The PPACA Goes to Washington…Again…. (Updated)

Apparently the President thinks he is Bob Dylan: “I say it, so it must be so…” (“Workingman’s Blues #2,” Modern Times).

In a very interesting twist recently, two courts of appeals (4th Cir. and D.C. Cir.) issued two contradictory rulings on a lawsuit regarding a statutory-interpretation issue regarding the Patient Protection and Affordable Care Act (PPACA). The lawsuit in question was contesting the legality of federal subsidies for health insurance purchased in the 36 states that did not set up a state-run health exchange. It argued, in essence, that the text of the PPACA intentionally specifies that tax subsidies would only be offered to individuals who purchase their insurance through state-run exchanges, and that, as such, tax subsidies for anyone living in the aforementioned 36 states are illegal and thus cannot be offered to anyone who purchases health insurance via the federal exchange.

Typically, in situations like this where there is a circuit split, the Supreme Court will almost certainly grant certiorari to hear the case. However, it appears the administration is on very shaky legal ground, and does have one last legal maneuver (asking for an en banc ruling from the D.C. circuit) to try to resolve the current contradictory rulings and dissuade SCOTUS from trying the case (or it could just opt for rather impudent political shaming to try to dissuade the Court from taking it….).

At this juncture, then, there are a number of ways this case could still shake out, so it is far from clear what the fate of this case (and the law) will be at this point:

1) The D.C. court could consent to hearing the case en banc, and given the present composition of the full bench, it is more than likely that they would overturn the 2-1 panel ruling and uphold the legality of federal subsidies in the federal exchange. This would make it less likely that the Court would grant writ, and given that they have already ruled on the PPACA once, they would probably decline to do to avoid having to rule again on a very hot political potato. (Update: the D.C. Circuit granted an en banc review, scheduled for Dec. 17, but SCOTUS decided to take the comparable 4th Circuit case today [Nov. 7] anyway)

2) Option 1) could obtain, but one of the other two comparable cases still pending in Indiana and Oklahoma could come out like the D.C. panel’s ruling, thus all but guaranteeing that SCOTUS would grant cert.

3) SCOTUS could grant cert on either case as soon as possible on the matter to grab the bull by the horns and resolve the matter. (Update: what they did, though I find it interesting that they waited until immediately after the mid-term elections in which one of the messages seemed to be that the health care law is still wildly unpopular)

It's how they like to handle their business. It's a metaphor. But that actually happened though.

It’s how they like to handle their business. It’s a metaphor. But that actually happened though.

If I had to put money on how this plays out, I would bet on: 1) the administration asking for an en banc ruling from the full D.C. circuit bench (update: they did), 2) the appellants in the 4th circuit appealing to the high Court (update: they did), 3) the Court taking the case, given both its huge impact politically and economically (though I could see the Court passing for these very reasons, if it has the cover to do so), and the chance that, were it to turn it away now, it may very well have to deal with this same situation in a year or two once the other cases pending work their way through. So, although things aren’t clear yet, the hoopla is probably correct in predicting another Obamacare showdown at the Supreme Court. (Update: it was, and we are headed for what will undoubtedly be a bruising round two)

If that situation obtains, here are the arguments in brief.

On the appellant side, the argument is that the text of the law is clear. The law only explicitly permits the federal government to grant health insurance subsidies to individuals within exchanges established by states. Nowhere in there does it grant the IRS the authority to act on its own and grant subsidies to individuals outside of state-based exchanges. Thus, it is an illegal overreach of the IRS to issue a rule allowing for something regarding which it was never granted the power to do. The writers of the law could have very easily included a provision for providing subsidies within the federal exchange had they intended for that to be a part of the law, but they did not, and any reading of the law that suggests contrary is ignoring the plain meaning of the text in favor of an implied intent. In such situations, the Court should not resort to divining the uncertain intent of Congress, but interpret the plain meaning of the text as written.

On the respondent side, the argument is that the law does not explicitly prohibit the IRS from granting subsidies to individuals in the federal exchange, even though it only speaks of granting subsidies in state exchanges. The law allows for the federal government to establish an exchange in lieu of state-based exchanges, and that, since it is not something wholly different from but rather a substitute for state-based exchanges, the same rules in the PPACA that govern state-based exchanges should apply equally to the federal exchange, despite a lack of direct and detailed instructions for a federal exchange. The ultimate purpose of the law, as embodied in its title, is to make health care affordable, and as such that is clear enough to override this strict reading of the law. A congressional “typo” or oversight in composing a law should not be reason to scuttle the entirety of a law, which is what supporters of the PPACA fear would happen if the subsidies in the federal exchange are struck down. The Court should give Congress and the Executive Branch wide latitude to understand and implement the law according to their intentions, regardless of superficial difficulties that may be created within the plain meaning of it. Additionally, there are other portions of the law that seem to hint that there would be subsidies within the federal exchange, and those hints are enough for the Court to permit them, despite the lack of a straightforward and clear provision to that effect.

