Court Rewrites Affordable Care Act To Uphold It. Again.

January 19th, 2014

I have now had some time to read Judge Friedman’s opinion in Halbig v. Sebelius. Serious deja vu from NFIB v. Sebelius.

The question in this case is whether, when Congress wrote into the ACA that subsidies should be provided to “an Exchange established by the State” they actually meant “an Exchange established by the State or HHS.” A majority of states have declined to establish their own exchanges, so HHS stepped in, and created The plain text of the statute is clear that subsidies can only be applied to the state-run exchanges.

Here is the crux of Judge Friedman’s ruling:

On its face, the plain language of 26 U.S.C. § 36B(b)-(c), viewed in isolation, appears to support plaintiffs’ interpretation. The federal government, after all, is not a “State,” which is explicitly defined in the Act to mean “each of the 50 States and the District of Columbia.” ACA § 1304(d), codified at 42 U.S.C. § 18024(d). The phrase “Exchange established by the State under [42 U.S.C. § 18031]” therefore, standing alone, could be read to refer only to state-run Exchanges.  …

Looking only at the language of 26 U.S.C. § 36B(b)-(c), isolated from the cross- referenced text of 42 U.S.C. § 18031, 42 U.S.C. § 18041, and 42 U.S.C. § 300gg-91(d)(21), the plaintiffs’ argument may seem the more intuitive one. Why would Congress have inserted the phrase “established by the State under [42 U.S.C. § 18031]” if it intended to refer to Exchanges created by a state or by HHS? But defendants provide a plausible and persuasive answer: Because the ACA takes a state-established Exchange as a given and directs the Secretary of HHS to establish such Exchange and bring it into operation if the state does not do so. See 42 U.S.C. §§ 18031(b)-(d), 18041(c). In other words, even where a state does not actually establish an Exchange, the federal government can create “an Exchange established by the State under [42 U.S.C. § 18031]” on behalf of that state.11

Because each side provides a credible construction of the language of Section 36B(b)-(c) – though defendants’ is the more credible when viewed in light of the cross- referenced provisions – the Court moves on to consider the other “traditional tools of statutory construction” under Chevron step one, including the structure of the statute and the context in which the language of Section 36B is set.

The court then goes on to look at other provisions of the law, legislative history, and the government’s rationales to explain the legislative purposes. Once you go past clear and unambiguous text, it isn’t hard to rule in favor of the government.

In sum, the Court finds that the plain text of the statute, the statutory structure, and the statutory purpose make clear that Congress intended to make premium tax credits available on both state-run and federally-facilitated Exchanges. What little relevant legislative history exists further supports this conclusion and certainly – despite plaintiffs’ best efforts to suggest otherwise – it does not undermine it. The Court therefore concludes that “Congress has directly spoken to the precise question” of whether an “Exchange” under 26 U.S.C. § 36B includes federally-facilitated Exchanges. Chevron U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. at 842. And that must be “the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress.” Id. at 842-83. The IRS has done exactly that by promulgating regulations authorizing the provision of tax credits to individuals who purchase health insurance on federally-facilitated Exchanges as well as to those who purchase insurance on state-run Exchanges.1

There are lots of provisions of the ACA that don’t make much sense when read together. That is the byproduct of passing a 2,700 page bill that no one read in two weeks so they could get home for Christmas break, and then skipping the reconciliation process to clean out any bugs to avoid a Senate filibuster with the seating of Scott Brown. It is absurd to assume the ACA is some sort of cohesive hole that cannot lead to any “absurd” results. Anyway, I digress.

The court’s strongest purposive argument focuses on the fact that the challengers could point to nothing in the legislative record to support their reading–that Congress only offered subsidies to the states to encourage every state to sign up.

