In its recent controversial decision in Halbig v. Burwell, the US Court of appeals for the DC Circuit ruled that people purchasing health insurance under the Affordable Care Act are only eligible for federal tax credits if they do so through an exchange established by a state. Although the plain text of the ACA indicates that tax credits are only available to those who purchase insurance in an “[e]xchange established by the State,” many critics claim that the court should have refused to enforce this language because it creates an “absurd” result because it undermines the ACA’s goal of expanding access to health insurance.
There is indeed Supreme Court precedent stating that courts can sometimes refuse to enforce the plain meaning of a statute where doing so creates an absurd result. But, as Judge Griffith’s D.C. Circuit opinion emphasizes (quoting an earlier DC Circuit ruling), it is limited to cases where enforcement of the text would “render[ the] statute nonsensical or superfluous or . . . create an outcome so contrary to perceived social values that Congress could not have intended it.” In this case, however, the result is far from nonsensical. Indeed, the DC Circuit’s interpretation of the ACA reflects the sort of “cooperative federalism” approach that left of center academics and policy experts often praise in other contexts.
Under the DC Circuit ruling, a state’s residents can only get ACA tax credits for purchasing health insurance if their state decides to establish and operate an insurance exchange. This creates a strong incentive for state governments to create such exchanges, thereby participating in the administration of Obamacare. If they do as the federal government wants, their residents get millions of dollars in tax credits, and their insurance companies and health care providers get lots of new business. By contrast, states would have far less incentive to create their own exchanges if they can rely on the federal government to do all the administrative heavy lifting without imperiling their residents’ eligibility for federal tax credits.
Such “cooperative federalism” arrangements under which the federal government gives states incentives to administer or enforce federal programs are very common, including in the field of health care. Many conservatives and libertarians (myself included) view them with suspicion. By contrast, left of center federalism experts often praise them on a variety of grounds: they enable the federal government to make use of state officials’ local knowledge; they provide incentives for states to promote important national policy objectives; they avoid unnecessary duplication of federal and state bureaucracies; and they enable greater sensitivity to local diversity (particularly important in the health care field, where there are many complicated variations in local conditions and relevant state regulations). State-led implementation of federal programs might also enable them to operate with greater sensitivity to the needs of politically influential local constituencies, thereby building a broader base of political support for the program. Considerations like these led Peter Harkness of Governing magazine to to suggest, back in 2012, that the ACA’s reliance on state-based exchanges could make the law a cooperative federalism “model for healthy state-federal relations.”
It is not clear whether members of Congress specifically intended that exclusive reliance on state-run exchanges would promote cooperative federalism. But in order for the text of a statute to avoid absurdity, the non-absurd rationale for it doesn’t necessarily have to be found in the legislative history. And, certainly, promotion of federal-state cooperation on health care was often cited as a virtue of the Act by supporters.
Today, few liberals would say that any of the supposed benefits of federal-state cooperation are worth the potential cost of having many states where Obamacare tax credits are unavailable. But back in 2010, most ACA supporters expected that the law would be much more popular and more effective than has actually turned out to be the case. They thus expected that most states would set up their own exchanges. States that initially refused would eventually fall into line, as the ACA became even more popular and their citizens, insurers, and health care providers all suffered financial losses due to the states’ recalcitrance.
Such expectations were far from completely unreasonable. But, so far at least, things have not gone the way ACA supporters hoped. Only 14 states have fully established exchanges. Due to the law’s numerous flaws and continuing unpopularity, the ACA’s scheme of cooperative federalism has turned into a prime example of what Jessica Bulman-Pozen and Heather Gerken call “uncooperative federalism”: when state governments are given a major role in a federal program they oppose, they can sometimes undermine it by refusing to play ball.
This state of affairs is not what ACA supporters wanted. But that doesn’t change the reality that the cooperative federalism approach reflected in the text of the statute and the DC Circuit opinion is neither nonsensical nor absurd. Indeed, if things had gone according to plan, many of those who today decry Halbig would be hailing the ACA’s reliance on state-run exchanges as a shining example of cooperative federalism in action.
I recognize, of course, that the “absurdity” issue is not the only legal argument against the result in Halbig. But the absurdity claim is often put forward by critics of the decision, and has become an important part of the debate over the ruling.
UPDATE: Josh Blackman has a good post on claims that the Halbig case is based on “frivolous” arguments here.
UPDATE #2: Abbe Gluck responds to this post here. She argues that this part of the ACA cannot be a cooperative federalism scheme of the sort I describe because “[u]nlike the ACA’s Medicaid provisions, the exchange provisions have a federal fallback: Medicaid is use it or lose it; the exchanges are do it, or the feds step in and do it for you.” Even if this is true, it is in no way inconsistent with my point. The fact that the feds will “step in and do it for you” if the states refuse to act does not mean that the statute can’t also include powerful incentives for states to do it for themselves. If they force the federal government to do the exchanges for them, they pay a price in the form of lost tax credits. Abbe also emphasizes the lack of an explicit statement in the statute indicating that residents of the state will lose subsidies if it fails to set up an exchange. But such an explicit statement is only required by the courts in cases where there is a conditional spending program that gives money to the states themselves. In this case, the funds are channeled to private parties.
Abbe notes that “no one thought the states wouldn’t want to run the exchanges themselves.” This point, too, does not undermine my argument even if it is true. A statute can protect against an unlikely eventuality (or, in this case, one believed to be so). Moreover, whether or not the text of a statute qualifies as “absurd” depends on whether there is a non-absurd justification for it, not on whether members of Congress happened to think of that rationale in advance. Finally, if it is indeed the case that no one thought that states would refuse to set up exchanges themselves, that’s an additional reason why limiting tax credits to exchanges set up by states is not absurd. It simply reflects ACA supporters’ unduly optimistic expectations about how states would react to the law. A law based on plausible but mistaken expectations may well be flawed. But it is not absurd.
UPDATE #3: As co-blogger Jonathan Adler reminds me, there are many cooperative federalism statutes that combine a federal fallback with penalties for states that fail to act on their own. The Clean Air Act, which Abbe suggests the ACA is analogous to, is one of them. Under it, the federal government will indeed step in if states fail to act. But those who do so lose much of their federal highway funding.