Joey Meyer

“The potential significance of this was lost on me,” said Thomas Christina, speaking of the provisions in the Affordable Care Act allowing the federal government to establish health insurance Exchanges, “until I noticed something peculiar about the tax credit for people who fall in this 100% to 400% zone with respect to the federal poverty line.”  Christina was speaking at the conservative American Enterprise Institute’s 2010 policy forum on possible legal vulnerabilities of the ACA.  What he noticed was that one of the two formulas stipulated in the ACA for calculating the amount of tax credit to be awarded to an individual was based on what plan that individual purchased from an Exchange “established by the State.”  Christina continued:  “So the lesson here appears to be—and this could be an unintended consequence, we’re not going to really know much until at least the Spring of next year [2011] when there are proposed regs, but the lesson appears to be that there will be no tax credits for taxpayers who live in non-capitulating states, which is really quite extraordinary.”

AEI Policy Panel, 2010

Slides from the Powerpoint presentation presented by Thomas Christina.                            

Thus was conceived an attack on the ACA that’s the basis of four parallel lawsuits seeking to bring the Act down by invalidating tax credits granted to buyers of insurance in the 36 states that have failed to establish their own Exchange.  The origin of these challenges demonstrates that this has always been a case of a political attack in search of a legal theory.  The remarks of AEI scholar Michael Greve, immediately following Christina’s presentation, give a good sense of the aim of the 2010 event and the architects behind these challenges:

This bastard [the ACA] has to be killed as a matter of political hygiene.  I do not care how this is done, whether it’s dismembered, whether we drive a stake through its heart, whether we tar and feather it and drive it out of town, whether we strangle it.  I don’t care who does it, whether it’s some court some place, or the United States Congress.  Any which way, any dollar spent on that goal is worth spending, any brief filed toward that end is worth filing, any speech or panel contribution toward that end is of service to the United States.  [1:30:56 in the video]

“So, thank you for listening as I speculated about all these things,” Christina concluded.  “I hope it’s been interesting.”  One person who found Christina’s speculations interesting was Jonathan Adler, a law professor at the Case Western Reserve University in Cleveland and a vocal opponent of the ACA, who came across Christina’s work through a Google search in 2011.  He emailed the libertarian Cato Institute’s director of health policy studies, Michael Cannon, whose “jaw dropped” upon reading the message.  Grasping onto what they believed might be a serious chink in the ACA’s armor, Cannon and Adler would answer Greve’s call and become the leading proponents behind four legal challenges to the health care law’s tax credits program, the provisions that put the “Affordable” in “Affordable Care Act.”  The plaintiffs in these cases argue that the IRS exceeded its authority by promulgating a rule confirming that tax credits are made available to all financially eligible individuals, whether they bought insurance through a state-established or a federally-facilitated Exchange.

In the first two of these cases to be decided, the district courts soundly rejected the ACA opponents’ arguments.  On appeal, two Circuit Courts handed down opposite decisions on the same day last month.  In Halbig v. Burwell, the D.C. Circuit ruled 2-1 against the IRS rule, while the Fourth Circuit ruled unanimously in King v. Burwell to uphold that rule.  While the challengers have now managed to score one victory in court, the opportunistic evolution over time of the underlying legal theory heralded by Cannon and Adler betrays the real political motivation behind these challenges.  Their theory over the years has relied on different and competing narratives, which at best weaken each other when taken together, and are at worst plainly inconsistent.

Cannon and Adler’s first instinct, it seems, was to go with Christina’s impression that “this could be an unintended consequence.”  Thus, the first iteration of their theory was that the language limiting tax credits to buyers of health insurance on state Exchanges was a “glitch.”  In an op/ed for the Wall Street Journal in 2011 entitled “Another Obamacare Glitch,” Cannon and Adler characterized the statutory language as unintentional, writing that “Congress made a legal mistake while rushing through the health law.”  They also argued at this stage that congressional intent is less important than the text of the law:

What about congressional intent? Law professor Timothy Jost suggests that since ObamaCare requires all exchanges to report information about premium assistance, and it would be silly to impose that requirement on federal exchanges if their enrollees were not eligible, that shows Congress could not have intended anything but to provide assistance in federal exchanges. At least, he argues, there’s enough ambiguity here about Congress’s intent that federal courts will permit the administration to resolve it.

