D.C. Circuit Court of Appeals Decides IRS Rule Permitting Subsidies for Federal Exchanges Is Not Permitted Under the ACA

[James Madison]

The decision is from the D.C. Circuit Court of Appeals and was 2-1. This decision doesn't surprise me as sometime ago over at the website, volokh conspiracy, some attorneys had the prescience to predict this outcome. Upon discovering the lawsuit, I decided to read the statute and, to my surprise, the statute does explicitly permit and authorize subsidies (tax credits) for exchanges "established by the State" but the he statute does not authorize subsidies for federal established exchanges.

Section 36B of the Internal Revenue Code, enacted as part of the Patient Protection and Affordable Care Act (ACA or the Act), makes tax credits available as a form of subsidy to individuals who purchase health insurance through marketplaces—known as “American Health Benefit Exchanges,” or “Exchanges” for short—that are “established by the State under section 1311” of the Act. 26 U.S.C. § 36B(c)(2)(A)(i). On its face, this provision authorizes tax credits for insurance purchased on an Exchange established by one of the fifty states or the District of Columbia. See 42 U.S.C. § 18024(d). But the Internal Revenue Service has interpreted section 36B broadly to authorize the subsidy also for insurance purchased on an Exchange established by the federal government under section 1321 of the Act. See 26 C.F.R. § 1.36B-2(a)(1) (hereinafter “IRS Rule”)...

After resolving several threshold issues related to its jurisdiction, the district court held that the ACA’s text, structure, purpose, and legislative history make “clear that Congress intended to make premium tax credits available on both state-run and federally-facilitated Exchanges.” Id. at *18. Furthermore, the court held that even if the ACA were ambiguous, the IRS’s regulation would represent a permissible construction entitled to deference under Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984)...

Because we conclude that the ACA unambiguously restricts the section 36B subsidy to insurance purchased on Exchanges “established by the State,” we reverse the district court and vacate the IRS’s regulation.​

http://www.cadc.uscourts.gov/internet/opinions.nsf/10125254D91F8BAC85257D1D004E6176/$file/14-5018-1503850.pdf

This could result in higher premiums since the federal government created, I believe, 36 exchanges for 36 states, since those 36 states chose not to establish its own exchange. Those individuals in these 36 states whose insurance costs were lowered, significantly for many people, because of the subsidies may see increased costs. The 3rd Circuit Court of Appeals decided this issue in favor of the IRS rule.

 

[Derec]

As to the statute, it reads "by the state", not "by the states", so it could conceivably be interpreted to any government established exchanges, be they state or federal, due to different meanings of the word  state.

As to the ruling itself, it was decided along party lines, with two Bush 41 appointees vs. one Carter appointee. Next step is the en banc hearing. Anyone know if this includes all judges or only the non-senior ones. On the DC Circuit, there is a 7-4 advantage to Democrats without the senior (semi-retired) judges, but 9-8 in favor of Republicans if senior judges are included.

 

[dismal]

As to the statute, it reads "by the state", not "by the states", so it could conceivably be interpreted to any government established exchanges, be they state or federal, due to different meanings of the word  state.

I don't believe the government was shameless enough to attempt this argument.

Their argument was more along the lines of the Federal government stepped into the state's shoes when it set up the exchange.

From the majority decision:

Although both appellants and the government argue that the ACA, read in its totality, evinces clear congressional intent, they dispute what that intent actually is. Appellants argue that if taxpayers can receive credits only for plans enrolled in “through an Exchange established by the State under section 1311 of the [ACA],” then the IRS clearly cannot give credits to taxpayers who purchased insurance on an Exchange established by the federal government. After all, the federal government is not a “State,” see 42 U.S.C. § 18024(d) (defining “State” to “mean[] each of the 50 States and the District of Columbia”), and its authority to establish Exchanges appears in section 1321 rather than section 1311, see id. § 18041(c)(1). The government counters that appellants take a blinkered view of the ACA and that sections 1311 and 1321 of the Act establish complete equivalence between state and federal Exchanges, such that when the federal government establishes an Exchange, it does so standing in the state’s shoes. Furthermore, the government argues, whereas appellants’ construction of section 36B renders other provisions of the ACA absurd, its own view brings coherence to the statute and better promotes the purpose of the Act.

We conclude that appellants have the better of the argument: a federal Exchange is not an “Exchange established by the State,” and section 36B does not authorize the IRS to provide tax credits for insurance purchased on federal Exchanges. We reach this conclusion by the following path: First, we examine section 36B in light of sections 1311 and 1321, which authorize the establishment of state and federal Exchanges, respectively, and conclude that section 36B plainly distinguishes Exchanges established by states from those established by the federal government. We then consider the government’s arguments that this construction generates absurd results but find that it does not render other provisions of the ACA unworkable, let alone so unreasonable as to justify disregarding section 36B’s plain meaning. Finally, turning to the ACA’s purpose and legislative history, we find that the government again comes up short in its efforts to overcome the statutory text. Its appeals to the ACA’s broad aims do not demonstrate that Congress 16 manifestly meant something other than what section 36B says.

