 557 U.S. at 203). This Court held in North-

west Austin, 557 U.S. 193, and Shelby County, 133

S.Ct. 2612, that a geographically differentiated regula-

tory regime is constitutionally permissible only if

the federal government can show that “‘exceptional

conditions’ ” justify the disparities. Id. at 2624 (quoting

South Carolina v. Katzenbach, 383 U.S. 301, 334

(1966)).

Importantly, states’ ability to choose the federal

regulatory bundle that applies does not obviate the

need for exceptional justification. In terms of states’

power to choose, Petitioners’ ACA is indistinguishable

from the VRA; both set uniform ground rules by

which states could select in or out of particular regu-

latory rules. See Part I.B.3, infra. Shelby County held

that any unjustified geographic disparity of a federal

law is unconstitutional, even if arising from state

actions.

In this case, there are no conditions, exceptional

or otherwise, that justify disparate geographic cover-

age of mandates. The insurance market operates

similarly throughout the nation, and the decision to

coordinate that market through a federal exchange

does not alter the market’s conditions in any way that

justifies regulatory differentiation. The only argu-

ment Petitioners raise to rationalize the disparity is

that Congress wanted the states to establish ex-

changes and needed an incentive for them to take on

that thankless task. But this argument (in addition

to raising serious anti-coercion concerns, discussed

below) fails to justify geographic disparity. Senator

Ben Nelson’s alleged desire for state-run exchanges, |

see Halbig, 758 F.3d at 409 n.11 — no matter how

sincerely felt or politically important — is not the kind

of “exceptional condition” that can justify state-to-

state differentiation in a federal law’s coverage.

3. This Geographic Disparity is Indis-

tinguishable from the Disparity that

the Court Invalidated in Shelby

County.

There are, of course, differences between the ACA

that emerges from Petitioners’ interpretation and the

VRA provisions that the Court invalidated in Shelby

County, 133 S.Ct. 2612. None, however, eliminates

constitutional doubts. Two differences make Petition-

ers’ ACA look constitutionally worse than the VRA;

one makes it look superficially better, but only at first

blush; one is ambiguous.

First, while both the VRA and Petitioners’ ACA

differentiate among states based on choices that state

governments made, the VRA differentiated based on

unconstitutional choices: the effectual use of tests or

devices to exclude voters. See 42 U.S.C. § 1973b(b);

U.S. Const. amend. XV. Petitioners’ ACA differenti-

ates based on choices that states were constitutional-

ly entitled to make: refusal to implement an exchange

that meets federal standards. See New York v. United

States, 505 U.S. 144 (1992) (anti-commandeering).

This distinction makes Petitioners’ ACA look, consti-

tutionally, much worse than the VRA. To whatever

extent Congress may create disparate geographic

coverage, surely that power ought to be greater when

the legislature is attempting to enforce constitutional

rights than when it is attempting to circumvent

constitutional limitations.

The second difference is subtler but similarly

makes Petitioners’ ACA look worse than the VRA.

The VRA was a remedial statute, designed to ensure

adoption of a uniform substantive policy throughout

the nation. Congress’s goal was universal suffrage in

all states, but since some states were aiming for that

goal before Congress spoke, the legislature deter-

mined that only certain parts of the country needed

to take the VRA’s strong medicine. The VRA thus

reflected geographic differentiation in enforcement

procedures, not in desired results. Under Petitioners’

ACA, by contrast, Congress wanted different substan-

tive policies to govern different states. In some, the

regulatory regime would treat health insurance as

social insurance, with near-universal mandatory

contribution, while in others, it would treat health

insurance as an ordinary commodity that is neverthe-

less subject to intense price controls. That differentia-

tion would serve no policy or constitutional interests

of its own; it would just be an attempt to effect the

separate policy of state-run exchanges. Under the

principle of equal sovereignty, unjustified disparities

in the coverage of a substantive provision seems much

worse than the VRA’s remedial differentiation.

