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In King v. Burwell, an easy answer to the ACA’s definition of “exchange”

Richard Lempert

King v. Burwell, the case that could torpedo the Affordable Care Act (ACA), is otherwise not particularly interesting. Rather it is a case that only a law professor, and a rather pedantic one at that, could love. No constitutional issue will be decided, and unlike the court’s last encounter with the ACA, the power of Congress to do whatever it did in the Act is unquestioned. The question is exactly what did Congress do, or intend to do, when it passed the legislation and, in particular, did it intend a system which would become unworkable if a number of states refused to participate by creating exchanges. To state the question this way is to provide the answer. But a combination of the Act’s complexity, less than ideal drafting, political circumstances that hampered polishing the Act’s provisions, brilliant lawyering by the Act’s opponents, and, if I am right, the government’s failure to perceive one of its strongest arguments, make for a situation in which the political leanings of key Justices may play a larger than desired role in how the case is decided.

The case turns on an issue that no one seems to have perceived during the law’s path to passage or in the months immediately following its enactment. Section 1401 (b)(2)(A) of the Act, which delineates taxpayers who are eligible for subsidies under the Act, describes eligible taxpayers as those enrolled in health care plans acquired “through an Exchange established by a State” under Section 1311 (1) of the Act. Moreover, the Act elsewhere defines “State” so as to exclude the federal government from that definition. Thus the petitioners (those attacking the Act) argue the language is plain, and that subsidies are not available for the residents of those states, about 2/3rds of all states, who rather than establishing their own exchanges, instead let their citizens rely on the federally established Exchange for their insurance plans. Since it is generally agreed that among the many (and often conflicting) canons of statutory construction, the clear plain meaning of what a law says holds a preferred place, the argument that subsidies are unavailable to those who purchase insurance on the federal exchange is, without more, a strong one. But there is more.

In focusing attention on Section 1401 (b)(2)(A) of the Act, and continually returning to it, the petitioners are engaging in a clever sleight of hand, for it is not in this Section that ambiguity lies. Rather the crucial, but less than crystal clear language, on which King should turn is found in ACA Section 1321 (c)(1)(B). This section describes what follows if a state decides not to establish an exchange or establishes an exchange that fails to meet federal standards. Then the HHS Secretary is directed to, “establish and operate such Exchange within the State” (emphasis added). The key question is whether Congress when it used the phrase “such exchanges” meant to incorporate all the features, including subsidy availability, that characterize state exchanges. It is difficult to believe that they did not, for the antecedent of “such” in this clause appears to be state exchanges that, under rules to be set by the HHS Secretary, offer qualified health plans, and qualified plans are plans that, depending on the taxpayer’s circumstances, meet certain standards and qualify for subsidies. Moreover, and more importantly, if policies purchased on the federal exchange did not qualify for subsidies and enough states did not establish exchanges, the ACA scheme would almost certainly fail. Congress does not intentionally pass statutes that may fail to achieve their goals.

It is at this point that the petitioners must switch from offense to defense. Unless they can come up with reasons why Congress might wish to establish exchanges that would substitute for state exchanges in all respects but subsidy availability, they have no case beyond their literalist argument regarding language that properly understood is not at the core of the dispute. To make this case the petitioners must confront two questions. One is why Congress would want HHS to establish federal exchanges for non-participating states if subsidies were not available. Perhaps because they have no good answer to this question or do not see the matter as crucial, the petitioners dismiss the concern with almost a wave of the hand—Congress wanted to do this, they tell us, to give consumers who do not qualify for subsidies the convenience of “one-stop shopping.” They do not tell us why, at a time when deficit hawks were screaming, Congress would think that shopping convenience merited the huge costs of establishing the federal exchange.

The second question, and the one that draws most of the petitioners’ attention, is why Congress might wish to confine subsidies to only those lower-income consumers who reside in states that have established their own exchange. They come up with a clever answer to this question, but one which in lawyer’s parlance, “stinks of the lamp”—a phrase originating in the 19th century when lawyers would stay up late and by the light of a smelly oil lamp construct, out of their imaginations, rationales to support the otherwise absurd claims they intended to make. In this case, the argument, drawn from the musings of two conservative scholars, is that Congress was willing to risk the success of the ACA in order to incentivize states to establish their own exchanges. The model that the petitioners have of the Congressional mind seems to be one in which Congress is so sure that states would not want to deprive their citizens of federal subsidies that the threat of their unavailability would induce them to set up exchanges—nevermind that if Congress were confident that this would happen in timely fashion, the back-up provisions of 1321 (c)(1)(B) would be unnecessary. Moreover, if Congress established federal exchanges despite expectations of eventual universal compliance, perhaps because they feared that some states would not produce acceptable plans by the initial 2014 deadline, it is difficult to imagine why they would obligate citizens of these states to purchase health insurance but deny them the subsidies that citizens of states with established exchanges enjoyed. It is rare for Congress to do anything that imposes serious, visible costs on ordinary people and seems so unfair that a political backfire is likely.