 

[James Madison]

As to the statute, it reads "by the state", not "by the states", so it could conceivably be interpreted to any government established exchanges, be they state or federal, due to different meanings of the word  state.

As to the ruling itself, it was decided along party lines, with two Bush 41 appointees vs. one Carter appointee. Next step is the en banc hearing. Anyone know if this includes all judges or only the non-senior ones. On the DC Circuit, there is a 7-4 advantage to Democrats without the senior (semi-retired) judges, but 9-8 in favor of Republicans if senior judges are included.

Well, a problem with this argument is the statute uses the language of exchange established and an exchange established by the state, thereby distinguishing between the two.

 

[Jimmy Higgins]

So Congress passes a law with the clear intention of subsidies for both Federal and State exchanges (ie... that is what actually happened and was actually enacted without much fanfare)... and now the conservatives are looking at every t and i to look for crosses and dots to question and doubt what Congress's intent actually was?!

We know what Congress intended! That isn't in doubt. The question apparently is, was the legislation written perfectly enough. So now the font of the law matters more than crystal clear intention of it!

 

[dismal]

So Congress passes a law with the clear intention of subsidies for both Federal and State exchanges

Stop. What evidence do you have of this? I think the government would really like to get its hands on it.

 

[Jimmy Higgins]

So Congress passes a law with the clear intention of subsidies for both Federal and State exchanges

Stop. What evidence do you have of this? I think the government would really like to get its hands on it.

You mean as in what they actually put forth after the legislation was passed? If that doesn't show intent, not too certain what else could.

 

[ksen]

Jimmy, this is just another example of Emperor Obama clearly defying the will of congress. Don't you remember all those press conferences members of congress had when subsidies were being worked out for federal exchanges saying they never meant for purchasers through the federal exchanges to get the subsidies?

Yeah, neither do I.

eta: But it's interesting that this will probably affect the red states more than the blue states.

 

[dismal]

Stop. What evidence do you have of this? I think the government would really like to get its hands on it.

You mean as in what they actually put forth after the legislation was passed? If that doesn't show intent, not too certain what else could.

It was a simple enough request. What evidence do you have that the intent was to offer the subsidy on both state and federal exchanges when the plain language of the statute restricts it to the state.

 

[dismal]

Jimmy, this is just another example of Emperor Obama clearly defying the will of congress. Don't you remember all those press conferences members of congress had when subsidies were being worked out for federal exchanges saying they never meant for purchasers through the federal exchanges to get the subsidies?

Yeah, neither do I.

eta: But it's interesting that this will probably affect the red states more than the blue states.

The burden is on the government to show that the intent is not what the plain language of the statute says.

They appear to be having a touch of trouble meeting this burden, so you and Higgins should probably help out by pointing them to all this evidence of the intent you have instead of dicking about an internet forum.

 

[Jimmy Higgins]

You mean as in what they actually put forth after the legislation was passed? If that doesn't show intent, not too certain what else could.

It was a simple enough request. What evidence do you have that the intent was to offer the subsidy on both state and federal exchanges when the plain language of the statute restricts it to the state.

The purpose of the subsidy is absolutely clear about making the health care plan affordable. There is absolutely no reason to think there was a legislative intent to restrict subsidies to those using the Federal market. Has a single person who voted for the bill questioned why subsidies were being offered for plans via the Federal Market? Seriously you that hyper partisan that the must obvious of stuff is allowed to be ignored because of t's and i's without cross and dots?

Jimmy, this is just another example of Emperor Obama clearly defying the will of congress. Don't you remember all those press conferences members of congress had when subsidies were being worked out for federal exchanges saying they never meant for purchasers through the federal exchanges to get the subsidies?

Yeah, neither do I.

eta: But it's interesting that this will probably affect the red states more than the blue states.

The burden is on the government to show that the intent is not what the plain language of the statute says.

Didn't the Government explain its case in front of the court?! The conservatives decided to ignore it.

 

[ksen]

I am shocked that the two judges appointed by Bush I and Bush II ruled in favor of getting rid of the subsidies from the federal exchanges while the Carter appointed judge did not.

 

[maxparrish]

Jimmy, this is just another example of Emperor Obama clearly defying the will of congress. Don't you remember all those press conferences members of congress had when subsidies were being worked out for federal exchanges saying they never meant for purchasers through the federal exchanges to get the subsidies?

Yeah, neither do I.

However I am sure you recall former house and majority leader Pelosi explaining to the hoi polloi that they had to pass the law in order to discover what was in it.

 

[Nice Squirrel]

Funny, how the words, "well regulated militia" are meaningless, but the word "state" is predefined and trumps everything else.

And yet nobody notices the phrase, "Congress shall make no law" enshrined in our Constitution.

 

[James Madison]

So Congress passes a law with the clear intention of subsidies for both Federal and State exchanges (ie... that is what actually happened and was actually enacted without much fanfare)... and now the conservatives are looking at every t and i to look for crosses and dots to question and doubt what Congress's intent actually was?!