Of course, geographic differences in substantive

policy are common, even in federally-coordinated

programs, but such differences have always arisen

from state statutes that regulate avove a federal floor

or pursuant to a federal waiver. In standard coopera-

tive federalism, the federal government sets rules. for

programs that the states run themselves. What such

programs do not do — but what Petitioners argue the

ACA does — is require states to pick between two

substantively different federally-run programs, with

state flexibility limited to the choice of one or another

bundle of preemptive rules. If it is unconstitutional

for the federal government to use different enforce-

ment strategies for a uniform substantive policy, as in

Shelby County, then it seems clearly unconstitutional

for the federal government to enforce different sub-

stantive policies in different states, even if the states

get to choose which one applies.

Indeed, if Congress has the power to create that

kind of disparate coverage, then it is hard to see how

the states retain sovereignty at all. See generally

Texas v. White, 7 Wall. 700, 725 (1869) (emphasizing

the states’ “indestructible” sovereignty). Congress

could overtake states’ jobs, passing one set of preemp-

tive regulations in Texas and a different set in

Massachusetts. Even if both states liked the results —

even if both states chose results from an “either-or”

federal menu — they could no longer call themselves

sovereign states.

The third difference between the two regimes

makes Petitioners’ ACA look superficially better than

the VRA, but a deeper understanding reintroduces

doubt. Neither the VRA nor Petitioners’ ACA lists

covered and uncovered states on the face of the stat-

ute. Both instead set formulae for distinguishing

states — voter registration practices under the VRA

and establishment of a compliant exchange under

Petitioners’ ACA. But while the VRA selected states

for historic practices, see 42 U.S.C. § 1973b(b), Peti-

tioners’ ACA selects states for an ongoing failure that

first arose after the statute’s enactment. The states

therefore have a current opportunity to choose their

regulatory regime under Petitioners’ ACA; all they

have do to trigger the mandates is to establish an

exchange. Setting aside the anti-coercion issue that

arises from that structure: retention of real-time

choice might make Petitioners’ ACA look less consti-

tutionally problematic.

But the VRA included a similar kind of choice.

Section 4 provided a “bailout” procedure for covered

states, which allowed them to terminate federal

oversight of their election laws if they enforced a ten-

year moratorium on exclusionary tests or devices. See

42 U.S.C. § 1973b(a). Section 3 also included a “bail-

in” procedure that allowed the federal government to

initiate preclearance requirements in any state that

engaged in current constitutional violations, regard-

less of whether they satisfied the historically-based

coverage formula. See 42 U.S.C. § 1973a(c). All states

were therefore eligible to choose, through their cur-

rent use or nonuse of tests or devices, whether they

wouid be subject to federal preclearance.’

’ The “bailout” requirement might seem more onerous than

Petitioners’ requirement of exchange establishment, but maybe

not by much. It is unclear whether Petitioners ACA would

require states merely to “establish” exchanges that they could

then turn over to the federal government or whether they would

(Continued on following page)

In comparing the two choices (bailout to exchange-

establishment), it might seem relevant that some

states strongly prefer not to have mandates enforced

in their jurisdictions. See, e.g., Compl., Florida ex rel.

Bondi v. U.S. Dep’t of Health & Human Servs., 780

F.Supp. 2d 1256 (N.D. Fla. 2010) (No. 3:10-cv-91)

(listing states that challenged the individual man-

date’s constitutionality); Br. Amici Curiae States of

Kansas and Nebraska at 14-19, King v. Sebelius, No.

14-1158 (4th Cir. Mar. 10, 2014) (arguing that amici

states chose not to establish exchanges in order to

avoid mandates). But that possibility ought not to

matter to the constitutionality of disparate geograph-

ic coverage. If several of the VRA-covered states had

wanted federal oversight of their election laws — to

avoid political accountability for racially equal prac-

tices — would the outcome in Shelby County have been

different? The Court’s holding was that “disparate

geographic coverage” of a federal law raises constitu-

tional questions independently of whether the states

like the regulations they get. Shelby County, 133

S.Ct. at 2622. It is differentiation, not dissatisfaction,

that causes constitutional trouble.

