Thursday, January 22, 2015

Justice Kagan Refutes Paul Krugman's Fanciful Charge of Judicial Corruption


Knows What She Is Talking About




Not So Much

On March 4th, the Supreme Court will hear arguments in King v. Burwell, a recent decision by the U.S. Court of Appeals for the Fourth Circuit.  In King, a divided panel held that federal subsidies encouraging the purchase of health insurance pursuant to the so-called "Affordable Care Act," ("ACA") are available to individuals who purchase health insurance on exchanges established by the national government in those states that decline to create such exchanges.  The Fourth Circuit disagreed with a panel of U.S. Court of Appeals for the District of Columbia, which reached the opposite conclusion the same day.  In particular, and as Jonathan Adler has explained, the D.C. Circuit panel adhered the plain language of the statute. That language provides that subsidies are available to those individuals who purchase insurance on exchanges "established by the State under Section 1311" of the Act.  Thus, the D.C Circuit concluded: "the ACA unambiguously restricts the section 36B subsidy to insurance purchased on Exchanges 'established by the State.'" 

In a characteristically scathing essay, economist Paul Krugman claims that jurists who disagree with the Fourth Circuit's King decision are "corrupt" and "willing to pervert the law to serve political masters."  The result in King, he says, will reveal "just how deep the corruption goes."

Krugman's piece is long on invective and very short on legal analysis. Instead of parsing (or even quoting) the statute, Krugman claims that failure to subsidize purchases on federal exchanges would contradict Congress's overriding purpose in passing the ACA and undermine the statute.  In particular, Krugman claims that, without a subsidy, healthy individuals will decline to purchase ACA-mandated insurance, presumably choosing to pay the resulting tax-penalty instead.  The result, he says, would be a "death spiral," as the exit of healthy individuals from the insurance pool raised the cost of insuring those who remained and thus raised health insurance premia. Such increases, in turn, would cause more individuals to decline to purchase insurance, raising premia even further, and so on.

Krugman is certainly correct that, without a subsidy, health individuals may decline to purchase insurance that complies with the ACA's intrusive requirements.  For, as previously explained on this blog, the ACA artificially inflates the price of health insurance for many individuals, particularly those who are young and healthy, well above the cost of providing such insurance, so as to subsidize the purchase of such insurance by others.  (See also here.)  Moreover, removal of such a subsidy could readily set off the sort of death spiral that Thom Lambert describes in this thoughtful essay.

Thus, Krugman has certainly identified a plausible policy rationale for extending subsidies to individuals who purchase insurance on federal exchanges.  There is, however, an equally plausible rationale for the D.C. Circuit's "plain language" result, a rationale articulated by Krugman's fellow economist Jonathan Gruber, who, unlike Krugman, is an expert on the economics of health care. Indeed, the Obama Administration repeatedly cited Gruber's views on the purposes of the ACA when defending the individual mandate against constitutional challenge.    As Michael Cannon explains, in 2012 Gruber argued that reserving subsidies to those who purchase insurance on exchanges created by states would encourage states to create such exchanges in the first place, by reducing the price of health insurance for citizens in those states. In other words, Gruber described an elegant solution to a constitutional dilemma.  After all, under the Supreme Court's anti-commandeering jurisprudence implementing the Tenth Amendment, Congress lacks the power to compel states to create such exchanges.  See Printz v. United States, 521 U.S. 897 (1997); New York v. United States, 505 U.S. 144 (1992). By conditioning the availability of subsidies upon the presence of a state-created exchange, then, the ACA's plain language encourages states to create such exchanges, without transgressing constitutional boundaries.  In short, the D.C. Circuit's straight-forward application of the ACA's plain language may well interfere with Congress's objective to induce healthy individuals to purchase health insurance at inflated prices, at least in the short run.  In the longer run, however, this result may encourage more states to create exchanges, another apparent objective of the statute, thereby reducing the number and overall size of markets subject to the sort of death spiral that Krugman describes.  Unfortunately, Krugman's essay does not mention this alternative policy consideration.

Given these competing policy considerations, the D.C. Circuit's determination reflects a straightforward application of ordinary principles of statutory interpretation, whereby courts give effect to a statute's plain and ordinary meaning.  As Jonathan Adler and Michael Cannon have explained, the application of such principles requires the conclusion that the statute unambiguously denies tax credits to individuals who purchase insurance on a federally-established exchange.

Justice Elena Kagan, pictured above, understands these principles of statutory interpretation. Recently, in Michigan v. Bay Mills Indian Community, No. 12-515. Justice Kagan properly rejected the view that jurists may ignore a statute's plain language because "anomalies" in a statute suggest that  Congress really meant something else.  As the Justice (and former Solicitor General) explained:

"This Court has no roving license, in even ordinary cases of statutory interpretation, to disregard clear language simply on the view that . . . Congress 'must have intended something' other than what the statute's text actually."

Indeed, one pundit has suggested that, given this approach to statutory interpretation, Justice Kagan may be a sixth vote, along with Chief Justice Roberts and Justices Scalia, Kennedy, Thomas and Alito, to reverse the Fourth Circuit.  One wonders whether Krugman would ascribe such a vote to "corruption." If so, it seems unlikely that Justice Kagan would give such an incendiary allegation a second thought. After all, when asked what she thought of Krugman's claim of "corruption," Kagan gave a straight-forward reply, stating that Krugman's allegation "is just ridiculous language."  Well said, Justice Kagan.