Transcript: SCOTUS Affordable Care Act oral argument of H. Bartow Farr III on day 3

National Federation of Independent Business v. Health and Human Services 

Transcript of the oral argument of H. Bartow Farr, III before the U.S. Supreme Court on March 28, 2012: 


MR. FARR: Mr. Chief Justice and may it please the Court:

At the outset, I would just like to say, I think that the government’s position in this case that the community-rating and guaranteed-issue provisions ought to be struck down is an example of the best driving out the good; because, even without the minimum coverage provision, those two provisions, guaranteed-issue and community-rating, will still open insurance markets to millions of people that were excluded under the prior system, and for millions of people will lower prices, which were raised high under the old system because of their poor health.

So even though the system is not going to work precisely as Congress wanted, it would certainly serve central goals that Congress had of expanding coverage for people who were unable to get coverage or unable to get it at affordable prices.

So when the government -­

JUSTICE GINSBURG: One of the points that Mr. Kneedler made is that the price won’t be affordable because — he spoke of the adverse selection problem, that there would be so fewer people in there, the insurance companies are going to have to raise the premiums.

So it’s nice that Congress made it possible for more people to be covered, but the reality is they won’t because they won’t be able to afford the premium.

MR. FARR: Well, Justice Ginsburg, let me say two things about that.

First of all, when we talk about premiums becoming less affordable, it’s very important to keep in mind different groups of people, because it is not something that applies accurately to everybody.

For people who were not able to get insurance before, obviously, their insurance beforehand was — the price was essentially infinite. They were not able to get it at any price. They will now be able to get it at a price that they can afford.

For people who are unhealthy and were able to get insurance, but perhaps not for the things that they were most concerned about, or only at very high rates, their rates will be lower under the system, even without the minimum coverage provision. Also, you have a large number of people who, under the Act -­

JUSTICE SCALIA: Excuse me, why do you say — I didn’t follow that. Why?

MR. FARR: Because -­

JUSTICE SCALIA: Why would their rates be lower?

MR. FARR: Their rates are going to be lower than they were under the prior system because they are going into a pool of people, rather than — some of whom are healthy, rather than having their rates set according to their individual health characteristics. That’s why their rates were so high.

JUSTICE KAGAN: But the problem, Mr. Farr, isn’t it, that they’re going to a pool of people that will gradually get older and unhealthier. That’s the way the thing works. Once you say that the insurance companies have to cover all of the sick people and all of the old people, the rates climb. More and more young people and healthy people say, why should we participate, we can just get it later when we get sick.

So they leave the market, the rates go up further, more people leave the market, and the whole system crashes and burns, becomes unsustainable.

MR. FARR: Well –

­JUSTICE KAGAN: And this is not -­

MR. FARR: Certainly.

JUSTICE KAGAN: — like what I think. What do I know? It’s just what’s reflected in Congress’s findings, that it’s look — it looks at some states and says, this system crashed and burned. It looked at another state with the minimum coverage provision and said, this one seems to work. So we will package the minimum coverage provision with the nondiscrimination provisions.

MR. FARR: Well, in a moment, I’d like to talk about the finding; but, if I could just postpone that for a second and talk about adverse selection itself.

I think one of the misconceptions here, Justice Kagan, is that Congress, having seen the experience of the states in the ’90s with community-rating and guaranteed-issue, simply imposed the minimum coverage provision as a possible way of dealing with that; and, if you don’t have the minimum coverage provision, then, essentially, adverse selection runs rampant. But that’s not what happened.

Congress included at least half a dozen other provisions to deal with adverse selection caused by bringing in people who are less healthy into the Act. There are — to begin with, the Act authorizes annual enrollment periods, so people can’t just show up at the hospital. If they don’t show up and sign up at the right time, they at least have to wait until the time next year. That’s authorized by the Act.

There — with respect to the subsidies, there are three different things that make this important. First of all, the subsidies are very generous. For people below 200 percent of the federal poverty line, the subsidy will cover 80 percent, on average, of the premium which makes it attractive to them to join. The structure of the subsidies, because their income — they create a floor for — based on the income of the person getting the insurance, and then the government covers everything over that. And this is important in adverse selection because if you do have a change in the mix of people, and average premiums start to rise, the government picks up the increase in the premium. The amount that the person who is getting insured contributes remains constant at a percentage of his or her income.

And the third thing -­

JUSTICE SCALIA: And there is nothing about federal support that is unsustainable, right? That is infinite.