Furthermore, inverting the ACA choice does not

eliminate dissatisfaction; it just turns the tables on

states that want mandates enforced. From those

states’ perspective, the necessity of establishing an

exchange becomes punishment for wanting mandate

need to administer their exchanges in perpetuity. If the latter,

then the burdens of choice look similar.

enforcement, rather than mandate non-enforcement

being punishment for failure to establish an ex-

change. Either way, Petitioners’ interpretation gives

rise to disparate geographic coverage of the man-

dates, and either way, the differentiation looks puni-

tive from some states’ perspective.

The fourth difference has ambiguous constitu-

tional implications. Under the VRA, the federal

government acted against states themselves while

under the ACA, it acts against states’ citizens. The

ACA binds insurance companies, employers, and

individuals, not state governments. On one hand, this

difference makes Petitioners’ ACA look less problem-

atic because it does not interfere directly with the

states qua sovereigns. Cf. Gregory v. Ashcroft, 501

U.S. 452 (1991) (political functions doctrine). Fur-

thermore, if the purpose of both statutes is to incen-

tivize states to comply with federal policy, then a

strategy that targets citizens rather than politicians

might be constitutionally preferred. That way, politi-

cians will choose between adopting or refusing federal

policy based on public rather than personal interests.

See Spallone v. United States, 493 U.S. 265 (1990).

On the other hand, federal regulations that bind

citizens are not actually less restrictive of states’

powers than those that bind governments. Under the

Supremacy Clause, U.S. Const. art. VI cl. 2, federal

regulations supersede state power regardless, and the

ACA’s market reforms embody specific regulatory

choices that preempt contrary state efforts. See 42

U.S.C. § 300gg-23 (preemption); Gade v. Nat'l Solid

Wastes Mgmt. Ass’n, 505 U.S. 88, 98 (1992) (implied

preemption). Granted, the ACA provides for “state

innovation waivers” that might allow the states to

circumvent such preemption starting in 2017, 42

U.S.C. § 18052, but the waivers are available only

with the federal executive’s approval — which looks

awfully similar to VRA preclearance. Furthermore,

this Court has long held that federalism limitations

exist to protect individuals, not states. New York, 505

U.S. at 181 ‘emphasizing that “federalism secures to

citizens the liberties that derive from the diffusion of

sovereign power”) (quotations and citations omitted).

By that logic, the ACA’s operation against citizens

ought to make no difference.

The ACA’s direct application also raises a sepa-

rate constitutional question: whether the federal

government may discriminate against individuals on

the basis of state citizenship. See U.S. Const. amend.

XIV §1; Bolling v. Sharpe, 347 U.S. 497 (1954).

Because Congress has never allowed federal enforce-

ment of different substantive policies in different

states, this Court has never considered whether that

kind of disparate coverage of a federal law ought to

trigger strict scrutiny under equal protection. Given

citizens’ fundamental right to travel among states,

see Crandall v. Nevada, 73 U.S. 35 (1868), strict

scrutiny would seem appropriate in this context. See

generally Plyler v. Doe, 457 U.S. 202, 216-17 (1982)

(“(WJe have treated as presumptively invidious those

classifications that impinge upon the exercise

of a ‘fundamental mght.’”). If the Court accepts

Petitioners’ interpretation, insurers and patients

could challenge the resulting statute by arguing that

Congress may not impinge their fundamental right to

choose where they live by purposefully destroying

some states’ individual insurance markets. The Court

could avoid that challenge by upholding the IRS Rule.

4. Disparate Geographic Coverage as

an Incentive for Implementation of

Federal Policy Raises Profound Anti-

Coercion Concerns.

The most difficult constitutional question arising

from Petitioners’ interpretation is whether the ACA’s

punitive differentiation among the states, particular-

ly when combined with the opportunity cost of subsi-

dies, is unconstitutionally coercive. There are two

components to this question. First, are regulatory

incentives ever permissible? Second, if so, is the

particular mix of fiscal and regulatory punishments

that arises from Petitioners’ interpretation permissi-

ble? Both of those questions would be extremely

difficult to resolve under current doctrine.

First, assuming that mere regulatory differentia-

tion does not violate the principle of equal sovereign-

ty, can Congress use a threat of such differentiation

as an incentive for states to enact federal policies?

