Interpreting Obamacare

The broad constitutionality of Obamacare was settled some time ago, but a narrower lawsuit is making waves this week -- a decision from the D.C. Circuit could happen as early as today, and the case could eventually land before the Supreme Court. Advanced most prominently by law professor Jonathan Adler and the Cato Institute's Michael Cannon, the suit claims that exchanges set up by the federal government (as opposed to the states) are not authorized to hand out premium subsidies. Considering that a majority of states have decided not to set up their own exchanges -- and that subsidies are a key aspect of the law -- this is a very big deal.

The argument features two major contentions: One, the plain text of the law restricts the subsidies to state-run exchanges; two, lawmakers did this intentionally rather than by mistake.

In section 1401, the act gives the formula for calculating how much premium assistance each enrollee receives. These subsidy amounts depend on the premiums charged in plans offered through "an Exchange established by the State under 1311 of the Patient Protection and Affordable Care Act."*

"Established by the State" seems clear enough. And the invocation of section 1311 makes the case even stronger, because 1311 deals with states that set up their own exchanges. It's not until section 1321 that we arrive at this text:

[In the event that a state does not establish an exchange that meets the law's requirements,] the Secretary shall (directly or through agreement with a not-for-profit entity) establish and operate such Exchange within the State and the Secretary shall take such actions as are necessary to implement such other requirements.

For those attracted to the idea of interpreting laws according to their "plain meaning" as a typical person would understand it, this more or less settles the question. To avoid this conclusion without going into legislative history, you have to make some pretty elaborate arguments about how the law seems designed to work; claim that the federal exchanges are made on behalf of the states and therefore can be treated as exchanges "established by the State"; point to other provisions that seem to assume federal exchanges will give out subsidies; etc.

But a literal reading doesn't always win the day -- under an important precedent, courts can be heavily deferential to bureaucracies' interpretations of the law when the "intent of Congress" is insufficiently clear. And that's where Cannon and Adler's second contention comes in. They say that Congress did this on purpose as an incentive for states to set up their own exchanges. In this view the law's supporters changed their tune when things didn't go as they expected and many states declined (or tried and failed) to set up exchanges. The incentive didn't work, and now it's threatening the success of the law.

You can see their full argument starting on page 10 here, but the gist is that if you go through the legislative history, you can find various proposals and comments that are consistent with this interpretation. For example, in a white paper, Sen. Max Baucus suggested a small-business tax credit modeled "on a bipartisan bill that had been referred to the Finance Committee in 2008, which conditioned credits on states establishing Exchanges and enacting other health insurance laws." And law professor Timothy Jost, who was heavily involved in the debate that occurred during the drafting process, noted the problem with the federal government trying to force states to set up exchanges and suggested Congress "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..." Some members of Congress from Texas even worried that their constituents would be "no better off" if their state didn't create an exchange.

So, this notion existed during the drafting process. But did the drafters have it in mind with the final text, or did they just mess up? There's no smoking gun, and many key figures say the subsidies were supposed to be universal. For example, Jonathan Cohn of The New Republic recently wrote (follow the links for many, many more details):

Not once in the 16 months I reported on the formal congressional debate did any of the law's architects suggest they were thinking along these lines. It wouldn't make sense in the context of the law, which depends upon those subsidies to accomplish its primary goal. It's why assessments of Obamacare's impact, including those from the Congressional Budget Office, assumed that residents of all states would have access to the tax credits.

That's not just my opinion. It’s the opinion of experts like Nicholas Bagley, Samuel Bagenstos, and Timothy Jost. It’s also the opinion of former Capitol Hill staffers like Liz Fowler, who was the chief health care staffer on the Senate Finance Committee and knows as much about congressional intent as anybody. "Of course Congress did not intend to deny anyone in any state access to tax credits to which they are entitled," Fowler told me in December, 2012, when I first wrote about these lawsuits. "That is not how the law is drafted and that is not how it was scored by the CBO."

It's a tricky case, at least once you look beyond a literal interpretation of the law, and it will take some time to play out. There's one thing both sides can agree on, though: "The ACA is not a model of clear drafting."

Robert VerBruggen is editor of RealClearPolicy. Twitter: @RAVerBruggen

* Here's the full text:

‘(2) PREMIUM ASSISTANCE AMOUNT- The premium assistance amount determined under this subsection with respect to any coverage month is the amount equal to the lesser of--

‘(A) 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, the taxpayer's spouse, or any dependent (as defined in section 152) of the taxpayer and which were enrolled in through an Exchange established by the State under 1311 of the Patient Protection and Affordable Care Act, or

‘(B) the excess (if any) of--

‘(i) the adjusted monthly premium for such month for the applicable second lowest cost silver plan with respect to the taxpayer, over

‘(ii) an amount equal to 1/12 of the product of the applicable percentage and the taxpayer's household income for the taxable year.

Shortly after this, the law explicitly clarifies that the "applicable second lowest cost silver plan" referred to in option (B) is "offered through the same Exchange through which the qualified health plans taken into account" in option (A) were.