Wednesday, January 28, 2015

A False History: The Rewriting of the Affordable Care Act by the Challengers in King v. Burwell

by Eric Segall

On March 4, the Supreme Court will hear oral arguments in King v. Burwell, yet another challenge to the Affordable Care Act ("ACA"). This time around, the plaintiffs are claiming that the IRS acted illegally by providing federal subsidies on health insurance exchanges created by the Secretary of HHS because the ACA only authorizes such subsidies on an “exchange established by the state.” The government’s response (on the textual issue) is that a different section of the ACA provides that if the states do not create their own insurance exchanges, HHS will set up “such exchange.”

The government clearly has the better of the textual argument because under the well-established Chevron doctrine, if the law is ambiguous (and here it is), the agency’s interpretation only has to be reasonable. Much has been and will be written on that question but that debate is not the focus of this blog post.

Instead, I want to focus on the retelling of history by the architects of this lawsuit, Jonathan Adler, a law professor at Case Western Reserve, and Michael Cannon of the Cato Institute. It is not an overstatement to say that without the dedication of these two men to the destruction of the ACA, this lawsuit would never have gotten off the ground.

On social media, and in their amicus brief in the Supreme Court, Adler and Cannon support their textual interpretation of the ACA (that subsidies are not available on federal exchanges) with the assertion that Congress used its spending power to threaten the states with the withholding of the subsidies unless the states agreed to establish their own exchanges. This claim is repeated in a separate amicus brief submitted officially by the Cato institute, and in the brief for the plaintiffs. 

The claim that Congress intentionally and knowingly used its spending power to coerce states to create insurance exchanges by threatening to withhold subsidies is simply false.

There is not a single word in the entire law telling the states that, if they decide not to open their own exchange, they will lose federal subsidies. Moreover, no member of Congress nor any member of the Obama Administration ever communicated such a threat to the states once the law was passed.

The reason there is no evidence is that such an understanding would have been at the time, and is today, completely inconsistent with the commonly understood and fundamental assumptions underlying the ACA. If insurance companies must cover people with preexisting conditions, and if the government is going to force healthy people to buy insurance, then the government must also provide premium subsidies; otherwise there will be a “death spiral" of increased premiums for everyone. This structure represents the now iconic three-legged stool and is at the heart (and running through the blood) of the ACA.

Lawyers representing two non-profits in Missouri have also filed an amicus brief devoted in large part to the idea that numerous states knew that subsidies might not be allowed on federal exchanges when those states debated whether to create a state exchange. According to the brief, in light of that history, such a reading of the law is not unreasonable.

This argument is itself unreasonable and misleading because all of the evidence cited for that claim comes after Adler and Cannon publicized their mistaken interpretation of the statute. States came up with the crazy idea that subsidies might not be available on federal exchanges only after Adler and Cannon’s campaign started. None of that is relevant to what people understood the law meant when it was enacted in 2010. Back then, it was common knowledge that subsidies had to be available everywhere there was an ACA health insurance exchange.

The fact that some states debated creating exchanges in the context of possibly losing federal subsidies because Adler & Cannon convinced them that was a possibility does not come close to outweighing the evidence that no government official ever told the states that subsidies might not be available on federal exchanges, that such a threat is nowhere in the ACA, and that no one who wanted to see the law succeed would ever have given the states the tool to unilaterally destroy the law.

The amicus brief filed by a number of conservative Senators and Members of the House of Representatives also claims that the ACA was not meant to provide subsidies on federal exchanges but their brief does not point to one member of Congress who ever made that point during the debate on the law or afterward (at least not until the Adler/Cannon theory became public). That absence is understandable because no one thought that to be the case until well after the law was passed and this litigation was anticipated.

Proving a negative is difficult. But as of this moment, there is not a shred of evidence that, in 2010, when the law was passed, any member of Congress or the Administration believed federal subsidies would be unavailable on federal exchanges.  If anyone can demonstrate otherwise, then we can have the argument. So far, no one has come close. 