This Court’s anti-coercion doctrine would be extraor-

dinarily difficult — if not impossible — to apply to

regulatory punishments. The core doctrinal question

for anti-coercion is whether a federal incentive leaves

states genuinely free to choose, and the test for

voluntariness turns on the magnitude of the incentive

as a percentage of state budgets. See Part I.A, supra.

That test might not work at all for regulatory pun-

ishments.

Consider, for example, an alteration to Dole.

Imagine that, instead of threatening to withhold 5

percent of a state’s federal highway funds, Congress

had threatened to enforce a lower speed limit in non-

compliant states. At the time Dole was decided, a

wildly unpopular federal speed limit of 55 MPH was

in effect nationwide. See National Maximum Speed

Law, Pub. L. No. 97-424, 96 Stat. 2097 (1974) (re-

pealed by National Highway System Designation

Act of 1995, Pub. L. No. 104-59, 109 Stat. 568); see

also Paul Grimes, Practical Traveler: The 55-M.P.H.

Speed Limit, N.Y. Times, Dec. 26, 1982, http://www.

nytimes.com/1982/12/26/travel/practical-traveler-the-

55-mph-speed-limit.htm] (discussing the statute’s

unpopularity). What if, in the statute at issue in Dole,

23 U.S.C. § 158, Congress had agreed to increase the

federal limit to 65 MPH in states that raised their

drinking ages while leaving the unpopular 55 MPH

limit to govern non-compliant states? Congress could

have simultaneously created a federal highway patrol

to enforce the limits in all states, making the threat

credible. Would that incentive have been coercive?

What if compliant siates got a 65 MPH limit while

non-compliant states got a 35 MPH limit? A 10 MPH

limit? At least at some point, such a threat must be

unconstitutionally coercive, but where is the thresh-

old for a regulatory incentive?

The problem, given the doctrinal test, is that the

effects of a regulatory punishment are much harder

to quantify than those of a fiscal punishment. The

Court would need to know the net cost (or benefit) of

a lower speed limit: lost time and money from slower

commutes offset by benefits from greater highway

safety. The Court also ought to ask how much citizens

hate lower speed limits — a highly relevant value

when considering state politicians’ freedom of choice,

but one that is extraordinarily difficult to quantify.

Whereas fiscal incentives engage decision-makers in

a relatively straightforward willingness-to-pay game,

regulatory incentives create a muddled game that

would be exceptionally difficult for the Court to

assess.

Of course, it is theoretically possible to quantify

economic effects of a regulatory change — like the cost

of slower commutes. But such economic effects are

off-budget for the states, rendering irrelevant the

doctrinal test of a threat’s magnitude relative to state

expenditures. Even if the Court had those data, it

would need to compare regulatory effects to states’

economies — their GDPs. But that comparison looks

nearly impossible. The Court would be seeking macro-

economic effects of a microeconomic policy in a world

in which economists are either micro-economists or

macro-economists. There are not usually data availa-

ble on micro policies’ macro consequences. See, e.g.,

Economic Scholars Br. (discussing only microeconom-

ic effects of Petitioners’ interpretation).

Given the doctrinal difficulties that arise from

regulatory incentives ~ and the constitutional doubts

associated with any regulatory differentiation — it

might make sense to hold that regulatory threats are

unconstitutionally coercive no matter how trivial they

might appear. Otherwise, the Court will be left with

an “I know it when I see it” test for regulatory coer-

cion in a realm that Supreme Court justices are

institutionally ill-equipped to judge: state politics. Cf.

Jacobellis v. Ohio, 378 U.S. 184, 197 (1964) (Stewart,

J., concurring).

All of that said, the regulatory threat in this case

is far from trivial. The second question, whether this

particular threat is unconstitutionally coercive, might

therefore be simple — and Petitioners’ interpretation

simply unconstitutional — under an “I know it when

I see it” standard. Although it seems impossible to

determine whether the costs of adverse selection

“death spirals” would approach the NFIB threshold of

10 percent of state budgets, see 132 U.S. at 2605,

there is broad consensus — that Petitioners do not

dispute — that non-enforcement of the mandates

would wreak havoc on states’ individual insurance

markets. See Economic Scholars Br.; Insurance Plans

Br.; Pet’rs’ Br. at 15.

