Much hangs in the balance in the four cases brought by opponents of the Affordable Care Act (ACA). In each, the plaintiffs have challenged the power of the IRS to issue a rule that extends premium tax subsidies to all who are eligible, regardless of where they live.* As noted in my earlier blog post, in January 2014, federal courts in Washington, D.C., and Virginia upheld the legality of this rule, which draws no distinction between people who receive assistance through state-established exchanges, or marketplaces, and those who rely on the federally facilitated exchange, at the election of their state. Not surprisingly, the plaintiffs in these cases appealed, and two different Appeals Courts weighed in last week. (No rulings have been issued as yet in the other two cases.)
The stakes are huge. A decision allowing subsidies in all states means that the law’s personal and employer shared responsibility provisions are enforceable, a positive outcome for supporters but a blow for opponents. Individuals who can afford coverage (as defined under the law) will be subject to penalties if they do not buy it. Meanwhile, large employers will be subject to penalties if they fail to offer minimum essential coverage to their full-time employees and one or more of them buy subsidized coverage in the marketplace as a result.
Millions who have been helped by the ACA, on the other hand, risk becoming uninsured if subsidies are not permitted in states with federally run marketplaces. Government statistics indicate that, as of July 2014, nearly 5 million people have received financial help through the federally facilitated marketplace—more than 80 percent of all those who have purchased coverage there. The implications of a loss are also significant for anyone who is now or might be covered through an individual market plan purchased outside of the exchange. Without subsidies, premiums for such plans would become unaffordable for millions. And without affordable premiums, only the sickest people would seek coverage, premiums would skyrocket, and the individual insurance market would most likely collapse if the reform requiring guaranteed coverage is retained.
On July 22, judicial panels on two of the highest courts in the land—the D.C. Circuit Court of Appeals and the Court of Appeals for the Fourth Circuit (which covers Maryland, North and South Carolina, Virginia, and West Virginia)—issued diametrically opposed decisions. In Halbig v Burwell, a three-judge panel on the D.C. Circuit held for the plaintiffs, finding that the IRS rule directly contravened the plain terms of the ACA and that the agency therefore had abused its authority to act. In King v Burwell, a three-judge panel on the Fourth Circuit concluded first, that the terms of the ACA, as well as its history, were sufficiently ambiguous to point in no clear direction about the meaning of the law; and second, that in such a situation, the appropriate judicial response was to defer to the authoritative interpretation of the federal agency in charge, in this case the IRS.
In any legal dispute, winning means having a winning strategy and then successfully executing it. For the plaintiffs, that strategy (referred to by lawyers as “the theory of the case”) lies squarely in convincing the courts that a handful of words in the tax-code provisions of a 900-page law (in this case “Exchange established by the State under §1311”) means exactly that. If a state does not establish an exchange, there can be no subsidies.
The defendants, by contrast, have the advantage of a twofold strategy (both were on display in the Fourth Circuit, in fact). The first is to convince the courts that the same handful of words means all exchanges established under §1311 (the exchange statute), regardless of whether a state establishes them or the federal government does so in cases where states choose not to—in effect standing in for the state. The second strategy is more nuanced. Under this strategy, the government needs to convince the court that the ACA's wording is so ambiguous that, in accordance with a seminal Supreme Court decision, Chevron U.S.A. Inc. v. Natural Resources Defense Council, 467 U.S. 837 (1984), the proper role for the courts in cases such as this is to defer to the interpretation given by the authoritative federal agency, which in this case is the IRS.
In Halbig, the plaintiffs did what they had to do, convincing the majority of the correctness of their interpretation of the statute. A two-judge majority, over a strong dissent, ruled that the words at issue were so clearly in accord with the plaintiffs’ interpretation that no further consideration was needed, and there was no reason to defer to the agency on its interpretation. Unless an exchange is “established by” a state, no subsidies can flow. The court concluded that the power of the Secretary of the Department of Health and Human Services to step into the shoes of a state was operational only and did not give her authority to stand in for the state. Nor did the Halbig majority believe that it mattered that the federal marketplace, like state marketplaces, must report subsidy information to the IRS. According to this decision, Congress knows how to write laws that equate various actors with states, and Congress did not do so here. Had the premium subsidy language simply said “established under §1311,” that would have been the end of it, but Congress modified the phrase to include “by a state.” No matter how many inconsistencies and anomalies might flow from such an interpretation (shown at length in the government’s briefs)—and no matter the price paid by millions, a point acknowledged by the Halbig majority—Congress chose the words and health reform must live with them.
But the government’s strategy carried the day in the Fourth Circuit. The unanimous majority opinion effectively turned the plaintiffs’ arguments about the words and history of the subsidy provision into evidence of ambiguity, thereby triggering the Chevron rule, which calls for courts to defer to the authoritative agency in cases such as this. Interestingly, the government also won on its first strategy: Judge Davis, in his concurrence, argued strongly that the language of the statute on its face clearly meant what the IRS said it meant, namely, that a state can elect to have the federal government stand in its shoes and operate a state’s exchange.
What happens next? Nothing, at least not right away. The government is expected to appeal the D.C. Circuit panel decision to the full Court of Appeals; indeed, recognizing the government’s next move, the panel properly stayed its own decision in order to give the government time to appeal for en banc consideration by all of the D.C. Circuit judges acting as a group. Conceivably, the losing plaintiffs could appeal their defeat to the full Fourth Circuit and similarly ask for an en banc review. But the relatively liberal makeup of the Fourth Circuit may make this less likely than a direct appeal to the Supreme Court. Whether the Supreme Court decides to step in and claim the case for itself, or await further developments in the lower courts, is anyone’s guess.
For now, as the nation gears up for its second open enrollment period, premium subsidies remain in place for all who qualify, regardless of their state of residence. But the battle lines have been more clearly drawn in a case that undoubtedly represents the most potent challenge to the ACA since the Court’s landmark 2012 decision, in NFIB v Sebelius, upholding the constitutionality of the personal responsibility provision itself.
* The four cases are: Halbig v Burwell (No 14-5018, D.C. Circuit); King v Burwell (No. 14-1158) (Fourth Circuit); Pruitt v Sebelius (No. 6:11-cv-00030, E.D. Ok.); and State of Indiana v I.R.S. (No. 1:13-cv-1612, S.D. Ind.).