Now, given how politically-charged this case will be, I could very easily see this being settled once again in favor of the administration, thus leaving the PPACA as we know it largely intact. However, there are some serious weaknesses in the government’s argument. 1) The text is very clear. Even Laurence Tribe agrees, which is why he said he “wouldn’t bet the family farm” that the PPACA survives before the Court this time around (he nevertheless suggests that the Court should take a deferential posture and allow the President and Congress to interpret/implement the law as they will). 2) While supporters of the law vociferously assert that “it is pretty obvious what the congressional intent was here,” that is neither dispositive with respect to the statutory-interpretation question, nor is it correct (remember that Congress was largely under the assumption that every state would set up their own exchanges [evidenced by the language in the statute to the effect that “Each state shall” set up exchanges], meaning that there isn’t much in the legislative history regarding the question of whether federal subsidies would be available outside of state-run exchanges).

Additionally, there are two bigger holes in the government’s argument – both exacerbating the aforementioned weaknesses – that put the PPACA on very shaky ground indeed.

I'd say about that big, sure.

I’d say about that big, sure.

First, despite assertions to the contrary, it is quite probable that the language of the statute reads as it does because it was meant to strong-arm states into setting up their own exchanges. The idea was that the federal government would use individual subsidies granted solely within the context of state-based exchanges as a political tool to convince recalcitrant Republican governors to shoulder the burden of implementing the law and establishing exchanges on their own. The crafters of the law thought that Republican governors would not be able to survive the political backlash from angry constituents mad about being disqualified for subsidies, and so intentionally only allowed for subsidies to be granted within state-based exchanges. If you think that this idea is nonsense, or just some mad idea hatched up by a disgruntled policy analyst at a right wing think tank, don’t take my word for it. Here is Jonathan Gruber – MIT professor, architect of the healthcare law, and paid consultant to states regarding the law after its passage – saying this very thing back in 2012.

Don’t forget that there was a provision just like this in the original law – the Medicaid expansion – that the court struck down as being overly coercive towards the states (it was a Corleone-styled offer they couldn’t refuse). Granted that the intended Medicaid-expansion conditions were a much clearer “gun to the head” (they got a whole lot more press, anyway, after the law was first passed), they nevertheless show that members of Congress had such coercive measures in mind when writing the law.

Presuming that Congress chose the language it did purposefully (a big presumption, indeed!), it is entirely plausible that they failed to articulate this provision of the bill as clearly as the Medicaid-expansion conditions because, 1) although there is a clear-statement requirement for any bill wherein Congress conditions its granting of federal money to states on the states’ cooperation with those conditions, as was the case with the Medicaid-expansion conditions (See New York v. United States, 505 U.S. 144 (1992)), there is no such requirement when Congress conditions its giving of tax credits to individuals within states on the states’ cooperation with those conditions, and so there was no up-front concern about the provision’s constitutionality that would lead anyone to think to clarify this point; and 2) Congress was unduly optimistic that no state would really, in the end, refuse to set up their own exchange, and so they did not think to make the consequences of such refusal clearer.

Second, we have a very recent court opinion dealing with a statutory-interpretation issue similar to the one we have here. In Michigan v. Bay Mills Indian Community, the issue revolved around a statute that allowed the state to sue an Indian tribe concerning illegal gaming conducted within the tribe’s territory, but never allowed for the state to sue an Indian tribe concerning illegal gaming conducted outside of the tribe’s territory. The state was suing under those precise conditions that were not addressed by the statute. The state argued that, although the statute did not make a specific provision for this unusual circumstance, it would nevertheless be nonsensical and in opposition to the plain intent of the law to bar a suit. Here’s the majority opinion from Justice Kagan, from which this quote comes:

But this Court does not revise legislation…just because the text as written creates an apparent anomaly as to some subject it does not address. Truth be told, such anomalies often arise from statutes, if for no other reason than that Congress typically legislates by parts-addressing one thing without examining all others that might merit comparable treatment. Rejecting a similar argument that a statutory anomaly…made “not a whit of sense,” we explained in one recent case that “Congress wrote the statute it wrote”-meaning, a statute going so far and no further….This Court has no roving license, in even ordinary cases of statutory interpretation, to disregard clear language simply on the view that…Congress “must have intended” something broader.