As discussed above, Congress included the indi-

vidual and employer mandates — despite their un-

popularity and despite President Obama’s professed

opposition to the measures — as necessary corrections

to adverse selection that would otherwise arise from

the ACA’s market reforms. See Andrew Cline, How

Obama Broke His Promise on: Individual Mandates,

The Atlantic, June 29, 2012, http://www.theatlantic.com/

politics/archive/2012/06/how-obama-broke-his-promise-

on-individual-mandates/259183/.

As Chief Justice Roberts explained in NFIB:

The guaranteed-issue and community-rating

reforms do not, however, address the issue of

healthy individuals who choose not to pur-

chase insurance to cover potential health

care needs. In fact, the reforms sharply exac-

erbate that problem, by providing an incen-

tive for individuals to delay purchasing

health insurance until they become sick, re-

lying on the promise of guaranteed and af-

fordable coverage. The reforms also threaten

to impose massive new costs on insurers,

who are required to accept unhealthy indi-

viduals but prohibited from charging them

rates necessary to pay for their coverage.

This will lead insurers to significantly in-

crease premiums on everyone. The individu-

al mandate was Congress’s solution to these

problems.

132 S.Ct. at 2585.

Indeed, all Members of the Court accepted this

account in their NFIB opinions. /d.; id. at 2614

(Ginsburg, J., concurring in part and dissenting in

part); id. at 2670-71 (joint dissent).

Given the mandates’ accepted role as correctives

to the ACA’s otherwise-destructive regulations and

given that Petitioners’ interpretation would cause

non-enforcement of those correctives in non-

compliant states, the threat in Petitioners’ jnterpreta-

tion is: “Establish an exchange, or the federal gov-

ernment will destroy your individual health

insurance market.” The question, then, is whether

that threat is coercive. Would a state be willing, in

the long run, to endure the consequences of federally-

created “death spirals” in order to avoid the federal

command to establish an exchange”

Because the fiscal magnitude of this threat seems

impossible to calculate, consider a slightly altered

metric: whether, under Petitioners’ interpretation, it

is possible for a state to achieve a functioning

* Several states argue that they wanted to avoid the

mandates, implying that they would be not only capable of

resisting the threat but happy to accept its consequences. See

Br. Amici Curiae State of Oklahoma et al. 2, 14 (Oklahoma,

Alabama, Georgia, Nebraska, South Carolina, and West Virgin-

ia); Br. Amici Curiae State of Indiana and 39 Indiana Public

School Corporations. These states’ filings, however, do not

embrace the destructive regulatory regime that would emerge

from that decision. None admits that the cost of avoiding

mandates is, at least plausibly, destruction of insurance mar-

kets. Furthermore, it is not clear that some states’ preference for

the “punishment” should matter to the constitutional! question.

If Congress intended to make a coercive offer but miscalculated

some states’ preferences, the offer might nevertheless be uncon-

stitutional. Indeed, it is unclear from NFIB and Dole whether an

offer is unconstitutional if any state would be unable to refuse, if

every state would, or if an objectively reasonable state would.

individual market without establishing an exchange.

If not, then Petitioners’ ACA puts the states in a

“heads I win, tails you lose” game; the state either

loses its individual market or complies with federal

policy. Indeed, states’ ability to surmount federal

punishments seems to be the heart of the Court’s

analysis in Dole and NFIB. States could plausibly

make up .05 percent budget shortfalls by increasing

state taxes — if citizens were willing to pay for their

lower drinking age — but they could not plausibly

make up 10 percent shortfalls, no matter how much

citizens hated the Medicaid expansion. The Court's

focus on budget effects seems to be, fundamentally,

about whether states have autonomous options for

overcoming the federal punishment without obeying

the federal command.