We know what Congress intended! That isn't in doubt. The question apparently is, was the legislation written perfectly enough. So now the font of the law matters more than crystal clear intention of it!

clear intention

Clear intent? Really? Clear intent? I am most interested in discovering this "clear intent" from among 535 legislators in the U.S. Congress. Good luck. You are referencing and invoking a non-existent entity.

However, assuming, arguendo, one can ever find and identify "clear intent", this is ultimately irrelevant here because the plain text of the law is unequivocal and unambiguous as to what the law says on this precise issue. Furthermore, "clear intent" isn't the law but the text of the statute is the law. What some number of legislators "intended" or "desired," but was ever clearly expressed or stated in the statute, isn't the law. What constitutes as the law is the written text of the law itself, the written statute, and not some intent of a legislator which never made it into the written text of the law.

We know what Congress intended!

Who is "We"? How do you know what Congress intended?

The question apparently is, was the legislation written perfectly enough. So now the font of the law matters more than crystal clear intention of it

This isn't a question of perfectly written law or laws. We can and should expect imperfectly written laws. However imperfect the law was written, whether this imperfection is more apparent than real, isn't the issue. In the U.S. legal system, the law is what is written in the statute, regulation, etcetera, along with any reasonable meaning/interpretation of the plain text. Under these facts, the plain text of the statute is unequivocal and unambiguous as to what the law says on this precise issue. The unambiguous and unequivocal and plain text language of the statute authorizes subsidies for exchanges established by the States but no language exists authorizing subsidies for exchanges established by the federal government.

If this is an imperfection in the law, assuming it is, then it is for the legislature to remedy, not the courts to fix through creative methods of ignoring the plain text and what the plain text unambiguously says to achieve a meaning and reading inconsistent with the plain text of the law itself.

 

[dismal]

It was a simple enough request. What evidence do you have that the intent was to offer the subsidy on both state and federal exchanges when the plain language of the statute restricts it to the state.

The purpose of the subsidy is absolutely clear about making the health care plan affordable. There is absolutely no reason to think there was a legislative intent to restrict subsidies to those using the Federal market. Has a single person who voted for the bill questioned why subsidies were being offered for plans via the Federal Market? Seriously you that hyper partisan that the must obvious of stuff is allowed to be ignored because of t's and i's without cross and dots?

Jimmy, this is just another example of Emperor Obama clearly defying the will of congress. Don't you remember all those press conferences members of congress had when subsidies were being worked out for federal exchanges saying they never meant for purchasers through the federal exchanges to get the subsidies?

Yeah, neither do I.

eta: But it's interesting that this will probably affect the red states more than the blue states.

The burden is on the government to show that the intent is not what the plain language of the statute says.

Didn't the Government explain its case in front of the court?! The conservatives decided to ignore it.

They intended that states would set up exchanges. If they read the bill at all. This is all fall out from the fact this thing was passed through a giant clusterfuck in which much horsetrading was done and no fixes were allowed.

 

[Nice Squirrel]

Has anybody noticed that another court ruled on the same question today and ruled the opposite way?

 

[dismal]

I am shocked that the two judges appointed by Bush I and Bush II ruled in favor of getting rid of the subsidies from the federal exchanges while the Carter appointed judge did not.

You should be shocked at how easily some judges are willing to dispense with the plain language of a statute and centuries of precedent in how to determine these sorts of issues.

But, rah team!

 

[Trausti]

The opinion seems clear cut and correct. I haven't sifted through the ACA, but unless Congress defined "States" in the statute to mean something other the 50 States and D.C., then there really is no ambiguity here. You can say it was poorly drafted legislation; which it probably was. But it's not the responsibility of the Courts (nor do they the constitutional authority) to re-write shoddy legislation.

 

[James Madison]

Jimmy, this is just another example of Emperor Obama clearly defying the will of congress. Don't you remember all those press conferences members of congress had when subsidies were being worked out for federal exchanges saying they never meant for purchasers through the federal exchanges to get the subsidies?

Yeah, neither do I.

eta: But it's interesting that this will probably affect the red states more than the blue states.

So, on this basis when and where the plain text unambiguously and unequivocally says something, this plain text of the statute is to be ignored and a contrary reading of the statute, which by the way isn't in the statute at all, is to be imposed? All of this on the basis of some legislators say so? So much for the written law being law, and this nation being a nation of laws.

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The opinion seems clear cut and correct. I haven't sifted through the ACA, but unless Congress defined "States" in the statute to mean something other the 50 States and D.C., then there really is no ambiguity here. You can say it was poorly drafted legislation; which it probably was. But it's not the responsibility of the Courts (nor do they the constitutional authority) to re-write shoddy legislation.

Indeed. However, it is more convenient to impose what was "intended" onto the statute, and thereby rewrite the very language of the statute, then actually rely upon the lawmakers, Congress, to fix the statutory language.

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I am shocked that the two judges appointed by Bush I and Bush II ruled in favor of getting rid of the subsidies from the federal exchanges while the Carter appointed judge did not.

Which really doesn't tell us anything about the veracity of the opinion.