Timothy Jost is a professor at Washington and Lee University law school.
The Supreme Court’s term ended in June with another Affordable Care Act ruling, and the ACA survived largely unscathed. Burwell v. Hobby Lobby has important ramifications for women’s health and religious freedom but does not invalidate a single section of the law.
However, a number of ACA lawsuits percolating up through the courts could be much more destructive. The theory of these suits seems to be that the drafters of the ACA planted a secret bomb in the heart of the statute. It was so secret that it was never mentioned in any of the voluminous debates or hearings on the act. Indeed, not even the heads of the House and Senate committees in charge of the legislation knew of it, as they have stated in briefs filed in the courts. It was, rather, hidden deep in the statute for someone some day to find and use to bring down the law and the protections it offers to uninsured Americans.
The imaginary secret bomb is this: The subsection of the ACA dealing with computing the amount of the insurance-premium tax credits, which make premiums affordable to lower- and middle-income Americans, offers those credits to individuals enrolled “through an exchange established by the state.” But two-thirds of the states have not set up their own health-insurance exchanges and are served by the federal exchange instead. The Internal Revenue Service issued a rule authorizing the federal exchange to issue tax credits, but ACA opponents argue that’s illegal.
Four cases have been filed in the federal courts pressing this argument. One will be decided shortly by a panel of the U.S. Court of Appeals for the District of Columbia Circuit. If one of these cases reaches the Supreme Court and the court rules for the plaintiffs, nearly 4.7 million Americans enrolled through the federal exchange could lose their tax credits and probably their insurance.
Additionally, because the employer mandate applies only to employers if an employee receives premium tax credits, it would not apply in federal exchange states, allowing employers in these states to drop coverage without having to pay a fee. The individual mandate would also be undermined, as it applies only to uninsured individuals who can afford health insurance; without tax credits, far fewer people would be able to afford insurance.
But insurers would still be required to cover individuals regardless of preexisting conditions. Without the tax credits and mandates, insurance premiums would go through the roof and the entire individual insurance market could collapse in many states.
Fortunately, courts do not read statutes by cherry-picking single phrases to defeat the entire purpose of laws. As Supreme Court Justice Antonin Scalia noted in an opinion issued last month, courts must bear in mind the “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.” If one views the totality of the ACA — its purpose and its other provisions — it’s clear that tax credits are available in the federal exchange.
The Affordable Care Act was meant to “provide affordable . . . coverage choices for all Americans.” A key section says, “Each state shall . . . establish an . . . Exchange,” but another section provides that if a state “elects” not to establish the “required Exchange,” the secretary of health and human services must “establish and operate such Exchange.” These sections both require states to establish exchanges and allow them not to do so.
Congress gave the IRS the responsibility to resolve such contradictions, and the IRS adopted the only reasonable approach. If a state does not create the “required Exchange,” HHS steps into its shoes and sets up “such Exchange.” The law, in other words, requires the federal government to create the “Exchange established by the state,” with the same authorities and responsibilities as state exchanges, including offering premium tax credits.
This may be a convoluted way of writing a statute, but it is the only way of reading the statute that makes sense of the entire statute and carries out its purpose. It is how the states that decided not to establish exchanges understood the law. It is how the only two federal courts to rule on this issue so far have read it. It is how Judge Harry T. Edwards of the D.C. Circuit panel read the statute when he called the plaintiff’s argument “preposterous.”
ACA opponents, however, hope that the other two judges on the D.C. Circuit panel, both Republican appointees, will share enough of their Obamacare phobia to detonate the imaginary bomb. If that happens, their success will be short-lived. The U.S. Court of Appeals for the 4th Circuit seems poised to uphold the IRS rule in an identical challenge, and the entire D.C. Circuit is likely to reverse the three-judge panel if it issues such an outlier ruling. There is no secret bomb in the ACA, as the courts have told us and will tell us, and the imaginary bomb will not destroy the law.