MR. FARR: Well, I mean, that’s a fair point, Justice Scalia; although, one of the things that happens, if you take the mandate out, while it is true that the subsidies that the government provides to any individual will increase, and they will be less efficient — I’m not disputing that point — actually, the overall amount of the subsidies that the government will provide will decline, as the government notes itself in its brief, because there will be fewer people getting them. Some people will opt out of the system even though they are getting subsidies.

But I would just like to go back for one more second to the point about how the subsidies are part of what Congress was using, because the other thing is that for people below 250 percent of the Federal poverty line, Congress also picks up and subsidizes the out-of-pocket costs, raising the actuarial value.

So you have all of that, and then you have Congress also, unlike the States, establishing — or I should be precisely accurate -­ unlike almost all the States, establishing an age differential of up to three to one. So an insurance company, for example, that is selling a 25 -year-old a policy for $4,000 can charge a 60-year-old $12,000 for exactly the same coverage.

The States typically in the ’90s, when they were instituting these programs, they either had pure community rating, where everybody is charged the same premium — everybody regardless of their age is charged the same premium. Some states had a variance of 1.5 to 1. Massachusetts, for example, which did have good subsidies, but their age band was two to one.

So when Congress is enacting this Act, it’s not simply looking at the States and thinking: Well, that didn’t go very well; why don’t we put in a minimum coverage provision; that will solve the problem. Congress did a lot of different things to try to combat the adverse selection.

Now, if I could turn to the finding, because I think this is the crux of the government’s position, and then the plaintiffs pick up on that, and then move –move from that to the rest of the Act. And it seems to me, quite honestly, it’s an important part because that is textual. In this whole sort of quest for what we are trying to figure out, the finding seems to stand out as something that the Court could rely on and say here’s something Congress has actually told us.

But I think the real problem with the finding is that the context in which Congress made it. It’s quite clear. If the Court wants to look, the finding is on page 42 — 43A, excuse me, of the Solicitor General’s severability brief in the appendix.

But the finding is made specifically in the context of interstate commerce. That is why the findings are in the Act at all.

Congress wanted to indicate to the Court, knowing that the minimum coverage provision was going to be challenged, wanted to indicate to the Court the basis on which it believed it had the power under the Commerce Clause to enact this law.

Why does that make a difference with respect to finding I, which is the one that the government is relying on, and in particular the last sentence, which says “this requirement is essential to creating effective health insurance markets in which guaranteed issue and preexisting illnesses can be covered.”

The reason is because the word “essential” in the Commerce Clause context doesn’t have the colloquial meaning. In the Commerce Clause context, “essential” effectively means useful. So that when one says — in Lopez, when the Court says section 922(q) isnot an essential part of a larger regulatory scheme of economic activity, it goes on to say, in which the regulatory scheme would be undercut if we didn’t have this provision.

Well, if that’s all Congress means, I agree with that. The system will be undercut somewhat if you don’t have the minimum coverage provision. It’s like the word “necessary” in the Necessary and Proper Clause clause. It doesn’t mean, as the Court has said on numerous occasions, absolutely necessary. It means conducive to, useful, advancing the objectives, advancing the aims. And it’s easy to see, I think, that that’s what Congress -­

JUSTICE SCALIA: Is there any dictionary that gives that -­

MR. FARR: I’m sorry, Justice Scalia?

JUSTICE SCALIA: — that definition of “essential”? It’s very imaginative. Just give me one dictionary.

MR. FARR: Well, but I think my point, Justice Scalia, is that they are not using it in the true dictionary sense.

JUSTICE SCALIA: How do we know that? When people speak, I assume they are speaking English.

MR. FARR: Well, I think that there are several reasons that I would suggest that we would know that from.

The first is, as I say, the findings themselves. Congress says at the very beginning, the head of it, is Congress makes the following findings, and they are talking about the interstate — you know, B is headed “Effects on the national economy and interstate commerce.” So we know the context that Congress is talking about.

It is more or less quoting from the Court’s Commerce Clause statements. But if one looks at the very preceding finding, which is finding H, which is on 42 over onto 43, Congress at that point also uses the word “essential.” In the second sentence, it says, “this requirement” — and again, we’re talking about the minimum coverage provision — is an essential part of this larger regulation of economic activity, which is, by the way, an exact quote from Lopez, in which “the absence of the requirement would undercut Federal regulation,” also an exact quote from Lopez.

