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Let's All Take a Moment to Breathe, OK?

Everybody calm down. And when I say everybody, I include myself.

Tuesday’s oral argument at the Supreme Court was not the finest hour for health care reform, for the philosophy of activist government, or for Solicitor General Don Verrilli. But oral arguments don’t typically change the outcome of cases. They are important primarily for the signals they send about the justices’ thinking. And those signals can be difficult to interpret.

Administration officials on Tuesday were quick to remind reporters that Judge Laurence Silberman gave the government a very hard time when it argued the same case before the D.C. Circuit Court of Appeals. But Silberman went on to uphold the law, in what was by any standard a stinging rebuke to the critics. In the Sixth Circuit, Justice Jeffrey Sutton also put administration lawyers through tough questioning before issuing his own, equally unambiguous decision upholding the law. As Sam Stein points out at Huffington Post, the questions from Silberman and Sutton were awfully close to the ones conservatives were asking on Tuesday.

Nobody I know predicts the justices will vindicate the Affordable Care Act as strongly as either one of those judges did. And that tells you just how dramatically Tuesday’s hearing changed expectations. Before those arguments, credible legal experts were still thinking the court would uphold the law by a majority of six-to-three or even seven-to-two. Now the betting seems much more mixed, with the smartest court watchers I know suggesting the outcome could really go either way. The odds, in other words, are 50-50 at best. 

Still, you can find credible reasons to think the justices will uphold, whether it was Chief Justice John Roberts’ comments about the tax power on Monday or Justice Anthony Kennedy’s parting comments on Tuesday, acknowledging that health care might be a special case in which the government ought to have some special powers, assuming there’s a limit to them. Here’s how Elizabeth Wydra, chief counsel from the Constitutional Accountability Center, sees things shaping up:

I think Roberts and Kennedy are still in play. Having watched many oral arguments, I've seen Kennedy and Roberts ask tough questions with much more of a bite behind them than their admittedly tough questions asked of the Administration today; they didn't seem to me to be partisans of one side or the other. Finally, despite what many of us hoped based on his Raich concurrence, which is squarely on point, Scalia is pretty clearly voting to strike down the mandate.

Wydra is a fan of the law, obviously, since she wrote an amicus brief defending it. But Lyle Denniston, at SCOTUS blog, had a similar take:

If Justice Anthony M. Kennedy can locate a limiting principle in the federal government’s defense of the new individual health insurance mandate, or can think of one on his own, the mandate may well survive. If he does, he may take Chief Justice John G. Roberts, Jr., and a majority along with him. But if he does not, the mandate is gone. That is where Tuesday’s argument wound up — with Kennedy, after first displaying a very deep skepticism, leaving the impression that he might yet be the mandate’s savior.

And here's Richard Primus, a constitutional law professor at the University of Michigan and former Supreme Court clerk, via e-mail:

As was true before today, I wouldn't be surprised to see the thing go down 5-4. But it's still the case that I wouldn't be surprised to see it upheld, either. Roberts and Kennedy were asking exactly the questions that I'd expect them to ask irrespective of which way they are going. I would now be somewhat surprised to see Scalia come on board -- I have a pretty good idea of what his opinion distinguishing this case from Raich will look like. But I can also imagine quite easily what Kennedy's opinion sustaining the law would look like. ... Don't misunderstand me. Today was not encouraging for the government. But the game isn't over, either. All in all, I think it's mostly where it was before, and we'll still have to wait and see.

Later I’ll have more to say about these portents, favorable and unfavorable. Or, more accurately, a colleague will have more to say about them. (Watch this space.) In the meantime, though, assume that the court does strike down the mandate. That leads to another question: What else might it strike down? That’s one subject the Court will take up on Wednesday, in its final day of hearings on this case.

The issue is “severability.” That’s the question of whether, by invalidating one part of the law, the Court must invalidate the whole thing. Normally, laws include a severability clause, stipulating that the statute can survive even if the courts throw out one part. The Affordable Care Act lacks such a provision, apparently as a byproduct of poor drafting. Citing that, the states argue that the Court should throw out the whole law if it decides to strike down the mandate.

The government disagrees, except for one key caveat: It sees the insurance reforms as the equivalent of a package deal. Without the individual mandate, the government says, regulations requiring insurers to provide coverage to everybody (“guaranteed issue”) at a uniform price (“community rating) can’t work. (Whether the court should actually throw out those regulations now actually seems to be a separate question, having to do with legal issues I only partly understand and won't bother to explain right now.)

Given that the states also find the mandate essential to community rating and guaranteed issue, could the courts nevertheless strike down the mandate but leave those other two insurance reforms in place? Actually, the answer is yes. The court has even solicited a brief to this effect, from a lawyer making the case that ditching the mandate needn’t require ditching the rest of the insurance reforms. I happen to think he has a point, or half of one anyway.

As a practical matter, insurance reform without a mandate causes serious problems. If you don’t believe me, read my story from last week about New Jersey, which tried to do just that—and failed miserably. It’s the nature of the beast. Once you create an insurance system where everybody is entitled to coverage, rates will go up unless most people participate. And as the rates go up, more people flee the system. You end up with what the wonks call an “adverse selection death spiral.”

But study the New Jersey history carefully, because what happened there may not be precisely what happens in the nation as a whole if the mandate falls victim to the conservative justices. The Affordable Care Act has several features that New Jersey did not. Chief among them are subsidies, which will make insurance more feasible for—and more appealing to—people who otherwise might forsake it because of cost. The law also has a system of risk adjustment, which is basically a way of forcing plans that attract healthier enrollees to subsidize those that attract sicker ones. In theory, should help mitigate the effects of the adverse selection death spiral.

Are subsidies and risk adjustment sufficient to create a well-functioning insurance market? Most experts, including the Congressional Budget Office, say no: They believe that insurance without a mandate will mean premiums go up and insurance coverage goes down, relative to what they would have been if the mandate were in place. That’s why the mandate is necessary, at least in the legal sense of the word. But these elements alone might—that’s “might,” not “would”—be enough to stabilize the market, so that a lot of people are still better off. The predictions from CBO and other authorities show that, for example, insurance reform without a mandate still results in more people getting insurance than would otherwise have it.

And if that happens, both states and the federal government would have a chance to respond by revisiting the terms of the law. (That’s one of the few virtues of the long lag time before the new insurance system comes into place.) In an ideal world, Congress would enact reforms that established the mandate anew, but under terms that the Supreme Court would approve— by, for example, reconfiguring the penalty as an explicit tax, with an offsetting credit for those who have insurance. That’s almost certain not to happen, given political circumstances, but the federal government might—particularly under pressure from the insurance industry, which worries about reform without a mandate—come up with other methods of improving participation, such as stiff penalties for late enrollment. A few states might even enact mandates on their own. (The Court has indicated that would be constitutional; it’s the federal power to impose a mandate the critics are attacking.)

The results would like likely fall short of the nearly universal coverage that the Affordable Care Act is supposed to achieve, with some states doing much better than others. But that might still be an improvement over the status quo, with at least a chance of further improvement later on. A decision to strike down the mandate would be a breathtaking act of judicial arrogance, damaging to the country’s well-being and to its delicate balance of governing powers, but there’s a chance other parts of health reform could survive in some form.

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