If the Supreme Court rules for the plaintiffs in this case, it is likely that over 8,000,000 people will lose their health insurance, that markets in those states could crumble, and serious physical and economic harm to people will result. The Court should not take such a drastic step on the basis of the self-fulfilling prophecies of two men who have relentlessly tried to kill the ACA. If you don’t believe me about their passion, just look at Cannon’s own Twitter handle:The Man Who Could Bring Down ObamaCare…Obamacare's Single Most Relentless Antagonist… Anti-Universal Coverage Club founder.”

The lack of evidence to support the plaintiffs' theory (and its utter inconsistency with the entire concept of the three-legged stool) does not mean that the government must win. It just means that for the plaintiffs to prevail they must do so on the basis of the four corners of the statute. If law matters, they will lose there too but that is a topic for another day.


Unknown said...

I have to disagree with You. While I am a big Fan of the ACA, I remember holding the same view of the contingency as the Challengers and thinking, "Wow, any state not setting up an exchange is going to have a hard time explaining why the Citizens can't get subsidies."

Second, You conflate states receiving subsidies with People receiving subsidies. While the difference may not seem significant, I think it helps to keep in Mind the correct description.

Third, I think the debate over intent is academic due to the fact the text of the statute cannot be clearer: it says "an Exchange established under [section] 1311." Federal exchanges are established under section 1321 and no provision I can find makes section 1321 exchanges equivalent to section 1311 exchanges for subsidy purposes. The plain text being unambiguous, I doubt the Supreme Court will consider the intent of the Congress much, if at all.

Eric Segall said...

To Unknown: question is why you held that view. If it was before Adler publicized it, you'd be about the only one. Also, 1321 Exchanges are 1311 Exchanges for most purposes including subsidies. "Such" in 1321 means what came before, i.e., 1311 exchanges.

The fact that people receive subsidies not states is irrelevant to the threat (actually lack of threat) scenario.

Joe said...

Unknown might think it's obvious but a lot of verbiage in the last few years have been provided (including by some against the law) that provide a different view.

The government application here, and this is all that is necessary, is at minimum reasonable. This test isn't violated because some people disagree with them.

pvine said...

No one disputes that the plain text of section 36B actually limits subsidies to persons who purchase their insurance through a state-established exchange.

So, the question is how many Justices are willing to deviate from that plain text in deciding whether subsidies are available to persons who purchase insurance on

How likely is it that the four Justices in NFIB who emphatically believed that the ACA was unconstitutional are willing to look beyond the plain text of section 36B? Isn't it more likely that they will pick and choose among the discretionary canons of statutory construction to reach a result that comports with their previously expressed belief that the ACA is unconstitutional?

And, if that is the case, that leaves Chief Justice Roberts. If you read his dissent in City of Arlington, it is very unlikely that he will afford Chevron deference to the IRS's interpretation of section 36B. He is much more likely to hold that Congress did not expressly and clearly delegate to the IRS the power to decide the precise question before the Court: Are subsidies available to persons who purchase their insurance on

Rejection of Chevron deference by the CJ would require him to engage in statutory interpretation of section 36B. In light of the harsh criticism that he faced (from conservatives, including the four NFIB dissenters) for purportedly rewritting the ACA in NFIB, I doubt it that he is going to go out of his way to hold that section 36B means anything other than what it says: Subsidies are only available to persons who purchase their insurance on state-established exchanges, such as in California.

The only way I see the CJ or any of the four NFIB dissenters deviating from the plain text of section 36B is if they are convinced that it would be patently absurd to interpret that section according to its plain text.

But if the challegers can convince these Justices that any inconsistency (between reading that section according to its plain text and the rest of the ACA) does not rise to the level of "absurdity," but is simply inconsistency in statutory drafting, I believe that those five Justices will hold that section 36B means what it (plainly) states.

I don't believe the fact (if it is a fact) that Adler and Cannon were the first (and arguably only) persons to come to the conclusion that section 36B limits subsidies to persons purchasing it on a state-established exchange will be dispositive (or even influential) in the minds of the five NFIB dissenters and the CJ.

