Cross-posted from the Disability Law Blog.

The ACA's individual mandate was part of a coordinated set of interventions in health insurance markets that were designed, together, to guarantee affordable coverage to a wide range of people. In addition to requiring that individuals obtain coverage, the statute also providesthat states will create health insurance "exchanges" (essentially controlled marketplaces) for individuals to obtain that coverage, and itestablishes a series of tax subsidies to make it possible for individuals to afford the insurance that is offered on those exchanges. In states that do not set up exchanges, the statute provides that the federal government will set up and operate the exchanges for them. The mandate, the exchanges, and the subsidies all work together (along with the statute's bar on discrimination against individuals with preexisting conditions, and its penalties for employers who do not cover their employees) to achieve the goal of expanded, affordable health insurance coverage.

Although the Obama Administration has extended the deadline for states to decide whether to set up their own health insurance exchanges, estimates are that up to 20 states will refuse to do so. Those refusals, in many cases borne of continued opposition to Obamacare, will put a burden on the federal Department of Health and Human Services. But under the statutory scheme, they should ultimately be no problem: in states that don't set up exchanges, the federal government will set up and operate the exchanges for them.

But some Obamacare opponents insist that, if a state refuses to set up an exchange and the federal government sets one up in its place, the individuals who purchase insurance on the federally-operated exchange will not be entitled to receive the statute's tax subsidies. Directly rejecting that argument, the Internal Revenue Service has interpreted the statute as making the tax subsidies are available to individuals regardless of whether they live in a state that operates its own exchange or in one in which the federal government operates the exchange. But the opponents are undaunted. In an argument set forth most extensively in a widely circulated paper by Cato's Michael Cannon and my friend Professor Jonathan Adler, and in a federal-courtchallenge filed by the State of Oklahoma, they contend that the IRS's interpretation of the statute is illegal.

As Cannon acknowledges, the entire structure and operation of the ACA will unravel if individuals who receive insurance from federally-operated exchanges cannot receive the tax subsidies the statute establishes. If participants can't get tax subsidies, many won't be able to purchase insurance on the exchanges. That will harm those who cannot get insurance, and it will also undermine the benefits of mandated coverage. And, perhaps not coincidentally, it will undermine support for the law. As Jonathan Cohn argues, "Obamacare critics believe that, by blocking the subsidies, they’ll undermine the law’s effectiveness and eventually erode support to the point that people clamor for a conservative alternative."

Cannon and Adler's argument, taken up by Oklahoma in its lawsuit, is deeply flawed as a matter of law. Their basic argument is this: In Cannon's words, the provision of the ACA that establishes premium tax credits "explicitly and laboriously restricts tax credits to those who buy health insurance in Exchanges 'established by the State under section 1311.' There is no parallel language – none whatsoever – granting eligibility through Exchanges established by the federal government (section 1321)."

But that is not quite right. Although the tax-credit provision twice uses the phrase "Exchange established by the State under section 1311," see 26 U.S.C. § 36B(b)(2)(A), (c)(2)(A)(i), that phrase does not have the exclusionary meaning Cannon attributes to it. That is because Section 1321 (codified at 42 U.S.C. § 18041) makes clear that, when a state fails to set up an exchange, the federally-operated exchange will stand in the shoes of the state exchange for purposes of Section 1311. Thus, Section 1311 provides that "[e]ach State shall" set up an exchange by January 1, 2014. 42 U.S.C. § 18031(b)(1). Section 1321 provides that if a state "will not have any required Exchange operational" by then -- that is, an exchange required by Section 1311 -- then the federal government "shall (directly or through agreement with a not-for-profit entity) establish and operate such Exchange within the State." 42 U.S.C. § 18041(c)(1) (emphasis added). "[S]uch Exchange" in Section 1321 clearly refers to the "required exchange" -- that is, the Section 1311 exchange. When the federal government operates an exchange pursuant to Section 1321, then, it is not operating some wholly foreign entity; it is operating the state exchange that Section 1311 required the state to set up but that the state failed to create. Because Section 1321 provides that a federally-operated exchange will stand in the shoes of a state-operated exchange created by Section 1311, there is no basis for denying participants in federally-operated exchanges the same tax credits obtained by participants in state-operated exchanges.

The IRS's interpretation of the ACA to extend premium subsidies to participants in both state- and federally-operated exchanges thus seems to me not merely a permissible one but also the most plausible reading of the statutory text. Nor is there any reason to think that Congress would have intended to treat participants in state- and federally-operated exchanges differently for purposes of obtaining the subsidies. In both state- and federally-operated exchanges, the subsidies serve the same crucial role in achieving the statute's goal of expanded, affordable health coverage. If you take the subsidies away from participants in either sort of exchange, the law's protections are likely to unravel in the same way.

Cannon argues, though, that Congress did intend to draw a distinction between state- and federally-operated exchanges for these purposes. But his arguments are red herrings. First, Cannon argues that "[i]n order to have state-run Exchanges, the bill needed some way to encourage states to create them without 'commandeering' the states," and that offering premium subsidies limited to states that set up their own exchanges was a means to overcome the commandeering problem. But anyone who understands the Supreme Court's commandeering doctrine knows that the premium subsidies were not at all necessary to overcome any commandeering problem. The anticommandeering principle forbids Congress from compelling the states to regulate private parties, but it permits Congress to give the states the choice between regulating private parties according to federal standards and standing aside to allow the federal government to regulate those parties directly. That's the Court's square holding in New York v. United States. And that, of course, is the precise choice that the ACA gave states even without the subsidies -- regulate individuals and insurance companies through state-operated exchanges, or stand aside and let the federal government set up and operate exchanges of its own. So there is no reason to attribute to Congress a decision to limit subsidies to participants in state-operated exchanges in order to overcome any commandeering problem. Once the federal government could set up its own exchanges, there was no commandeering problem.