Not so fast. The Supreme Court has increasingly limited such deference to cases where the text of the law—rather than Congress’s intent—is ambiguous.

Cannon and Adler didn’t feel the need to respond to Jost’s specific evidence regarding congressional intent.  Instead they argued that Congress’s intent, even if ambiguous, is mostly irrelevant because the text of the law is clear.  To the extent that intent is important, their suggestion at this stage was that Democratic lawmakers were generally distracted, too rushed to thoroughly read through the legislation, and frankly didn’t much care how this particular language was written one way or the other.  In a blog post in September of 2011, Adler wrote that “any legislator who actually bothered to read the bill before voting would have seen the limitation.”  “If what they passed was an imperfect bill with no premium assistance in federal exchanges,” they wrote rather flippantly in the Wall Street Journal, “then that is what Congress intended.”

As these challenges began to move through the courts, though, it became clear that the “glitch” argument wouldn’t cut it with responsible judges in light of the well-settled principles of statutory construction established by the Supreme Court.  For example, in Davis v. Michigan Department of Treasury in 1989, the Supreme Court recognized as a “fundamental canon of statutory construction that the words of a statute must be read in their context, and with a view to their place in the overall statutory scheme.”  (Justice Scalia quoted this “fundamental canon” as recently as this year in his opinion for the unanimous Court in Utility Air Regulatory Group v. EPA.)  Similarly, in FDA v. Brown & Williamson Tobacco Corp. in 2000, the Court asserted that “a reviewing court should not confine itself to examining a particular statutory provision in isolation” because the “meaning—or ambiguity—of certain words or phrases may only become evident when placed in context.”

These bedrock principles of statutory interpretation clearly jeopardize any chance at a favorable ruling for Cannon and Adler based on their argument that the provision in question was a “glitch” that, taken alone, says one thing, albeit contrary to other sections of the statute and altogether inconsistent with the underlying purpose of the Affordable Care Act.  Cannon and Adler knew that several other sections in the Act indicate that tax credits are available to individuals buying insurance on federal as well as state Exchanges, and even they must understand that the purpose of the legislation as a whole would be critically undermined if tax credits were withheld from Americans in 36 states.  (Indeed, the prospect of undermining the President’s signature legislation is the reason for bringing these lawsuits in the first place.)  Judge Paul Friedman, the first judge to hear the Halbig case in 2013, upheld the IRS rule on the ground that, taken in context, the text of the statute unambiguously makes tax credits available on both state and federal Exchanges.  Judge Andre Davis, who concurred with the Fourth Circuit decision in King, also saw it this way.

And even when a judge is convinced that the text might reasonably be construed to limit tax credits to state Exchanges, the challengers of the ACA should still run into further trouble in securing a victory in court by pursuing the “glitch” argument.  According to the principle known as “Chevron deference,” established by the Supreme Court in Chevron v. Natural Resources Defense Council in 1984, courts must defer in the event of an ambiguous statute to the interpretation (if it is deemed “permissible”) of the government agency charged with enforcing the statute.  In this case, the IRS and HHS both determined to grant tax credits to eligible individuals buying insurance on either state or federal Exchanges.  Historically, this standard of deference has led most courts to uphold agency interpretations once the analysis reaches this second step.

Recognizing these hurdles, Cannon and Adler “then decided to do more research,” according to a report in Newsweek.  They decided to change their approach shortly after the publication of their Wall Street Journal op/ed, ditching the “glitch” and focusing instead on congressional intent, which they had just dismissed as largely irrelevant.  If they could establish that Congress clearly intended to limit tax credits only to insurance purchasers on state Exchanges, then the text of the statute could be considered clear, and there would be no need to proceed to the Chevron deference step.  Judge Harry Edwards of the D.C. Circuit recognized this tactical switch in his dissent in Halbig:

Apparently recognizing the weakness of a claim that rests solely on § 36B, divorced from the rest of the ACA, Appellants attempt to fortify their position with the extraordinary argument that Congress tied the availability of subsidies to the existence of State-established Exchanges to encourage States to establish their own Exchanges.  This claim is nonsense, made up out of whole cloth.

