Photo by Mark Wilson/Getty Images

This week’s Supreme Court decision in King v. Burwell is good news for the Obama administration and terrible news for the rule of law. By a margin of 6-to-3, the Court upheld an IRS rule that supposedly implements the Affordable Care Act—Obamacare—by extending health-insurance tax credits to taxpayers in states that have no health insurance exchange of their own, but rather rely on the federal exchange. The problem with this rule, as the plaintiffs in King pointed out, is that it flatly contradicts the ACA. The statute clearly limits tax credits to taxpayers who use state insurance exchanges, not the federal one. A majority of the Court, therefore, simply rewrote the ACA to make it consistent with the administration’s preferred rule. That’s not the way things are supposed to work in a system in which “all legislative power” is vested in the legislative branch (Constitution, Article I).

The stakes in King were high: 36 states use the federal exchange, and without Obamacare’s tax subsidies, a large number of low-income citizens would be exempted from the law’s individual mandate. The result, according to some critics, was that the individual health-insurance markets in those states would fall into an economic “death spiral” of falling participation and rising premiums. That was a risk that Congress deliberately took.

Obamacare provides two different mechanisms for establishing a health- insurance exchange. A state can establish an exchange under Section 1311 of the Act. And in states that “fail” to establish an exchange, the secretary of Health and Human Services must establish an exchange under Section 1321. When discussing eligibility for those all-important tax credits, the ACA says that they are available only to taxpayers who enroll in a qualified health plan “through an Exchange established by the State.”

Why did Congress limit tax credits in that way? To pressure states into creating their own exchanges (constitutionally, the federal government cannot force states to create health-care exchanges). At the time of the law’s passage, its congressional backers assumed that each state would buckle under and create its own exchange. Of course, that’s not how things ended up. Enter the IRS, which expanded tax credits to all exchanges in order to guarantee the viability of the Obamacare project.

The court’s majority opinion, written by Chief Justice John Roberts, has a surreal, through-the-looking glass quality about it. The phrase “an Exchange established by the State under Section 1311,” he says, is “ambiguous.” Actually, the phrase is crystal clear, including the word “state” which the ACA defines as “each of the 50 States and the District of Columbia.” If anything is unambiguous about Obamacare, it’s that tax credits are available only to those who purchase insurance through an exchange established by one of the 50 states or the District of Columbia.

No matter: the finding of “ambiguity” gives the Court license to interpret the law, rather than simply applying it. In the name of interpreting the supposedly ambiguous language, Roberts looks to the overall purpose of Obamacare which, he decides, is the avoidance of the dreaded “death spiral.” His opinion is peppered with references to “death spirals”—one could almost make a drinking game out of it—and Congress’s desire to avoid them. The specific words enacted by Congress are of little importance, we’re told, if those words threaten “to create the very ‘death spirals’”— drink!— “that Congress designed the Act to avoid.” And so, in order to effectuate the law’s higher purpose, the Court decrees that “an Exchange established by the State under Section 1311” includes “an Exchange established by the Secretary of HHS under Section 1321.” Curiouser and curiouser, as Alice said.

The Supreme Court’s decision, and its reasoning, strikes a double blow against the rule of law. First, it ratifies the executive branch’s unconstitutional usurpation of legislative power. When an administrative agency unilaterally rewrites the terms of a statute, it violates Article II’s command that the executive must “faithfully execute” the laws passed by Congress. Compounding the problem, the Court engages in its own power grab—declaring that neither Congress nor the IRS deserve any particular interpretive deference. Rather, “it is . . . our task to determine the correct reading” of the statute—notwithstanding Congress’s plain language. The result in King will embolden President Obama, and future presidents, to ignore the letter of the law when it contradicts their evolving view of the law’s spirit.

Alas, the Supreme Court’s handling of Obamacare is a stark illustration of what results when the judicial and executive branches collude to rewrite the laws passed by the legislative branch. In the first major Obamacare decision, NFIB v. Sebelius, the Court rewrote the Act’s “penalty” clause to make it into a “tax,” thus saving the law from constitutional attack. And now the phrase “established by the State” has been effectively excised from the text.

The result of all this judicial activism is that a law that was sold to the public as creating a system of state-based exchanges with no new taxes has been turned into a system dominated by a federal exchange and enforced via taxes. In dissent, Justice Scalia—joined by Justices Thomas and Alito—rightly accuses the majority of ignoring the rule of law; “that ours is a government of laws and not of men.” Given the judicial makeover of the ACA, Scalia suggests that “we should start calling this law SCOTUSCare.”

Hard cases, according to the cliché, make bad law. But the current Supreme Court has reached a new jurisprudential milestone: it can make bad law out of cases that ought to be easy.


City Journal is a publication of the Manhattan Institute for Policy Research (MI), a leading free-market think tank. Are you interested in supporting the magazine? As a 501(c)(3) nonprofit, donations in support of MI and City Journal are fully tax-deductible as provided by law (EIN #13-2912529).

Further Reading

Up Next