Second, Cannon adverts to the limited jurisdiction of the Senate Finance Committee: "The Finance Committee had even more reason to condition tax credits on state compliance: it doesn’t have direct jurisdiction over health insurance. Conditioning the tax credits on state compliance was the only way the Committee could even consider legislation directing states to establish Exchanges." But there is nothing in the Finance Committee's jurisdiction that required it to limit tax subsidies to participants in state-operated exchanges. Legislation that extended premium tax credits to participants in any exchange, whether state- or federally-operated, was fully within the Committee's jurisdiction. And, as I have argued above, that is precisely the legislation that Congress passed.

Whatever its value to conservative activists and those who wish to relitigate NFIB and the election, the rearguard effort to undermine Obamacare is deeply flawed as a matter of law.




Cross-posted from the Disability Law Blog.

Retired Army General David H. Petraeus's precipitous fall from grace has become an immediate cause celebre, with questions swirling around the timing of the disclosure of his affair with Paula Broadwell, how the FBI became involved, the timeline of decision making and information flow, and the impact of his departure on congressional inquiries into the Benghazi attack. Important facts remain unknown, such as whether the affair was an isolated event and whether it was entwined with the performance of official duties. In a remarkable coincidence, the case comes just as the Defense Department is weighing recommendations from the RAND Corporation in a report titled "Managing Adverse and Reportable Information Regarding General and Flag Officers."

As a retired member of the Regular Army, Gen. Petraeus remains subject to the Uniform Code of Military Justice. Army regulations provide that retirees "may be tried by court-martial for violations of the UCMJ that occurred while they were on active duty or, while in a retired status. Department of the Army policy provides that retired Soldiers subject to the UCMJ will not be tried for any offense by any courts-martial unless extraordinary circumstances are present." The exercise of court-martial jurisdiction over retirees violates contemporary international human rights standards, even though it is a tolerated (if infrequently used) feature of American military justice.

Adultery is no longer a crime in many states but remains one under the UCMJ. Article 134 criminalizes conduct that is, among other things, prejudicial to good order and discipline or of a nature to bring discredit upon the armed forces.  Adultery is occasionally prosecuted within the armed forces, typically after the servicemember disregards advice to terminate an affair or if there are other aggravating factors. The Manual for Courts-Martial provides that "[w]hile adulterous conduct that is private and discreet in nature may not be service discrediting," it may still be found to be prejudicial to good order and discipline. In 2002, President George W. Bush issued guidelines for the exercise of discretion as to when adultery should be prosecuted by court-martial. These are still in force and include the accused's marital status, rank, and position and that of the other party and the spouses of each; the impact of the relationship on the accused's performance of duty, as well as that of the other party and their spouses; whether any notoriety ensued; and detrimental effects on unit or organizational morale, teamwork, and efficiency.

Barring dramatic new evidence, it seems highly unlikely that Gen. Petraeus's case rises to the level of "extraordinary circumstances" contemplated for trial of an Army retiree. That does not mean he is out of the woods.

Military officers retire in the highest grade they have satisfactorily held. Gen. Petraeus retired on August 31, 2011 as a four-star officer, the highest rank currently available to members of the U.S. armed forces. One would think that was the end of the matter, but the Army disagrees. A 2002 regulation provides, "Officer grade determinations are normally accomplished at time of retirement or disability separation, and the officer's grade is fixed at that time." Grade determinations can be "reopened," however, if "substantial new evidence" is discovered "within a short time following separation." It is unclear whether Gen. Petraeus's case meets the "short time" test. Given his life expectancy, a reduction in his retired grade would inflict a whopping financial penalty.

The other party to Gen. Petraeus's affair is a reserve officer. Military jurisdiction could reach her if she engaged in adultery while in a drilling status or, viewing her as a civilian, if she were deemed to have been "accompanying" an armed force in the field in time of a "contingency operation" such as Afghanistan. It would certainly raise hackles if (notwithstanding his public disgrace) Gen. Petraeus were to escape punishment and she did not. Disparate outcomes would erode public confidence in the administration of military justice.

Gen. Petraeus's security clearance presents other issues. The Executive Branch--and definitely not just the present administration--is humorless when it comes to access to classified information. Misconduct such as adultery could form the basis for revoking his clearance, although the "whole person" concept would work in his favor. Once an affair becomes public, the danger of blackmail vanishes--although the error in judgment does not. Ms. Broadwell may also have to fight to keep her own clearance.

Finally, considering Gen. Petraeus not as a retired military officer but as a civilian official, federal law permits adverse personnel action for off-duty conduct that does not promote "the efficiency of the service." An egregious case decided in 2000 upheld the removal of a civilian employee of the Marine Corps because he had had an adulterous affair with the wife of an officer who was deployed overseas. One would have to know more before deciding whether there was a nexus between Gen. Petraeus's affair with Ms. Broadwell and his duties as Director of Central Intelligence. As a political appointee, the fine points of federal personnel law do not play much of a role, but had there been a nexus, adultery would certainly have been a severe blow to his viability as a civilian public official.

Gen. Petraeus's case will in time sort itself out. In the process, the country should consider whether on balance it is well served by his departure, whether adultery ought to be so big a deal, whether it should remain criminalized, and whether it's time for military justice to let go of retirees.