In this case, the design of the regulatory pun-

ishment is such that autonomous state remedies are

entirely unavailable: two legally, one practically. Two

fixes are legally impossible. First, states cannot

excuse their insurance companies from the market

reforms, which preempt contradictory state laws. See

42 U.S.C. § 300gg-23. The states cannot simply opt

out of the federal program in favor of running their

own individual insurance markets — the way that

they could have run their own equivalents to Medi-

caid in 1965 or paid for their own highways in 1987.

Second, states cannot fix their markets by providing

state-funded subsidies, making up the $2 billion

themselves, because the mandates both explicitly

turn on federal subsidies. 26 U.S.C. § 5000A(e)(BXii)

(turning on “the credit allowable under section 36B”);

26 U.S.C. §4980H (requiring certification of an

employee's eligibility for ACA subsidies). State subsi-

dization would not earn non-compliant states the

same federal regulatory treatment as compliant

states. Indeed, subsidies in the absence of mandates

would only exacerbate adverse selection problems by

decreasing the cost of purchasing a policy once sick.

The states would have three legally possible

options to keep their individual markets afloat, only

one of which would count as autonomous state action.

First and most obviously, states could establish

exchanges, obeying the federal command. Second,

they could write and enforce their own mandates.

That approach, however, would be politically costly

and ultimately pointless; for many states, enforcing

mandates would be just as much a concession to

federal coercion as establishing an exchange. Fur-

thermore, establishing an exchange would be no more

expensive than enforcing mandates, and the exchange-

establishing route would create clearer federal ac-

countability for the mandates.

Fourth, non-participating states might be able to

convince insurers to keep writing policies in their

markets, despite rampant adverse selection, by giving

them industry-side subsidies. The medical loss ratio

limits insurers’ administrative costs, including prof-

its, to 20 percent of revenues, but the provision

includes only premiums in revenues and excludes

“State taxes” from costs. 42 U.S.C. § 300gg-18. It is

therefore possible that states could provide tax

rebates to insurers, which would count as neither

revenue nor profit under the medical loss ratio.

But this approach seems fiscally impractical.

Insurers might demand more than the $2 billion in

forgone federal subsidies to operate in non-compliant

states. Those states would not just be trying to com-

pete with compliant states (which will have admira-

bly predictable markets); they would be trying to

convince insurers to work in markets perversely

designed to promote adverse selection.

Furthermore, non-compliant states’ citizens would

end up paying for such industry subsidies in addition

to paying, through their federal taxes, for the federal

subsidies in compliant states. See NFIB, 136 S.Ct. at

2661-62 (joint dissent). This solution would also fail

to avoid the costs of increased uncompensated care

that would arise from eliminating the mandate,

which might be substantial given that many individ-

uals might lose their bets that they can stay healthy

between the federal exchange’s annual enrollment

periods and given that premiums in adverse selection

markets would be too high for many people to afford.

See Matthew Buettgens & Caitlin Carroll, Eliminat-

ing the Individual Mandate: Effects on Premiums,

Coverage, and Uncompensated Care, Urban Institute,

Jan. 2012, http://www.urban.org/U ploadedPDF/412480-

Eliminating-the-Individual-Mandate.pdf (predicting a

$23 billion nationwide increase in uncompensated

care). The overall cost of this approach could thus

include: more than $2 billion in subsidies plus wasted

federal taxes for other states’ subsidies plus economic

costs associated with uncompensated care. That’s

almost certainly more than 10 percent of an average

state’s budget.

All told, the only theoretically possible approach

to mitigating death spirals looks prohibitively expen-

sive in fact. Cf. Dole, 483 U.S. at 211-12 (requiring

states to have a choice “not merely in theory but in

fact”).

The burden of Petitioners’ regulatory punishment

may be impossible to cast in precise dollar terms, but

it seems awfully big, especially when combined with

the $2 billion opportunity cost of forgone subsidies.

Cumulatively, the threat embedded in Petitioners’

reading could be as destructive as the Medicaid

threat that this Court invalidated in NFIJB or even

more so. Fortunately, the Court can avoid confronting

that question by upholding the IRS Rule.