Plaintiffs’ theory is tenable only if one accepts that in enacting the ACA, Congress intended to compel states to run their own Exchanges – or at least to provide such compelling incentives that they would not decline to do so. The problem that plaintiffs confront in pressing this argument is that there is simply no evidence in the statute itself or in the legislative history of any intent by Congress to ensure that states established their own Exchanges. And when counsel for plaintiffs was asked about this at oral argument, he could point to none. See Dec. 3, 2013 Tr. 8-18. Indeed, if anything, the legislative history cuts in the other direction and suggests that Congress intended to provide states with flexibility as to whether or not to establish and operate Exchanges. See infra at 35-38.

I understand that there are a few other arrows in the challenger’s quiver here, but I’m inclined to agree with the court here. From my reading of the record, the Congress was concerned of the Printz commandeering issue, and went out of their way to make sure the Feds could backup states that opted out. Although, they did not offer such discretion for the Medicaid expansion. Here, HHS threatened to revoke all funding if the states did not participate. To the extent that Congress thought about this particular provision (no one actually read it), this purposive argument is stronger.

So this raises the never-ending question of statutory interpretation: text and purpose. When the text is clear, do you look to the purpose? Do you assume it was a drafting error, and go with intent?

The court resolved everything under Chevron Step 1, and did not go onto Step 2. But this footnote was added in the very last sentence of the analysis:

Even if the statute could be characterized as ambiguous – which it cannot – the IRS Rule must be upheld at Chevron step two as a permissible construction of the statute. For the reasons set forth above, the plain text of the statute, when considered in light of the statutory structure, the statute’s purpose, and the limited legislative history, establish that the Secretary’s interpretation is, at minimum, a reasonable one. Similarly, because the Court finds that the IRS Rule comports with the unambiguous meaning of the statute, and, alternatively, the Secretary’s interpretation of the statute in promulgating the Rule was at least permissible, it finds no merit in plaintiffs’ argument that the agency has failed to demonstrate that it arrived at its interpretation of the statute through reasoned decision-making.

Abbe Gluck notes that the court “references Chevron deference as an alternative, but not necessary, basis for the holding in a footnote.” 

Usually when the text is plain and unambiguous, that is the end of the road. But let’s be frank about the consequences of this case. If this suit is successful, the exchanges in about 35 states would no longer be able to provide subsidies. The premiums would skyrocket. Those who already signed up would (presumably) now face much higher bills, and maybe even need to pay back any subsidies given. Those who are waiting to sign up will be deterred from doing so due to the high costs.

Of course, the easy fix would be for Congress to insert two words into the statute: “and HHS.” But the chances of the House Republicans permitting an *expansion* of Obamacare are zero. So the law would stay as it is, in a totally inoperable form.

The court alludes to this in the opinion:

Plaintiffs’ proposed construction in this case – that tax credits are available only for those purchasing insurance from state-run Exchanges – runs counter to this central purpose of the ACA: to provide affordable health care to virtually all Americans. Such an interpretation would violate the basic rule of statutory construction that a court must interpret a statute in light of its history and purpose.

This fear, I’m sure, animated the court’s opinion. Judge Friedman is on strong footing for putting aside the actual text of the ACA, and adding a few words here and there to uphold it. Look no further than the Chief Justice of the United States,who rewrote the law’s mandate into a tax penalty as part of his saving construction. That text was clear (“shall” have insurance and “penalty”), and he found it violated the commerce clause, so he decided to uphold a different statute. At least Judge Friedman found something (anything) in the record to support his purposive analysis.

In any event, this case is already being appealed. On 1/17/14, the D.C. Circuit granted the challenger’s moment to expedite briefing [Update: The D.C. Circuit didn’t actually grant the motion to expedite, but ordered expedited briefing]:

PER CURIAM ORDER filed [1475796] considering motion to expedite [1475591-2]; directing that appellees file a response to the motion, not to exceed 20 pages, by 12:00 noon on Wednesday, January 22, 2014, and that appellants file a reply, not to exceed 10 pages, by 12:00 noon on Thursday, January 23, 2014. The parties are directed to file the paper copies of their pleadings by hand. [14-5018]

Onto the D.C. Circuit we go.