It is thus not surprising that the petitioners can cite nothing in the ACA’s legislative history that clearly supports their reconstruction of Congressional intent. The best they can offer is of little relevance, an article written in 2009 which suggests that withholding subsidies from citizens in states that, under a different model, don’t establish exchanges might lead states to do so, and an off-the-cuff and a since disavowed remark by Jonathan Gruber—captured on You Tube—that embodies the petitioners’ theory. Gruber’s disavowal is unconvincing, but his statement tells us little beyond the insight it gives into how (some) economists think. Although the petitioners try to elevate Gruber into a major architect of the law, his primary role seems to have been to explore the economic implications of different health care insurance systems. Despite innuendo, the petitioners never assert that Gruber played a role in writing the law or that he was in communication with any members of Congress. Moreover, it is clear from the ACA that when Congress wanted to incentivize states, it knew how to do so without ambiguity or indirection. To get all states to expand their Medicaid eligible populations to 133% of the poverty level, it threatened to withdraw all Medicaid funding from uncooperative states, a threat so draconian that the Supreme Court found it unconstitutionally coercive.

Most puzzling to me is that the government’s brief misses entirely what I see as one of the strongest arguments it can bring to bear, especially for those justices who believe that the literal text should govern except when literalism yields absurd results. As with many statutes the ACA begins by defining key terms. One is the term “Exchange,” which is defined in ACA 1311 (d)(1). There we are told that: “An EXCHANGE shall be a governmental agency or nonprofit entity that is established by a State.” Like a good definition, the statement could hardly be clearer. Read literally, the definition excludes any entity established by HHS or any other federal agency. Yet as discussed above, the ACA later provides that if a state does not establish an exchange “the Secretary …shall establish and operate such exchange.” The meanings the petitioners would give to the statute make this provision absurdly incoherent because the Secretary would be told to create an entity (the federal exchange) that could not be an exchange given the Act’s definition. To maintain coherence, the ACA’s definition of “exchange” as entities “established by a state” must encompass exchanges established by the federal government in default of state action. If not, a carefully constructed portion of the Act has not just the limited meaning that the respondent tries to accord it, but no meaning whatsoever. Section 1321 (c)(1)(B) becomes no more than a doodle. Congress does not do such things, nor do courts assume that Congress puts language into its laws intending no effect.

There are other issues King v. Burwell raises, chief among them whether the language is sufficiently ambiguous, and the IRS’s role sufficiently central, that the IRS’s interpretation allowing subsidies for insurance purchased on the federal exchange should be accorded Chevron deference. In addition, the court might avoid the issue entirely, finding, even at this late date, that none of the named plaintiffs who brought the suit has standing. (Two have incomes so low that they would not face fines for failing to purchase insurance, and some have suggested that the two other named plaintiffs similarly lack legitimate claims to a hearing in federal court.) I leave it to others to discuss these matters.

More interesting is the role the court should take in cases of this sort. We often think of the Supreme Court as a crucial actor in our system of checks and balances, and so it is. It can and should thwart action by the government’s other branches when these actions are unconstitutional, and it should similarly thwart state enforcement of criminal laws that do not sufficiently inform people about what is and is not permissible. But in civil cases involving statutory interpretation, the court’s role is not to check actions by the other branches of government but to facilitate them. It is called on to do its best in interpreting what those who enacted the law intended. It must, however, do so as a court. It can discern the intent of laws, but it cannot rewrite them. It need not be blind to the circumstances surrounding the passage of the law, but its interpretation must be grounded in the words Congress enacted and in the regulatory scheme these words create.

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The literal meaning of words is the starting point for analysis, and for a few Justices, perhaps including Scalia and Thomas, the ending point as well. However, most judges and jurisprudes recognize that interpretation can seldom be avoided, and that language that may appear clear when extracted from context is often ambiguous when it must be interpreted alongside other language and evidence of congressional intent to create a coherent statutory whole. Thus in 1985, although surrounded by the sea, Long Island became a peninsula for the purpose of deciding whether water off Rhode Island’s shore was a bay, and just last term the congressional definition of a terrorist act was transformed so that, despite what it literally said, it did not encompass a woman who placed a slightly corrosive substance on a rival’s doorknob. No such grand transformations are needed in King v. Burwell. If the court is to decide as a court and not as a political actor, only one decision can capture Congress’s intent.

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