All of that said, if the Court would like more

information on the effects of Petitioners’ interpreta-

tion on states’ insurance markets in order to assess

the seriousness of the constitutional doubt, amici

respectfully suggest that the Court order the parties

to be prepared to discuss the question at oral argu-

ment. The parties are better situated than amici to

evaluate the effects of Petitioners’ interpretation on

state economies.

Il. THE GOVERNMENT'S INTERPRETATION

OF §36B IS AT LEAST “FAIRLY POSSI-

BLE” AND AVOIDS ANY CONSTITUTION-

AL DOUBT.

Under the canon of constitutional avoidance, this

Court will not “impute to Congress an intent to pass

legislation that is inconsistent with the Constitution

as construed by this Court.” United States v. X-

Citement Video, Inc., 513 U.S. 64, 73 (1994). In other

words, the Court will not hold that Congress intended

“to disregard a constitutional danger zone,” Yates v.

United States, 354 U.S. 298, 319 (1957), unless that

intent is so clear as to be unavoidable. Furthermore,

even when a constitutionally problematic construc-

tion is “the most natural interpretation” of a statute,

“‘every reasonable construction must be resorted to,

in order to save a statute from unconstitutionality.’”

NFIB, 132 S.Ct. at 2594 (quoting Hooper v. Califor-

nia, 155 U.S. 648, 657 (1895)). If “a construction of

the statute is fairly possible by which the [constitu-

tional] question may be avoided,” this Court favors

that interpretation. Crowell, 285 U.S. at 62.

A. The Government’s Interpretation of

§ 36B is at Least “Fairly Possible.”

In this case, six of the nine federal judges to have

confronted the statute have held that the govern-

ment’s interpretation is more consistent with the text

and structure of the ACA. See Halbig, 758 F.3d at

412-27 (Edwards, J., dissenting); King, 759 F.3d 358

(unanimous opinion); Halbig v. Sebelius, 113

A.F.T.R.2d 2014-548 (D.D.C. 2014); King v. Sebelius,

997 F. Supp 2d 415 (E.D. Va. 2014). Their analyses

and conclusions demonstrate that the government’s

interpretation is, at minimum, “fairly possible.”

Crowell, 285 U.S. at 62. Furthermore, the statutory

definition of “exchange,” 42 U.S.C. § 300gg-91(d\(21),

and the reference in 42 U.S.C. § 18041 to “such

exchange” lend textual plausibility to the govern-

ment’s interpretation, and Petitioners agree that

nothing in the legislative history contradicts that

construction.

Indeed, there is no evidence anywhere in the

statute’s text, structure, or history of a clear congres-

sional intent to induce state compliance through a

threat of regulatory differentiation — and thereby “to

disregard [two] constitutional danger zone[s].” Yates,

354 U.S. at 319. The language of § 36B provides, at

most, evidence of an intent to use subsidies as an

incentive; the regulatory consequer.:es of Petitioners’

interpretation are domino e‘fects that do not seem to

have been intended at ali. Even if the Court con-

cludes that Petitioners’ is “the most natural inierp. »-

tation” of § 36B, this Court should disfavor it to avoid

the constitutionally problematic dominos.”

* Importantly, the government's interpretation does not

raise its own constitutional problems. Cf. Rust v. Sullivan, 500

U.S. 173, 191 (1991) (“{I]}t was likely that any set of regulations

funder the statute] ... would be challenged on constitutional

grounds.”). In an amici brief, the State of Indiana and some of

its schools argue that the government’s interpretation causes

(Continued on following page)

B. The Government’s Interpretation Avoids

the Serious Constitutional Problems

that Infect Petitioners’ Interpretation.

The IRS Rule successfully avoids all of the consti-

tutional infirmities of Petitioners’ interpretation.

Under the government’s construction, the ACA gives

states two incentives to establish their own exchang-

es: a grant to assist with exchange “planning and

establishment,” 42 U.S.C. § 18031(a), and regulatory

flexibility within established exchanges, 42 U.S.C.

