Gloria Ramirez, right, and sister Erica wait to sign up for health insurance on California's state exchange. Two federal appeal courts have split on whether the federal government can create exchanges in states that declined to set up their own.
Gloria Ramirez, right, and sister Erica wait to sign up for health insurance on California’s state exchange. Two federal appeal courts have split on whether the federal government can create exchanges in states that declined to set up their own. (Photo: Rich Pedroncelli/AP)

In trying to divine what the U.S. Supreme Court might do when asked to step into Round Two of the Affordable Care Act battle, it’s only safe to say—as one academic put it—”All bets are off.”

Round One ended in 2012, when the justices, voting 5-4, upheld the constitutionality of the act’s individual mandate to buy insurance. Round Two is the conservative attack on an Internal Revenue Service rule interpreting the law’s subsidies for insurance bought on exchanges “established by the state” to include those established instead by the federal government.

Nicholas Bagley of the University of Michigan Law School described why the next step is so hard to game. “The case is politically salient,” he said. “The justices have pretty well developed views about it. The statutory issue is very controversial. All of those factors could come together, and it only takes four votes to grant cert [review].” Furthermore, the high court’s four dissenters in the 2012 decision might be quite interested in revisiting an issue they feel strongly about, said Bagley, who clerked for Justice John Paul Stevens.

However, there are reasons why the court might hold back, particularly if there is no circuit split—a key criterion for high court review, Bagley said. “And maybe, given its recent brush with the Affordable Care Act, the court would prefer to keep its nose clean. It is very hard to say.”

CONFLICTING RULINGS

On July 21, two federal appellate courts issued conflicting rulings on the federal subsidies: A panel of the U.S. Court of Appeal for the Fourth Circuit unanimously upheld the IRS interpretation in King v. Burwell, and a D.C. Circuit panel disagreed, 2-1, in Halbig v. Burwell. In the balance were an estimated 5 million people who now rely on those subsidies for affordable health insurance.

Speculation abounded about what the justices might do when and if the time comes for them to consider the issue. Meanwhile, the White House announced that the U.S. Department of Justice, which lost in Halbig, would ask the full D.C. Circuit to hear its appeal.

As for the challengers who lost in the Fourth Circuit, “There’s a lot of thinking being done, but no decision yet,” said Sam Kazman, general counsel to the Competitive Enterprise Institute, which coordinated and financed both the King and Halbig suits. Michael Carvin of Jones Day is the lead lawyer in both cases.

Kazman noted the speed with which the appellate panels acted on his group’s challenges to the federal exchanges—six months for the D.C. Circuit panel and five months for the Fourth Circuit. “Both circuits in our cases, and both district courts as well, saw this as an issue that should be treated expeditiously,” he said.

“From the time the D.C. district court ruling was appealed to it, was briefed and argued before the [D.C. Circuit] panel, to me was exceptionally fast, and the same was true in the Fourth Circuit,” Kazman said. “Those are reasons why the Supreme Court might look at this issue as one that deserves quick treatment as well.”

Neil Siegel, co-director of the Program in Public Law at Duke Law School, said that if he were the challengers, he would go directly to the Supreme Court, “because I’m likely to get a more sympathetic hearing from the Supreme Court than from the en banc Fourth Circuit,” given the latter’s 9-5 Democratic- to Republican-appointed majority. “They lost unanimously in the panel, and it’s not going to get better for them,” said Siegel, a former clerk to Justice Ruth Bader Ginsburg. “I don’t see from their point of view what would be served by losing again en banc—and losing some votes of Republican appointees there as well.”

The only upside to going forward before the full Fourth Circuit, other observers said, is that even if the King challengers lose there, they might acquire some dissenting votes to bolster their position.

The government’s path is much clearer, since seeking review by the full D.C. Circuit would appear to pose little risk.

“It was a 2-1 panel decision in Halbig with a very strong dissent,” Siegel said. “If you think about how that court is composed, the government is likely to get a sympathetic hearing.” He referred to the fact that, because of recent appointments by President Obama, the D.C. Circuit also has a 7-4 Democratic-appointed majority. That circuit traditionally has been “loath” to reconsider cases en banc because of its strong interest in preserving collegiality, Siegel said. Still, it probably would take the government’s appeal “because so much is at stake, and Supreme Court review is not a foregone conclusion,” he said. If the court does hear the appeal, he predicted, the government would win “overwhelmingly.”

If the D.C. Circuit agrees to hear the Halbig appeal while the King challengers seek Supreme Court review, the justices might hold off on a ruling until they can see what the en banc D.C. Circuit does, some legal observers said. And if the D.C. Circuit rules for the government, there will be no circuit split and less chance of Supreme Court involvement.

WILL THE JUSTICES WAIT?

“The Supreme Court is going to do what it wants to do,” Siegel said. “If it follows ordinary practice, it won’t grant review in the absence of a circuit split. If all the circuit courts are upholding [the IRS rule], there’s no valid reason to take a case.” Instead, the justices can wait to see what happens with similar challenges to the IRS rule now pending in federal district courts in Oklahoma and Indiana.

“But if they think the courts have gotten this wrong and there’s a need to fix it now, then they’ll grant it,” he said.

The subsidy challenges differ in kind from the earlier challenges to the individual mandate in National Federation of Independent Business v. Sebelius, in which the Supreme Court narrowly upheld the law’s health-insurance mandate. That case tested the mandate’s constitutionality under the commerce and tax-and-spend clauses. There also were important if abstract concerns about the proper role of the states and the federal government. Even the high court’s recent Hobby Lobby ruling, involving the scope of the Religious Freedom Restoration Act, carried greater legal implications than do the subsidy cases, which basically boil down to questions of statutory interpretation.

“I would hesitate to draw the conclusion that any of the judges is gunning for the Affordable Care Act or straining to uphold it,” Michigan’s Bagley said. “What we have here is a fight about the way to interpret statutes. There is a divide that exists in the legal academy, and it tracks partisan divisions. On the right, you have a narrow textual approach; on the left, there is a full embrace of the statute in question.”

But in the subsidy challenges, it would be difficult to decide the statutory-interpretation question unmindful of the practical consequences—unlike the 2012 challenge, when the health insurance mandate had yet to take effect.

“The real world of these subsidy cases is about millions of people who have health care who will not have it as a result of a ruling against the government,” said one litigator, who did not want to speak on the record on a pending case. “It’s one thing to decide these things in the abstract.”

Justice Anthony Kennedy, for example, dissented from the mandate ruling but might not be comfortable with the notion that millions of people would lose their health insurance. (Chief Justice John Roberts cast the deciding vote on the mandate.) “It may make this a very different case from round one,” the litigator said.

The health insurance law is “like no other law,” Duke’s Siegel said. “If I’m one of the four dissenters in the mandate decision, it’s not at all clear what Roberts would do here. He didn’t want to strike down the most important expansion of the safety net in decades with five Republican votes. Does he want to take away health insurance and destabilize insurance markets by a vote of five Republicans to four Democrats?”

Contact Marcia Coyle at mcoyle@alm.com.