Brianne Gorod is Appellate Counsel at the Constitutional Accountability Center.
Opponents of the Affordable Care Act succeeded in getting the Supreme Court to hear their latest challenge to the ACA last week, but they should hold off on celebrating. What matters in the end is not what the Court did last week, but what it does next year when it actually decides whether the tax credits that are critical to the effective operation of the ACA are available on exchanges nationwide, or only on those exchanges run by the states. And on that front, there should be no doubt. Because for all of the politics surrounding this case, it remains a straightforward case of statutory interpretation, so straightforward that there should be no question about what the Court will do – and, in any other case, there would be no question. The Court would recognize what the statutory text makes clear, and the structure, purpose, and history of the statute all confirm: tax credits and subsidies should be available on all exchanges, state-run and federally facilitated.
By way of background, the ACA expressly provides that a tax credit “shall be allowed” for any “applicable taxpayer,” and it defines “applicable taxpayer[s]” as those “whose household income . . . equals or exceeds 100 percent but does not exceed 400 percent” of the federal poverty line. In other words, individuals qualify as “applicable taxpayer[s]” entitled to the tax credit based on their income, not their state of residence or the entity operating the exchange. It also provides a formula for calculating the amount of the credit, which states, in pertinent part, that “[t]he premium assistance amount . . . with respect to any coverage month is the amount equal to the lesser of . . . the monthly premiums for such month for 1 or more qualified health plans offered in the individual market within a State which cover the taxpayer . . . and which were enrolled in through an Exchange established by the State [under another section of the ACA].” Application of that text should be fairly straightforward. But opponents of the ACA were, as Senior Judge Harry Edwards of the D.C. Circuit put it, determined “to gut” the ACA, and they seized on one four-word phrase in the technical formula for calculating the amount of the credit to argue otherwise. According to them, that four-word phrase – “established by the State” – means that individuals who satisfy the income criterion are not eligible for the tax credit if they purchased their insurance on a federally facilitated exchange.
But focusing on one four-word phrase and ignoring all of the language that surrounds it is no way to read a statute, especially one as complicated as the Affordable Care Act. As Justice Antonin Scalia noted in a different case last year, “the words of a statute must be read in their context and with a view to their place in the overall statutory scheme.” When you follow that fundamental principle here, it’s clear that the federally facilitated exchanges are the functional equivalent of state-run exchanges and that the tax credit should be available on both. Indeed, it would be odd to read the statute otherwise, given that the tax credit is indispensable to the effective operation of the exchanges, and eliminating it would undermine other aspects of the law, including the individual mandate and the insurance reforms ensuring coverage of pre-existing conditions.
Notwithstanding all of that (or perhaps exactly because of it), the law’s opponents argue that the statute should be read to limit the tax credit to state-established exchanges because, in their view, Congress intentionally limited subsidies to state exchanges to encourage states to set up their own exchanges. The problem with this argument: it is inconsistent with the text, history, and purpose of the statute, as members of Congress who led the enactment of the ACA have said in briefs they filed in the D.C. Circuit and the Fourth Circuit. After all, if the purpose of the credit provision was to induce states to set up their own exchanges, one would think members of Congress would have made sure that the states understood the conditional nature of the credit. Yet as these leading members of Congress explain in their amicus brief (which was also signed by members of state legislatures who participated in the debates about whether their states should set up their own exchanges), no one who was there when the law was enacted – and no one who was there when the law was implemented – understood the law to operate in the way the law’s challengers now say it operates.
To start, nothing in the text of the statute indicated to states that their citizens would lose access to the tax credit if the state failed to set up its own exchange. Instead, as noted above, the statute expressly conditions availability of the credit on income level, not state of residence, and the language on which the law’s challengers rely appears in the formula for calculating the amount of the credit. Drawing the connection between the credit and the exchange so obliquely – especially in the context of other language making the credit available to all who qualify based on income – would hardly make sense if the purpose of the tax credit was to induce the states to establish their own exchanges. As Justice Scalia has noted in another context, Congress does not “hide elephants in mouseholes.”
Nor did members of Congress say anything during debates about the bill to suggest that states would need to set up their own exchanges if they wanted their citizens to have access to the tax credit. Instead, even though everyone knew that some states might elect not to set up their own exchange (that the bill was the subject of intense political debate and opposition was hardly a secret), everyone understood that the tax credit would be available to purchasers on all exchanges, federal and state. As just one example, in March 2010, the three House committees with jurisdiction over the ACA issued a summary fact sheet explaining how the exchanges would operate. That fact sheet explained that the bill would create both state and federal exchanges, but in its discussion of the premium tax assistance, it in no way suggested that it would only be available on state exchanges. Instead, it identified the qualifying criterion as income. So, too, did the numerous members of Congress – proponents and opponents of the bill alike – who discussed the tax credits during debates about the bill.
Just as Congress never told the states that their citizens would lose access to the tax credit if they didn’t set up their own exchanges, members of state governments never understood the statute to operate in that way. Indeed, although the states considered many factors in deciding whether to set up exchanges, the possibility that the failure to set up a state-run exchange would preclude that state’s citizens from enjoying the tax credits was never one of them, as the brief on behalf of members of state legislatures and a separate brief filed in the D.C. Circuit by eighteen states both discuss at length. Thus, the legislative history of the statute confirms what the text alone makes clear – the tax credits and subsidies should be available on all exchanges, both federal and state. And that’s a good thing, not only for those whose access to health insurance depends on these subsidies, but for anyone who’s worried about the functioning of our health care system more broadly.
Given the strength of the arguments in support of the government’s position, it’s surprising the Supreme Court decided to hear King in the absence of a circuit split and with en banc review pending in the D.C. Circuit. If the Court had followed its ordinary practices, it would have waited to see what the D.C. Circuit (and possibly the Tenth Circuit, which has expedited briefing in another case raising the same issue) did before deciding to get involved. It’s disappointing that it didn’t do that here, in large part because its decision to hear the case now could create the appearance that the decision was motivated by politics, especially given that the law’s challengers have made no bones about the political nature of their suit and their belief that partisan judges are their key to victory. That’s exactly what Chief Justice John Roberts doesn’t want, as he made clear in a speech last month; as the Chief Justice explained, the Court isn’t composed of “Republicans or Democrats,” and he doesn’t want it to be seen as a “political entity” that engages in partisan politics.
Fortunately for the Chief Justice, the Court will have the opportunity to demonstrate that it follows the law, not politics, when it issues its decision in King next year. After all, regardless of whether the Court should have heard the case now, there can be no doubt about what it should do now that it’s hearing it. Non-partisan judges applying straightforward principles of statutory interpretation should easily conclude that the ACA not only allows, but requires, that tax credits and subsidies be available on federally facilitated exchanges. That alone should give confidence to anyone who’s worried about the fate of the Affordable Care Act. But for anyone who remains worried because they interpret the Court’s decision to hear the case as a sign of where the Justices are on the merits, there’s one more thing they should remember: it takes four votes to hear a case, but five to decide it. So it’s way too soon for ACA opponents to celebrate.