But what it is referring to is essential -­ an essential part of ERISA, the National Health Service Act and the Affordable Care Act. It can’t possibly be, even the plaintiffs haven’t argued, that those acts would all fall in their entirety if you took out the minimum coverage provision. And as a second example of the same usage by Congress, the statute that was before the Court in Raich, section 801 of Title 21, the Court said that the regulation of intrastate drug activity, drug traffic, was essential to the regulation of interstate drug activity. Again, it is simply not conceivable that Congress was saying one is so indispensable to the other, the way the United States uses the term here, so indispensable that if we can’t regulate the intrastate traffic, we don’t want to regulate the interstate traffic, either. The whole law criminalizing drug traffic would fall.

So I think once you look at the finding for what I believe it says, which is, we believe this is a useful part of our regulatory scheme, which the Congress would think in its own approach would be sufficient -­

JUSTICE SOTOMAYOR: Counsel, the problem I have is that you are ignoring the congressional findings and all of the evidence Congress had before it that community ratings and guaranteed issuance would be a death spiral — I think that was the word that was used — without minimum coverage. Those are all of the materials that are part of the legislative record here.

So even if it might not be because of the structure of the Act, that’s post hoc evidence. Why should we be looking at that as opposed to what Congress had before it and use “essential” in its plain meaning: You can’t have minimum coverage without what the SG is arguing, community ratings and guaranteed issue. You can’t have those two without minimum coverage.

MR. FARR: Well, I think that’s a fair question. But the idea that — that all the information before Congress only led to the idea that you would have death spirals seems to me to be contradicted a little bit at least by the CBO report in November of 2009, which is about 4 months before the Act passed, where the CBO talks about adverse selection.

Now, I want to be clear. This is at a time when the minimum coverage provision was in the statute, so I’m not suggesting that this is a discussion without that in it. But nonetheless, the CBO goes through and talks about adverse selection, and points out the different provisions in the Act, the ones I have mentioned plus one other, actually, where in the first 3 years of the operation of the exchanges those insurance companies that get sort of a worse selection of consumers will be given essentially credits from insurance companies that get better selections.

JUSTICE KENNEDY: So do you want us to write an opinion saying we have concluded that there is an insignificant risk of a substantial adverse effect on the insurance companies, that’s our economic conclusion, and therefore not severable? That’s what you want me to say?

MR. FARR: It doesn’t sound right the way you say it, Justice Kennedy.


MR. FARR: No, I -­

JUSTICE SOTOMAYOR: But you don’t want them to say, either, that there is a death spiral. Do you want — you don’t want us to make either of those two findings, I’m assuming?

MR. FARR: That’s correct. Now, I agree that there is a risk and the significance of it people can debate. But what I think is –is lost in that question, and I didn’t mean to be whimsical about it, I think what is lost in it a little bit is what is on the other side, which is the fact that if you follow the government’s suggestion, if the Court follows the government’s suggestion, what is going to be lost is something we know is a central part of the Act. I mean, indeed, if one sort of looks at the legislative history more broadly, I think much of it is directed toward the idea that guaranteed issue and community rating were the crown jewel of the Act. The minimum coverage provision wasn’t something that everybody was bragging about. It was something that was meant to be part of this package. I agree with that.

But the — but the point of it was to have guaranteed-issue and minimum coverage — I mean, excuse me — guaranteed-issue and community rating. And that’s — under the government’s proposal, those would — would disappear. We would go back to the old system.

And under what I think is the proper severability analysis, the — the real question the Court is asking, should be asking, is, would Congress rather go back to the old system than to take perhaps the risk that you’re talking about, Justice Kennedy.

CHIEF JUSTICE ROBERTS: You’re — you’re referring to the government’s second position. Their -­ their first, of course, is that we shouldn’t address this issue at all.

MR. FARR: That’s correct.

CHIEF JUSTICE ROBERTS: I asked Mr. Kneedler about what procedure or process would be anticipated for people who are affected by the change in — in the law, and change in the economic consequences. Do you have a view on how that could be played out? It does seem to me that if we accept your position, something — there have to — there has to be a broad range of consequences, whether it’s additional legislation, additional litigation.

Any thoughts on how that’s going to play out?

MR. FARR: Well, if the Court adopts the position that I’m advocating, Mr. Chief Justice, I think what would happen is that the Court would say that the minimum coverage provision, by hypothesis of course, is unconstitutional, and the fact of that being unconstitutional does not mean the invalidation of any other provision.

