Yesterday, Michael Cannon and I had a WSJ op-ed discussing the holding and significance of the U.S. Court of Appeals for the D.C. Circuit’s decision in Halbig v. Burwell. At issue is whether the IRS has the authority to issue refundable tax credits through federal exchanges (thereby triggering tax penalties on non-compliant employers and individuals) when the text of the ACA only authorizes tax credits in exchanges “established by the State.”
Here’s a taste:
The president’s defenders often concede that he is doing the opposite of what federal law says. Yet he claims that he is merely implementing the law as Congress intended. . . .
The president’s supporters claim that Halbig is meritless because Congress clearly intended to authorize subsidies through federal exchanges. If that were Congress’s intent, certainly one should be able to find some statutory language to that effect. Or contemporaneous quotes from the law’s authors explaining that they intended the Affordable Care Act to authorize subsidies in federal exchanges. The president’s supporters have had three years to find such evidence supporting their theory of congressional intent. They have come up empty. . . .
The D.C. Circuit saw through this nonsense. One by one, it rejected the government’s many arguments. The court held the Affordable Care Act “does not authorize the IRS to provide tax credits for insurance purchased on federal Exchanges” and “the government offers no textual basis . . . for concluding that a federally-established Exchange is, in fact or legal fiction, established by a state.” The administration’s decision to issue those subsidies anyway is thus contrary to the statute and “gives the individual and employer mandates . . . broader effect than they would have” if the government followed the law.
[See also the accompanying WSJ editorial.]
University of Michigan law professor Nicholas Bagley objects to our characterization of the case. That’s no surprise, as we’ve publicly disagreed on the merits of this case for some time, and debated Halbig for a podcast when it was issued. I think Professor Bagley is among the most thoughtful commentators on legal issues arising under the PPACA, but I disagree with him here.
In a post for The Incidental Economist blog, he writes:
The not-so-implicit suggestion is that Adler and Cannon are the staunch defenders of the law, and that those who disagree with them just ignore the law when they think Congress didn’t really mean what it said. That suggestion pervades the debate over the exchange litigation: either you apply the law as written or you just don’t care about the law. . . .
Let me be blunt: the suggestion is false. Those who disagree with Adler and Cannon care every bit as much about the law as they do. They just don’t buy their artificially cramped understanding of how to figure out what the law is. . . .
if you’re trying to make sense of a statute, the question for an interpreter is what Congress meant to communicate by the words that it chose. Usually, that’s easy to figure out. Words are not infinitely malleable. They have meaning in our linguistic community. And it’s a good rule of thumb that Congress means what it says and says what it means.
But not always. Sometimes a statute uses words that don’t track what Congress meant. Sometimes that’s because Congress made a mistake. But more often, loose language fails to get corrected because, when taken in the context of the statute as a whole, the meaning of the statutory text is pretty clear.
I take his point about statutory interpretation generally. It’s not a controversial claim to say that we must interpret statutory language in context to understand meaning. But it is also non-controversial, as Professor Bagley concedes, that “words are not infinitely malleable.” Certain words only have a given range of meanings, and that is particularly true where, as here, some of those terms are defined or used in a consistent manner. For instance, the PPACA defines “States” as the 50 states and the District of Columbia.
The central question in Halbig and its companion cases is what to do with the phrase “exchange established by the State.” Contra Bagley, this was not just “shorthand for an exchange.” Throughout the PPACA Congress made reference to “exchanges” without any mention of whether the exchanges were established by states. In Section 1401, however, Congress added the “established by the State” qualifier — and it did so repeatedly.
When Congress wanted to use a shorthand for “exchange,” it did just that — and said “exchange.” The “established by the State” modifier was added at the Committee stage, and then again afterwards before final passage in the Senate. Adding it in was unnecessary unless it had some purpose — such as to distinguish exchanges “established by the State” from those “established” by HHS as required by Section 1321. Even if, as some argue, a Section 1321 federal exchange can stand in the place of a section 1311 exchange, the former is still not an exchange “established by the State,” as Judge Griffith explains in his Halbig opinion.
