What did Congress mean by “established by the State”?

Over at the Volokh Conspiracy, Jonathan Adler, one of the architects of the exchange litigation, has posted a thoughtful response to a post I wrote defending the extension of tax credits to those purchasing health plans on federally established exchanges. You should read it; he’s really sharp.

But he’s still wrong. Adler argues that I haven’t offered a satisfactory explanation for why Congress used the phrase “an Exchange established by the State” in the tax-credit calculation. He rejects my suggestion that the best way to understand the phrase is that it was a shorthand for exchange, whoever happened to establish it. “When Congress wanted to use a shorthand for ‘exchange,’” he writes, “it did just that— and said ‘exchange.’” As Adler sees it, the use of “by the State” in the tax-credit calculation must serve some distinct purpose.

In making this claim, Adler is invoking two hoary canons of statutory interpretation: the canon against surplusage and the canon of consistent usage. These are useful canons—usually. But neither can help make sense of Congress’s meaning unless we can safely assume that Congress carefully used “exchange” when it meant “any exchange” and “exchange established by the State” when it meant “only state exchanges.”

We can’t assume that here. Elsewhere in the statute, Congress referred to state-established exchanges when it clearly meant exchanges more generally. The ACA, for example, limits who can buy insurance on an exchange to those who “resid[e] in the State that established the Exchange.” Read literally, this would prohibit anyone in states with federal exchanges from buying insurance on those exchanges. Federal exchanges would be useless. That can’t be what Congress meant.

Similarly, the ACA says that states have to maintain their Medicaid eligibility standards until “an Exchange established by the State” is up and running. This provision was meant to provide stopgap protection for Medicaid beneficiaries until the exchanges went live. But, read literally, it would forbid a state that declined to establish an exchange from ever relaxing its Medicaid standards. Again, that’d be batty.

So Congress wasn’t meticulous about its references to state-established exchanges. At times, it did use “Exchange established by the State” as a shorthand for exchange. If that’s true elsewhere in the statute, it may be equally true when it comes to calculating tax credits. And reading the “established by the State” language to allow tax credits on federal exchanges makes much better sense of the statute as a whole.

Can I be completely, absolutely confident about Congress’s meaning here? No. Without question, the statute is a bit of a mess. What do you expect? It’s a big statute, drafted by a lot of different people working under immense pressure.

But here’s the thing. Adler can’t be completely confident in his interpretation either. At a minimum, Congress’s inconsistent use of the phrase “established by the State” gives rise to an ambiguity as to its meaning. And when you’ve got an ambiguity, it’s up to the agencies charged with interpreting the ACA to resolve that ambiguity. The tie goes to the government.


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