Why Halbig and the conservative war on ObamaCare will fail

ObamaCare took a serious blow yesterday. In Halbig v. Burwell, a three-judge panel of the D.C. Circuit Court of Appeals ruled that the federal government cannot give subsidies to insurance enrollees in states that had declined to create health exchanges. This is a grave threat to health care reform — but it's a threat that may ultimately backfire on conservatives who have sought to dismantle ObamaCare in the courts.

If Halbig were the law of the land, the immediate consequences would be clear. The heart of ObamaCare would no longer operate in 36 states. Without subsidies, five million newly insured Americans would see their premiums rise by an average of 76 percent overnight.

This would be devastating, but it would only be the start of even graver economic harm. Though ObamaCare's most visible elements would vanish in non-exchange states, some key provisions would live on. These would make Halbig's effects even worse.

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Under ObamaCare, losing subsidies would exempt most people from the individual mandate because insurance would simply become unaffordable for them. But the law's ban on insurers denying coverage or raising premiums based on pre-existing conditions would remain intact. People could then wait to purchase insurance until becoming sick, and insurers would be legally obligated to accept them.

This is a recipe for an insurance market death spiral. Insurance pools would become progressively sicker and costlier, pricing more and more people out of the market. The individual insurance market in 36 states would descend into dysfunction.

The Halbig court knows that this is the inevitable result of its decision. The court noted that Congress explicitly imposed death spiral-inducing regulations in the long-term care market and the Northern Mariana Island territories — regulations that have "thrown individual insurance markets in the territories into turmoil."

The underlying theory of Halbig is that Congress offered the states a choice. They could create their own insurance exchanges or else become the Northern Mariana Islands. Under the court's twisted, strained logic, 36 states elected to self-impose insurance market meltdowns in order to flout ObamaCare.

To the court's majority, the experiences in the territories and long-term care market "attest that Congress twice did exactly what the government and the dissent insist it never would: introduce significant adverse selection risk to insurance markets."

But the court ignores an important distinction here. States are entitled to special protections in our constitutional order that the territories and long-term care markets emphatically are not.

One of these protections is the prohibition against federal attempts to coerce the states. Under ObamaCare, for instance, Congress originally demanded that states expand their Medicaid programs or else lose all funding for their existing programs. The Supreme Court, in a 7-2 decision, determined that this was an unconstitutionally coercive choice. States could scarcely afford to lose Medicaid funding without seeing their budgets obliterated.

It seems similarly coercive, to say the least, for Congress to demand that states run their own health exchanges or else face decimated individual insurance markets. This, too, would dishonor the standing of the states in our federal system.

This is the legal upshot of Halbig's theory of ObamaCare. But there's another theory of what the law did, and it has nothing to do with coercion. Instead, as the government argues, ObamaCare sought to include states in federal reform efforts while making subsidies broadly available.

Another federal appellate court, the Fourth Circuit in Richmond, Virginia, has already found this interpretation persuasive. And the constitutional problems lurking in Halbig's coercion theory should guide other courts toward the government's argument.

Constitutional avoidance doctrine instructs courts to avoid interpretations of laws that raise thorny constitutional problems. This has already saved ObamaCare once. Determining that the law's individual mandate would be unconstitutional if interpreted as an execution of Congress' commerce power, Chief Justice Roberts in 2012 instead upheld it as a valid tax.

"[E]very reasonable construction must be resorted to, in order to save a statute from unconstitutionality," Roberts told us. Courts should accordingly adopt the construction of ObamaCare that won in the Fourth Circuit, preserving the power of the federal government to give out subsidies to all exchange enrollees.

To reach the result in Halbig, you have to want to upend reform that expands insurance to millions of Americans. You have to ignore the fact that no state official anticipated that declining to create an exchange would cost their citizens insurance subsidies. You have to gloss over the complete absence of congressional discussion of a scheme to strong-arm states with the threat of economic harm.

This disingenuous gambit is merely the latest front in the relentless conservative assault against health care reform. Lawyers from the Cato Institute crafted a narrative around the law's messy text that would allow conservatives another shot at taking it down in the courts. They've orchestrated a brilliant, if temporary, victory.

But in their zeal to shatter ObamaCare, conservatives have ventured too far. Their theory of how ObamaCare treats the states cannot withstand scrutiny from higher courts. A more honest reading of the law would permit it to do exactly what its advocates strived for: to make insurance more attainable for all Americans, regardless of the state they live in.