So under the position I’m advocating, there would no longer be challenges to the remaining part of the Act. The -­

CHIEF JUSTICE ROBERTS: But if the challenge is what we’re questioning today, whether — if you’re an insurance company and you don’t believe that you can give the coverage in the way Congress mandated it without the individual mandate, what — what type of action do you bring in a court?

MR. FARR: You — if the Court follows the course that I’m advocating, you do not bring an action in court. You go to Congress and you seek a change from Congress to say the minimum coverage provision has been struck down by the Court, here is our — here — here’s the information that we have to show you what the risks are going to be. Here are the adjustments you need to make.

One of the questions earlier pointed out that States have adjusted their systems as they’ve gone along, as they’ve seen things work or not work.

You know, as I was talking earlier about the — the different ratio for — for ages and the insurance. The States have tended to change that because they’ve found that having too narrow a band worked against the effectiveness of — of their programs. But they did — except for in Massachusetts they didn’t enact mandates.

So to answer — I think to answer your question directly, Mr. Chief Justice, the position I’m advocating would simply have those — those pleas go to Congress, not in court. Now, if one — just to discuss the issue more generally, if that’s helpful, I — I think that -­that if there were situations where the Court deferred — let’s say for discretionary reasons, they

just said — the Court said we’re — we’re not going to take up the question of severability and therefore not resolve it in these other situations, it certainly seems to me that in enforcement actions, for example, if the time comes in — in 2014 and somebody applies to an insurance company for a policy and the insurance company says, well, we’re not going to issue a policy, we don’t think your risks are ones that we’re willing to cover -­ it seems to me that they could sue the insurance company and the insurance company could raise as a defense that this provision, the guaranteed-issue provision of the statute, is not enforceable because it was inseverable from the decision — from the provision that the Court held unconstitutional in 2012.

JUSTICE SCALIA: Mr. Farr, let’s — let’s consider how — how your approach, severing as little as possible, thereby increases the deference that we’re showing to — to Congress. It seems to me it puts Congress in — in this position: This Act is still in full effect. There is going to be this deficit that used to be made up by the mandatory coverage provision. All that money has to come from somewhere.

You can’t repeal the rest of the Act because you’re not going to get 60 votes in the Senate to repeal the rest. It’s not a matter of enacting a new Act. You’ve got to get 60 votes to repeal it. So the rest of the Act is going to be the law.

So you’re just put to the choice of, I guess, bankrupting insurance companies and the whole system comes tumbling down, or else enacting a Federal subsidy program to the insurance companies, which is what the insurance companies would like, I’m sure.

Do you really think that that is somehow showing deference to Congress and — and respecting the democratic process?

It seems to me it’s a gross distortion of it.

MR. FARR: Well, Your Honor, the — the difficulty is that it seems to me the other possibility is for the Court to make choices particularly based on what it expects the difficulties of Congress altering the legislation after a Court ruling would be. I’m not aware of any severability decision that has ever looked at anything like this -­

JUSTICE SCALIA: No, I — that wouldn’t be my approach. My approach would say if you take the heart out of the statute, the statute’s gone. That enables Congress to — to do what it wants in — in the usual fashion. And it doesn’t inject us into the process of saying: This is good, this is bad, this is good, this is bad.

It seems to me it reduces our options the most and increases Congress’s the most.

MR. FARR: I guess to some extent I have to quarrel with the premise, Justice Scalia, because at least the — the position that I’m advocating today, under which the Court would only take out the minimum coverage provision, I don’t think would fit the description that you have given of taking out the heart of the statute.

Now, I do think once you take out guaranteed-issue and community rating you are getting closer to the heart of the statute. And one of the -­ one of the difficulties I think with the government’s position is that I think it’s harder to cabin that, to draw that bright line around it. It’s harder than the government thinks it is.

I mean, to begin with, even the government seems to acknowledge, I think, that the exchanges are going to be relatively pale relatives of — of the exchanges as they’re intended to be, where you’re going to have standardized products, everybody can come and make comparisons based on products that look more or less the same.

But the other thing that’s going to happen is with the subsidy program. The — the way that the subsidy program is — is set up, the subsidy is calculated according to essentially a benchmark plan. And this — if one — if the Court wants to look at the provisions, they’re — they begin at page 64A of the Private Plaintiffs’ brief, again in the appendix. The particular provision I’m talking about’s at 68A. But there’s a — there’s a question — you — you’re looking essentially to calculate the premium by looking at a -­at a standardized silver plan.