Notwithstanding that there is always a way to distinguish one case from another to render the former case inapposite, it seems to me that this quote is quite on-point, and should be lifted whole and inserted into the Court’s decision affirming the appellant’s case. The Court does not have the power to rewrite congressional statutes (though, in effect, they do with startling frequency), and it should not allow for such opportunistic re-interpretation of the law after the fact (what the IRS did, in effect, when it passed the rule saying it would grant subsidies in state- and federally-operated exchanges, once it became clear that most states were going to refuse to set up their own exchanges). The Court should read and interpret the law as written, and rule accordingly. Kagan’s statement above should guide the Court’s decision-making in this matter. Congress wrote the law it wrote – even if they didn’t put any thought into the language they used, or even take the time to make sure the thing made sense (you’ll recall it was passed in a hurried way via reconciliation in order to overcome the obstacle that the election of Scott Brown posed to passage of the bill).

It seems to me that, if this case makes it to SCOTUS (update: it has), the Court may very well strike down the federal government’s offering of subsidies outside of state exchanges. I mean, maybe Ron Pollack is right that where we stand today will prove to be the “high-water mark for Affordable Care Act opponents” (update: it wasn’t). To that, I would just say that the high water’s risin’….

9 comments

  1. http://www.gpo.gov/fdsys/pkg/PLAW-111publ152/pdf/PLAW-111publ152.pdf , p. 7. Section 1004 of the budgetary reconciliation measure passed by the House on March 30, 2010, regarding reporting requirements related to the implementation of Obamacare: “Each exchange,” including federal ones, required to report “the aggregate amount of any advance payment of such credit or reductions under section 1412 of such Act.” Is this demonstration of congressional intent enough to show that the PPACA should be construed so as to provide subsidies on the federal exchanges, despite the lack of an explicit statutory provision for the IRS to do so in the text of the bill itself?

  2. Remember this, because it shows this was not an ad hoc argument contrived after the Court defeated the first challenge to Obamacare. It was a concurrent problem discovered back then, but put on the back burner to deal with other priorities.

    http://news.investors.com/090711-584085-oops-no-obamacare-tax-credit-via-federal-exchanges-.htm

  3. Or, and to indict Gruber’s own admission that his previous statements were a “speak-o” (you know, like a typo), here’s his own words from an article dating to shortly after his relevant speeches that have since gone viral.

    http://www.nytimes.com/2012/03/29/business/jonathan-gruber-health-cares-mr-mandate.html?pagewanted=all&_r=0

    How the article ends: “‘Yes, I want the public to be informed by an objective expert,’ he says. ‘But the thing is, I know more about this law than any other economist.’”

    So the guy who, in his own estimation, knows more about the law than any other economist (and presumably, anybody else, really, since no one really knew about the law or what was in it until after stuff got implemented) had no idea what he was talking about, now that what he “knew about the law” is now proving to be politically inconvenient? Right…..

  4. “…this bolsters the libertarians’ case. Gruber is acknowledged, by everyone, as an architect of the ACA. There is, to date, no evidence that he flogged the carrot/stick subsidies idea on Congress, and as Cannon writes in a piece at Forbes, Gruber has done hours of scoffing at the rationale behind Halbig. It just happens that in early 2012, when Cannon was barnstorming states to get them to avoid creating exchanges, Gruber was telling them they had better create exchanges or they wouldn’t get subsidies.”

    http://www.slate.com/blogs/weigel/2014/07/25/libertarians_think_they_ve_found_a_smoking_gun_in_the_halbig_case.html

  5. “There is this technical problem in the law,” said James Blumstein, a professor at Vanderbilt Law School. “I don’t see how you get around that.”

    http://www.cato.org/blog/latest-obamacare-glitch-enables-states-block-new-entitlement-spending

  6. And to add to the evidence that the provision being contested was intentionally worded to only allow for subsidies in states, here is a presentation made by Timothy Jost back in 2009 at a health law confab (at my future alma mater) that suggests that the federal government “could exercise its Constitutional authority to spend money for the public welfare (the “spending power”), either by offering tax subsidies for insurance only in states that complied with federal requirements (as it has done with respect to tax subsidies for health savings accounts) or by offering explicit payments to states that establish exchanges conforming to federal requirements.” http://scholarship.law.georgetown.edu/cgi/viewcontent.cgi?article=1022&context=ois_papers (pg. 15 of the pdf document).

    This of course does not prove beyond the shadow of a doubt the congressional intent of the law, but it is pretty damning evidence that a number of experts who helped craft the law in some way, shape, or form were suggesting to put into the law a provision that looks identical to the provision that happens to be in there, but that they are now contesting does not mean what it says because it would essentially collapse the law.

  7. Here is a relatively concise and basically understandable take-down of the government’s argument against Halbig, from one of the architects of this legal challenge.

    http://www.volokh.com/2012/12/12/the-illegal-irs-rule-on-health-insurance-exchanges-a-reply-to-bagenstos/

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