§ 18031. Neither of these incentives raises an anti-

coercion concern or an affront to equal sovereignty.

constitutional problems by imposing the employer mandate on

the states. See Br. Amici Curiae State of Indiana and 39 Indiana

Public School Corporations 20-34. Indiana’s constitutional

arguments are substantively specious, one even resting on an

overruled opinion. Id. at 31-34 (relying on Natl League of Cities

v. Usery, 426 U.S. 833 (1976), overruled by Garcia v. San

Antonio Metro. Transit Auth., 469 U.S. 528 (1985)). But setting

that aside, the biggest problem with Indiana’s arguments is that

Petitioners’ interpretation would not cure the alleged constitu-

tional defects. If it is unconstitutional for Congress to regulate

or tax the states, then that problem cannot be solved by letting

the states choose whether they will be bound by the unconstitu-

tional provisions. The remedy would be to read the definition of

“employer” narrowly to exclude the states from the ACA’s

coverage given that the ACA does not explicitly include states in

that definition. See Gregory v. Ashcroft, 501 U.S. 452, 460-61

(1991) (applying a “plain statement rule” to regulation of states

as employers); 26 U.S.C. § 4980H(cX2XA) (defining “applicable

large employer”). The Court cannot avoid the constitutional

trouble Indiana identifies by holding in Petitioners’ favor here.

The statute’s “planning and _ establishment

grants” were for statutorily unspecified amounts, 42

U.S.C. § 18031(a\1), but the actual amounts turned

out to be an average of about $270 million per state —

an order of magnitude less than § 36B’s premium

subsidies. See Cong. Research Serv., Federal Funding

for Health Insurance Exchanges, Oct. 14, 2014,

https://www.hsdl.org/?view&did=759147. Crucially for

constitutional purposes, the start-up grants were

temporally limited to the first year of the exchanges’

operation; the statute prohibits the federal govern-

ment from distributing grants after January 1, 2015.

42 U.S.C. § 18041(a)(4)(B). All of the fiscal threats

and offers that this Court has considered under the

anti-coercion principle, including the § 36B subsidies,

have been perpetual grants. That distinction makes a

big difference to the irresistibility of an offer. The

ACA’s time-limited planning and establishment

grants, as an incentive to establish exchanges, do not

raise anything like the constitutional doubt that the

subsidies and regulatory differentiation would raise if

treated as incentives.

The other incentive that the government’s con-

struction embraces — regulatory flexibility within the

exchange — might look superficially problematic

under the » inciple of equal sovereignty, but it is

critically different from Petitioners’ regulatory incen-

tives. Regulatory flexibility obviously allows for

geographic differentiation, but it is state-created,

bottom-up differentiation — the same kind that is

pervasive in cooperative federalism, not the novel

federally-created, top-down kind that arises from

Petitioners’ interpretation. Regulatory differentiation

through exchange management would be state-

enacted and state-enforced; it would not allow differ-

ent federally-enforced policies in different states. It

would not, in other words, cause the federal govern-

ment to treat differently the equal sovereigns of its

union.

Under the government’s understanding, states

that do not want the burden of establishing and

administering exchanges can avoid that burden by

relying on the federal government to run the ex-

change for them, avoiding any anti-commandeering

problem under New York, 505 U.S. 144, and Printz

v. United States, 521 U.S. 898 (1997). But non-

participating states cannot avoid any element of the

substantive regulatory regime that the ACA created

for all states. Although some states dislike the sub-

stantive policy that Congress chose, the inescapabil-

ity of that policy is necessary to avoid the kind of

differentiation that this Court found constitutionally

troublesome — and ultimately unconstitutional — in

the VRA. If this Court is serious about the principle

of equal sovereignty, it must apply that principle

when some states dislike uniformity just as it has

applied it when some states prefer uniformity. The

federal government must treat all states the same,

even if many states dislike the result.

CONCLUSION

For the foregoing reasons, we urge the Court to

avoid the two distinct constitutional challenges that

would arise from Petitioners’ reading — under equal

sovereignty and anti-coercion — by affirming the

Fourth Circuit.

Respectfully submitted,

ANDREW M. FISCHER

Counsel of Record

JASON & FISCHER

47 Winter Street

Boston, MA 02108

telephone (617) 423-7904

fax (617) 451-3413

afischer@jasonandfischer.com

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.