First question, obviously, is is there going to be any such plan if you don’t have guaranteed-issue and community rating, if the plans can basically be individualized? But the second problem is that, in the provision on 68A, the — the provision that’s used for calculating the subsidy, what — what is anticipated in the provision under the — the Act as it is now, is that if you have the floor of the income, you would — you would take this benchmark plan, and the government would pay — pay the difference.

And as we talked about earlier, the benchmark plan can change for age, and — and the provision says it can be adjusted only for age. So if in fact you even have such a thing as a benchmark plan anymore, if the rates of people in poor health go up because of individual insurance underwriting, the government subsidy is not going to pay for that.

JUSTICE KAGAN: Mr. Farr, I understood that the answer that you gave to Justice Scalia was essentially that the minimum coverage provision was not the heart of the Act. Instead, the minimum coverage provision was a tool to make the nondiscrimination provisions, community rating, guaranteed-issue, work.

So if you assume that, that all the minimum coverage is is a tool to make those provisions work, then I guess I would refocus Justice Scalia’s question and say, if we know that something is just a tool to make other provisions work, shouldn’t that be the case in which those other provisions are severed along with the tool?

MR. FARR: No, I don’t think so, because there are — there are many other tools to make the same things work. That’s I think the point.

And if one — the case that comes to mind is New York v. the United States, where the Court struck down the take-title provision but left other — two other incentives essentially in place.

Even without the minimum coverage provision, there will be a lot of other incentives still to bring younger people into the market and to keep them in the market. And if — if my reading of the finding is correct, and that’s all that Congress is saying, that this would be useful, it doesn’t mean that it’s impossible.

JUSTICE BREYER: But would you — I would just like to hear before you leave your argument, if you want to, against what Justice Scalia just said.

Let’s assume, contrary to what you want, that the government’s position is accepted by the majority of this Court. And so we now are rid, quote, of the true “heart” of the bill. Now, still there are a lot of other provisions here like the Indian Act, the black lung disease, the wellness program, that restaurants have to have a calorie count of major menus, etcetera.

Now, some of them cost money and some of them don’t. And there are loads of them. Now, what is your argument that just because the heart of the bill is gone, that has nothing to do with the validity of these other provisions, both those that cost money, or at least those that cost no money? Do you want to make an argument in that respect, that destroying the heart of the bill does not blow up the entire bill; it blows up the heart of a bill? I just would like to hear what you have to say about that.

MR. FARR: Well, Justice Breyer, I think what I would say is if one goes back to the, what I think is the proper severability standard and say, would Congress rather have not — no bill as opposed to the bill with whatever is severed from it, it seems to me when you are talking about provisions that don’t have anything to do with the minimum coverage provision, there is no reason to answer that question as any other way than yes, Congress would have wanted these provisions.

JUSTICE KENNEDY: Is that the real Congress or a hypothetical Congress?


MR. FARR: An objective Congress, Your Honor. Not the specific — not with a vote count.

JUSTICE SCALIA: Why put — why put Congress to that false choice?

MR. FARR: Well -­

JUSTICE SCALIA: You only have two choices, Congress. You can have the whole bill or you can have — you can have parts of the bill or no bill at all. Why that false choice?

MR. FARR: I think the reason is because severability is by necessity a blunt tool. The Court doesn’t have, even if it had the inclination, doesn’t essentially have the authority to retool the statute -­

JUSTICE BREYER: I know. So you — I would say stay out of politics. That’s for Congress; not us.

MR. FARR: Right.

JUSTICE BREYER: But the — the question here is, you’ve read all these cases or dozens. Have you ever found a severability case where the Court ever said: Well, the heart of the thing is gone and therefore we strike down these other provisions that have nothing to do with it which could stand on their feet independently and can be funded separately or don’t require money at all.

MR. FARR: I think the accurate answer would be, I am not aware of any modern case that says that. I think there probably are cases in the 20s and 30s that would be more like that.

If I could just take one second to address the economists’ brief because Justice Alito raised it earlier. I just want to make one simple point. Leaving aside the whole balancing thing, if one looks at the economists’ brief, I think it’s very important to note that when they are talking about one side of the balance — may I finish?


MR. FARR: When they are talking about the balance, they are not just talking about the minimum coverage provision. They very carefully word it to say the minimum coverage provision and the subsidy programs.

And then, so when you are doing the mathematical balancing, the subsidy programs are extremely large. They — in the year 2020, they are expected to be over $100 billion in that 1 year alone. So if you are looking at the numbers, please consider that.

Thank you, Your Honors.



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