In four federal courts across the country, lawsuits have been brought challenging the legality of the Obama administration’s extension of tax credits to those who purchase health plans on federally operated exchanges. If the litigation is successful, it could, as Kevin has written, “wreak havoc” on the ACA. Now that Jonathan Adler and Michael Cannon, the chief architects of the legal challenge, have endorsed me as someone who can offer an “independent assessment” of the merits of the litigation, I thought it was worth adding my two cents.
To bring you up to speed: section 1311 of the ACA asks the states to “establish” health-insurance exchanges. Because scads of people can’t afford insurance without help, the ACA offers subsidies—known as “premium assistance tax credits”—to anyone making between 133% and 400% of the poverty line who buys a health plan on an exchange.
Congress expected that the states would be happy to establish their own exchanges. For states that chose not to, however, section 1321 of the ACA instructed the Secretary of HHS to “establish and operate such Exchange within the State.” As it happened, more than half the states decided not to establish their own exchanges. In those states, the federal government now runs the show.
Here’s the problem. In a complicated formula, the amount of the tax credit is keyed to the monthly premiums for an exchange plan “which w[as] enrolled in through an Exchange established by the State under 1311.” But what about exchanges “establish[ed] and operate[d]” by the feds under 1321? Adhering to the statutory formula would suggest that subsidies aren’t available on those exchanges. If that’s right, people in states that have refused to establish exchanges—including Virginia, Texas, Florida, and Michigan—will have to pay the full sticker price for their health plans. Those that can’t will be out of luck.
The Obama administration isn’t buying this interpretation of the statute. No one (well, almost no one) thinks that Congress really meant to withdraw tax credits from the uninsured in states with federal exchanges. Why on earth would Congress craft a statute that failed to achieve the goal of near-universal insurance? Linking tax credits to exchanges “established by the State under 1311” was just a screw-up. (If you don’t believe me, check out this awesome article from Jon Cohn and this terrific post from Abbe Gluck detailing the evidence.)
But, judges are pretty uncomfortable disregarding clear statutory language just because they suspect that Congress screwed up. Most judges would prefer to stick with the statutory text, even if it’s dumb, because it’s often so hard to tell what Congress “really” had in mind. That’s why it’s not enough for the federal government to show that Congress didn’t mean what it seems to have said. To prevail, the government has to show that Congress didn’t actually say it in the first place.
I think the government can make that showing. To begin with, a subtle textual argument favors the government’s position. Look back at section 1321. When a state fails to set up the “required Exchange,” section 1321 instructs the Secretary of HHS to establish “such Exchange.” What could “such” exchange possibly refer to except the exchange “required” under 1311? As my colleague Sam Bagenstos pointed out more than a year ago, this language creates a strong inference that the Secretary “stands in the shoes” of state officials when she sets up an exchange. Although she acts pursuant to authority under 1321, she’s still establishing a 1311 exchange.
This argument may not clinch the case for the government. After all, the tax-credit calculation links subsidies not to 1311 exchanges in general, but to those 1311 exchanges “established by the State.” But there’s more. Consider the statutory provision requiring every exchange—including those established under 1321—to provide information to Treasury about “[t]he aggregate amount” of advance tax credits that each individual receives when purchasing a plan on the exchange. What possible purpose would this provision serve if no one on a federal exchange could get a tax credit?
Better still, the ACA allows only “qualified individual[s]” to buy health plans on the exchanges. But a qualified individual is defined as someone “who resides in the State that established the exchange.” Does that mean that no one can purchase a plan in those states that have declined to establish their own exchanges? That’d be crazy. The more natural inference is that, in a refusal state, the federal government acts on the state’s behalf when it sets up an exchange.
I could go on (and you can check out the government’s brief for more if you’re insatiably curious). But I think I’ve made my point. The Supreme Court has long adhered to the view that a court “should not confine itself to examining a particular statutory provision in isolation. The meaning—or ambiguity—of certain words or phrases may only become evident when placed in context.” Here, context suggests that the “established by the State under 1311” language can’t be read as restrictively as the challengers believe.
At a minimum, the statute is ambiguous about whether subsidies ought to be available on federally operated exchanges. And when a statute is ambiguous, basic principles of administrative law dictate that the tie goes to the government. That’s doubly so where the government’s interpretation advances the purposes of the statute—and where the contrary interpretation threatens to destroy it.