In a 2013 Cato report titled “50 Vetoes:  How States Can Stop the Obama Health Care Law,” Cannon wrote that “because Congress assumed states would be eager to comply, it authorized no funding for the creation of federal Exchanges.”  In 2011 Cannon and Adler claimed that Congress had assumed that all states would establish their own Exchanges, and that this explained why the bill’s authors paid so little attention to the provision that they say limits tax credits to state Exchanges.  Simply put, they argued, Congress didn’t think it was that relevant.  But under the new iteration of their legal theory, that provision became supremely relevant.  Cannon and Adler dropped their claim that Congress simply assumed states would establish Exchanges, and instead now posit that Congress explicitly chose to limit tax credits as an added incentive to encourage states to establish Exchanges.  In an article in the Health Matrix Journal of Law-Medicine in 2013, Cannon and Adler claimed that the law’s “authors preferred state-run Exchanges to federal Exchanges” and “created large financial incentives to encourage states to establish Exchanges,” including the “language in Sections 1401 and 1402 restricting credits and subsidies to state-created Exchanges.”

And that wasn’t the only thing that, all of a sudden, allegedly demonstrated Congress’s intent to limit tax credits to state Exchanges.  An alternative prong of this new narrative was that Democratic lawmakers were well aware of the language, and didn’t like it, but included it as a compromise to win the votes of moderates and ensure passage of the ACA as a whole.  Again from Cannon’s “50 Vetoes”:

Congressional Democrats had no choice but to grant states a veto over these provisions.  In order for the PPACA to pass the Senate, its authors needed to secure the votes of moderates like Ben Nelson (D-NE) and Joseph Lieberman (I-CT), who preferred state-based Exchanges to a federal Exchange.

…

To be sure, PPACA supporters do not care for this feature… Yet they adopted it because they had no choice.  The bill would not have become law without it.

So the inclusion of this language, Cannon and Adler now argued, was rooted in Congress’s intent in more ways than one:  it was both an incentive to help force states to establish Exchanges and a compromise to appease moderates.  Not only does this represent a departure from the previous iteration of their theory, which downplayed the importance of Congress’s intent and characterized the language as a “legal mistake,” but it also indicates a certain sense of desperation.  In claiming that Democratic lawmakers at once affirmatively chose to include the language in order to satisfy their strong preference that states establish their own Exchanges and grudgingly “adopted it because they had no choice,” Cannon and Adler are offering multiple, different explanations for a key aspect of their case.

Incidentally, even the two D.C. Circuit judges who ruled for the opponents of the ACA in July rejected both versions of the congressional intent theory.  In his majority opinion in Halbig, Judge Thomas Griffith noted that although Senator Nelson may have opposed a single, national Exchange, “it does not necessarily follow that he opposed making subsidies available on federal fallback Exchanges in uncooperative states.  Similarly, the fact that the ACA contained some incentives to states does not necessarily mean that section 36B is one of them.”  The Halbig ruling instead rested on the D.C. Circuit’s conclusion that the statutory language in section 36B is “clear and unambiguous”—an argument that even the architects of these challenges (according to Judge Edwards’s dissent) recognized as too weak to stand on its own.

So which one was it?  A legal mistake, a calculated incentive, or a reluctant concession?  Ultimately, to Cannon and Adler and others behind these challenges, it doesn’t matter.  This round of lawsuits challenging the ACA has always been a political attack in search of a satisfactory legal theory, so it should come as no surprise that its main proponents have thrown several theories at the wall to see what sticks.  Judge Edwards got it right when he called the Halbig case a “not-so-veiled attempt to gut [the ACA],” as did Judge Davis, when he called the theory posited in King “a tortured, nonsensical construction of a federal statute whose manifest purpose, as revealed by the wholeness and coherence of its text and structure, could not be more clear.”  The constant here is not a legal principle or even an ideological approach—it is the goal articulated by AEI’s Michael Greve at the panel that started it all:  to bring down the ACA, no matter how or at what cost.

The upshot?  If these challenges ultimately succeed, Cannon and Adler stand to gain a political victory against the health care law they detest so much.  Meanwhile, millions of Americans stand to lose a lot more than that.  Conversely, if the courts follow the law and reject this nakedly political attack, they will uphold the ACA as enforced and preserve affordable health care for millions of Americans.