What Professor Bagley and others have yet to do is offer any plausible explanation for why Congress added the “established by the State” qualifier in Section 1401 if it did not have some meaning. Courts presume all language in a statute has meaning, and yet the interpretations offered by the IRS’s defenders — including Judge Edwards and those on the Fourth Circuit panel in King v. Burwell — reduce this phrase to meaningless surplusage. Indeed, when pushed, noted health law professor Tim Jost acknowledged that, in his view, the phrase “established by the State” is “essentially meaningless.” Yet Congress cannot be presumed to just insert “meaningless” phrases into statutes — and the phrase here is anything but ambiguous. This, in the end, is what led a majority of the judges in Halbig to conclude that the IRS tax credit rule is illegal. They were correct, for whatever else the PPACA does or does not do, it clearly and explicitly authorizes tax credits for insurance purchased on state-established exchanges, and nowhere else.
The Supreme Court’s recent decision in UARG v. EPA is instructive. In that case the Court noted that statutory terms have to be read in context — a point many progressive commentators have made repeatedly when discussing Halbig — but it also made clear that express statutory terms must be given meaning and cannot be discarded just because the implementing agency has better ideas about how the law should work. As Justice Scalia explained in noting that:
The power of executing the laws necessarily includes both authority and responsibility to resolve some questions left open by Congress that arise during the law’s administration. But it does not include a power to revise clear statutory terms that turn out not to work in practice.
Thus while some statutory terms are open to interpretation and construction, others — such as the numerical thresholds at issue in UARG are not. The contrary view — that express statutory terms may give way when necessary to facilitate practical implementation of a statute — was that urged by Justice Breyer in dissent.
Professor Bagley also suggests that the statute can’t be read as offering states incentives to cooperate because “for threats to work, they have to be communicated.” This argument fails on multiple grounds. First, the text of the statute is plain as day, which is why when I and others read it (long before anyone thought over 30 states would refuse to create exchanges, before the IRS proposed its rule, and when no one had even thought about litigating over this) we saw the limitation.
Conditioning favorable tax treatment on state cooperation is nothing new. Indeed, Congress has used this structure before to condition tax benefits on state cooperation and multiple draft health care reform measures included similar mechanisms. Whether or not this approach is good policy, or would have been adopted had members of Congress anticipated how states might respond, is irrelevant. The Senate bill was not passed with the intention of it becoming law. It was the negotiating draft that was to be merged with the House bill, and in all likelihood the House approach to exchanges would have prevailed. Yet after Scott Brown was elected there weren’t the votes for this, and there was never a conference report detailing the bill’s provisions. Finally, if states didn’t see the “threat” it also could be because the IRS disarmed it with the rule.
The PPACA directs that states “shall” create exchanges. Yet, as we know, the federal government may not commandeer states in this fashion. As the Supreme Court explained in New York v. United States, language commanding the states to act can be interpreted in one of two ways. First, it can be read literally as an unconstitutional command, in which case it is meaningless. Alternatively, it can be read as indicative of Congress’s preference for state action when it is combined with incentives for state action. In New York, these incentives took the form of both regulatory and fiscal measures, including differential tax treatment for private firms in cooperating states. Likewise here, the PPACA provided for multiple incentives, such as startup funding for state exchanges and differential tax treatment for those in cooperating states. Yes the PPACA incudes a federal fallback, as is common in federal environmental statutes like the Clean Air Act, but — again like the CAA — it includes other express incentives too. (Under the CAA, states can lose significant funding, including the lion’s share of federal highway funding.)
The comparison to the CAA is also instructive given how often critics of the Halbig decision claim that Congress would not have enacted a statute that gives states the ability to frustrate the law’s purpose. Set aside that the PPACA Congress enacted is not the PPACA most health care reform advocates wanted, Congress has done this very thing in statutes like the CAA. In enacting the CAA, Congress assumed that most states would cooperate, particularly given the incentives built into the act. This assumption has proven true in most cases. Yet had states resisted — had, say, three dozen states simply refused to implement the CAA and draft SIPs — the CAA’s regulatory scheme would collapse and air pollution permitting and enforcement would grind to a halt. This is because the federal EPA is not capable of implementing the CAA’s myriad requirements in more than a handful of states. This just further illustrates that what’s new with the PPACA is not what Congress did, but how states responded.
It’s certainly true that Congress failed to anticipate state intransigence — just as many in Congress apparently failed to anticipate that “if you like your plan, you can keep it” promise would not be kept. But this sort of error does not justify rewriting the statute or ignoring plain statutory text. The law is what Congress enacts, not what the executive branch would prefer.