Eric Segall said...

"No one disputes that the plain text of section 36B actually limits subsidies to persons who purchase their insurance through a state-established exchange." Anyone and everyone who reads Section 1321 disputes that.

pvine said...

@ Eric

One man's plain text is another man's ambiguity. But at this point the only interpretation that matters is that of six men and three women -- with four of those men having previously concluded that the entire statute (clear or unclear) is unconstitutional. And one man having a deep aversion to the executive branch running roughshod over the other co-equal branches.

5-4 opinion in favor of the petitioners is my bet.

P.S. A few weeks ago on the VC I picked the Seahawks to win the Super Bowel by 7. That result may be an indicator of how accurate my prediction will be in the subsidy case.

Eric Segall said...

Pvine, I agree with your prediction which, if true, and sadly, will once again show the Supreme Court is not a real court. Legacy, politics, hatred of Obamacare and/or the President, values writ large, may all be at play, but if gov't loses, not good faith application of prior law.

Joe said...

The Supreme Court like "real courts" elsewhere is influenced by a range of things, including personal biases.

Unless "real" here is some sort of ideal Plato-ian form "ideal" court. Reality is mixture and "good faith application of prior law" is only part of it here. And, "good faith" itself includes self-deluding biases interfering.

As to what 'matters,' the justices are influenced in varying degrees by others who they use to help decide. Opposing the whole thing won't necessary decide it either. Justices repeatedly, including these four, decide lesser things in a way that supports the other side even when they oppose the big thing.

Scalia and Thomas too. As to Roberts, what "roughshoding" is going on here? The executive is carrying out the Congress' intent here. There has been lots of verbiage that shows the statute "says" this too. You are stacking the deck. You say it "plainly says" something.

Lots of coverage that shows quite differently. Of course, the five can reject normal statutory interpretation here, helped by bias and other factors. Judges have went beyond law ever since judges existed.

Except in the 'real courts' of the clouds.

pvine said...

@ Eric

There is more than sufficient legal precedent -- including various canons of statutory interpretation -- upon which (five) Justices in King can base an opinion striking down the availability of subsidies for insurance purchased through

The Justices have a constitutional obligation to determine which one of those established legal principles govern the resolution of the case.

To the extent that they rely upon legal principles that cause a result that does not comport with your opinion of the "right" result, does not mean that they are simply political hacks with a hidden agenda of reaching a particular result, and using particular precedent to get there.

If that is how the Supreme Court functions, the Rule of Law is meaningless and we are all in big trouble.

Perhaps I am naive, but I still hold the Court in high regard, even when they issue opinions that don't support my policy preference.

Procopius said...

@pvine - You write, "If that is how the Supreme Court functions, the Rule of Law is meaningless and we are all in big trouble."

Yes, we are.

Joseph said...

"There is not a single word in the entire law telling the states that, if they decide not to open their own exchange, they will lose federal subsidies."

Of course, that's not actually relevant to the argument. It would be if the law provided subsidies to any Exchange (which can't be simply assumed) and Adler et al were arguing that some subset should be excluded. The IRS is tasked with enforcing US Code § 36B. That Section provides the means of calculating a subsidy. That Section defines relevant plans as those "enrolled in through an Exchange established by the State under 1311." Obviously any competent IRS regulator looks at 1311. That Section outlines the establishment of state-run exchanges. There is no interpretive difficulty at that point. It doesn't mean we must or should stop there.

Out of an abundance of diligence and to clarify or correct an understanding about what the law was supposed to do, we look at 1321 regarding federal exchanges. Unhelpfully due to its readily conceded ambiguous phrase "such Exchange," we naturally ask in what ways is a federal Exchange the same as or different from a state Exchange. This is where the argument really happens. You argue that all evidence indicates the federal Exchange was supposed to be exactly like a state Exchange (presumably at least as far as practicable). I suppose it is on the basis of this mere assertion that you suggest the law must specifically disclaim the applicability of other provisions.

