Robert Weiner is a Partner at Arnold & Porter LLP.
In King v. Burwell, the Supreme Court has taken a case it did not need to take, on an issue that should not be an issue. The IRS and the Fourth Circuit interpreted the Affordable Care Act (“ACA”) the only way it could be interpreted consistent with the language, structure, and purpose of the statute.
But, for whatever reason, at least four Justices voted to review it. So, it now is important that the Court get the decision right, because getting it wrong means taking away subsidies that 4.2 million low-income Americans who have signed up for health insurance need in order to afford it. If that happens, studies show that more people in this country will die from inadequate medical care. More will endure financial hardships because of medical expenses. More will go bankrupt. These 4.2 million people are not combatants in the health reform wars. Nor are they attempting to make some political point. They are simply trying to protect themselves and their loved ones from catastrophic medical expenses.
Thus, when opponents the ACA contend that low-income families in states with federally facilitated insurance exchanges are not entitled to receive the tax benefits necessary for them to afford insurance, the anodyne language of the legal debate should not obscure the stakes for real people struggling with economic insecurity — the very people the ACA was designed to help.
The opponents’ argument for imposing these devastating consequences turns on a provision the ACA added as Section 36B(b) of the Tax Code, directing that tax benefits to enable low-income taxpayers to afford insurance should be based on the price of insurance on an “Exchange established by the State.” Opponents seize on this language to assert that low-income families in states with federal exchanges cannot receive tax benefits. With myopic simplicity, they argue that an exchange established by the federal government is not established by the state.
The simplicity is deceptive. The reason the argument appears simple is that it isolates a few words from the overall statutory context. Moreover, it invokes the supposed “ordinary meaning” of those words when Congress, in fact, defined them differently.
But, it turns out, demonstrating the fallacy of this approach, based just on the statutory text, is straightforward. It requires only two steps, involving only three provisions:
The only “Exchange,” with a capital “E” mentioned in Section 1311 is the one “established by the State.” That is what the term “means” each of the 280 times it appears in the statute.
When Section 1563 specifies that “Exchange” “means” an exchange established by the state, “the clear import [is] that this is its only meaning.” There is only one conceivable way the Secretary, a federal official, can establish an “Exchange” that has been defined—three times—as an entity established by the state: She must act on behalf of the state.
To read the statute any other way would require the Secretary to do something that is, by definition, impossible. In contrast, there is nothing extraordinary about the Secretary acting for, or stepping into the shoes of, or standing in for, the state. This type of legal substitution happens frequently, with the federal government and others acting, for example, as proxies, trustees, lawyers, conservators, guardians, representatives, and agents. If an agent of the state, for example, performs an authorized act on the state’s behalf, it is an act by the state. Here, the authority comes from the state’s election to have the Secretary establish the exchange.
If the ACA opponents were right that Section 1321 does not authorize the Secretary to act on behalf of the state in establishing an exchange, then the definitions in Sections 1311 and 1563 would confine every use of the word “Exchange,” with a capital “E,” only to an entity established by the state government itself, not by anyone acting for the state, or on its behalf, or as its proxy. A federally facilitated exchange thus could never qualify as an “Exchange,” as defined in the statute. That produces a torrent of anomalies. For example, in the states with federally facilitated exchanges, there would be no “qualified health plans,” because to fall within that definition, the plan must be certified through an “Exchange.” With no “qualified health plans,” the insurance provisions of the statute would unravel in those states. The Act would become a health insurance law without health insurance.
Moreover, only “qualified individuals” can purchase insurance on an “Exchange.” Section 1312(f) of the Act defines a qualified individual as one who “resides in the State that established the Exchange.” There could be no “qualified individuals” in states with federally facilitated exchanges because those states did not themselves establish the exchange.
The D.C. Circuit’s now-vacated panel opinion in Halbig suggested that this cramped interpretation does not leave exchanges without customers because the statute nowhere states that only “qualified individuals” can purchase insurance on an exchange. If that were so, Congress would have had no reason to define “qualified individual.” “Qualified” means “having complied with the specific requirements or precedent conditions (as for an office or employment): Eligible.” The term in the ACA begs the question, “Qualified for what?” The answer, necessarily, is participation in the exchange. Those who are not qualified are not eligible to participate.
Applied with the constraint of consistency, then, the opponents’ interpretation robs entire statutory provisions of both meaning and function. Under their approach, in states with federally facilitated exchanges, there would be no “qualified health plans” to sell and no “qualified individuals” to buy them. Further, the instruction in Section 1321(c) that the Secretary set up an exchange if the state does not would be a nullity, because any entity the Secretary set up could not perform virtually any of the functions it was intended to handle.
The opponents’ approach makes even less sense considering that other ACA provisions discuss the availability of subsidies on “Exchanges,” without the follow-on phrase “established by the State” that the opponents inflate. For example, Section 1413(a) requires the Secretary to establish a system allowing residents of “each State” to apply, and to receive a determination of eligibility, for an “applicable State health subsidy program.” Under Section 1413(e)(1), the term “applicable State health subsidy program” includes the program for enrollment in “qualified health plans offered through an Exchange, including the premium tax credits under Section 36B.”
Further, the opponents’ interpretation requires the courts to believe that Congress embedded this destructive exception not where it would have belonged, in the eligibility criteria for subsidies or the discussion of federal and state exchanges. Rather, according to the opponents, Congress tucked this time bomb away in the formula for calculating the amount of tax benefits that low-income families were granted in the immediately preceding provision. Subsection 36B(a) of the Tax Code directs that for applicable taxpayers – defined as those earning less than 400% of the federal poverty level – “there shall be allowed as a credit against the tax imposed by this subtitle for any taxable year an amount equal to the premium assistance credit amount of the taxpayer for the taxable year.” “Shall” means that these taxpayers get a subsidy. Subsection (b), bearing the caption “PREMIUM ASSISTANCE CREDIT AMOUNT,” then lays out how to calculate the credit they are required to be paid. It is here, in subsection (b)(2)(A), that the language trumpeted by the ACA opponents appears, in describing the formula for that calculation based on the monthly premiums for qualified health plans “which were enrolled in through an Exchange established by the State under 1311 of the Patient Protection and Affordable Care Act.”. (The language also appears in the explanation of how to determine each “coverage month” for applicable taxpayers.) On the opponents’ blinkered interpretation, subsection (a) of the refundable tax credit provision awards applicable taxpayers a credit to buy insurance, but then subsection (b) calculates the amount of that credit as zero for taxpayers who live in states with federally facilitated exchanges. Had Congress intended to deny such taxpayers a credit, it would not likely have chosen the perverse route of first instructing the IRS to bestow it and then setting the amount of at zero.
In sum, Section 1321 provides that if the state does not establish an “Exchange” under Section 1311, the federal government must do so. The only way the federal government can comply with the instruction in Section 1321 to establish an “Exchange” defined exclusively as one established by the state is to step into the shoes of the state. That interpretation is faithful to the language of the Act and allows it to function. The interpretation also accords with the purpose of the statute as expressed in the enacted language, “Quality, Affordable Care for All Americans.”
The Fourth Circuit got it right.