A normal reading, so as to resolve ambiguity is to simply read other relevant provisions of the law to see whether or not they do differentiate state and federal exchanges. Rather than assuming them away or divining congressional intent, we let the text do the work! And the text is rather unambiguous, as it specifies that relevant plans are only a 1311 Exchange, specifically an Exchange established by the State.

It is at this point we either accept that "such Exchange" is differentiated from a state exchange by the unambiguous language found in 36B, or we go back to making claims about what Congress really truly meant. There certainly is evidence of a contrary understanding (eg Gruber).

This is all a rehash, of course, of arguments that have thoroughly addressed the points you make.

There are political motivations on both side of this debate, though I think you lean too heavily on disparaging academics on the other side. The ambiguity found in 1321 is doing a lot of work, requiring us to read other provisions contrary to their plain language. It is a backward way of reading the law, more concerned with divining congressional intent that a straightforward application of 36B by the IRS.

Joe said...
This comment has been removed by the author.
Joe said...

"e.g. Gruber"

At some point. If we take what he says (he's self-interested; I assume this is fair to say given the OP's views on how the Supreme Court itself doesn't really operate as a court in part out of bias) at face value.

There being "evidence" out there to be clear isn't really the test. It has to be clearly unreasonable for the Administration to apply it the way they are doing so.

There has been a lot of verbiage spelling in detail why this is not so. Furthermore, various states (including Mississippi, North Dakota and North Carolina) have argued that there is another reason for not interpreting it the way the challengers are. It would have 10A problems comparable to the coercion argument raised in the last big PPACA case.

[Virginia raised this argument below as well.]

The OP is likely upset some of his fellow legal academics (particularly Prof. Adler) is buying into something that to him is a bad legal argument & probably because it results in bad results for many people too.

Mark Regan said...

Joseph Simmons:

"A normal reading, so as to resolve ambiguity is to simply read other relevant provisions of the law to see whether or not they do differentiate state and federal exchanges."

Among the other provisions of the law that do not differentiate between state and federal exchanges are sections 1411-1414, under which "Exchanges" are to tell people that premium tax credits are available, accept applications from people trying to get premium tax credits, send the information people supply out for verification, ask people questions about that information, relay to applicants decisions made on the basis of the verified information, and tell applicants about their opportunity to appeal.

As the Government puts it at pages 24-25 of its King brief,

"An Exchange without credits would be a rump Exchange bearing little resemblance to its state-run counterpart—if it could operate at all. See pp. 27-29, 36-38, 44, infra.

Indeed, the terms of Section 18031 and other related provisions of the Act prescribe a central role for Exchanges in making credits available."

Joseph said...

Mark Regan,

Your points are valid. The rebuttal would be that it was expected that states would set up Exchanges (and indeed, the push for states to do so was so aggressive and preparations for federal exchanges so weak it seemed that was the overwhelming expectation). One would have to wonder why states would choose to expend so much time and capital when they retain very little discretion and according to your reading of the law no additional benefit.

One can argue that federal exchanges were intended to be rump exchanges, simply a market place to offer plans under tight government regulation that at least offers a platform for further reform. That is not useless to consumers, though not so great without subsidies. ACA-supporters like Prof. Jost wrote favorably of state-only subsidies as a constitutional means of achieving the policy goal of expanding health care access. It is only now in seeing a failure of such a policy (aided in part by an IRS rule fails to account for a benefit of state exchanges) that such a policy is deemed absurd.

I hope you can at least see the argument that the provisions you cite may not prove very much. I am only hoping that people can see the reasonableness of the legal argument, even if they disagree with it. If we look at 36B, it appears to differentiate between state and federal exchanges by specifying a calculation according to a purchase "on an Exchange established by the State." Why in the world would they specify "established by the State" when they knew there were State and federal exchanges included in the law?

We can argue these points extensively; my objection is to neglecting uncomfortable facts and disparaging honest legal disagreement as simple partisanship. I don't deny there are political motivations of many in this debate, as there are on many legal topics. However, the plain reading argument is not poorly-founded.

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