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DEBATING HEALTH CARE LAW
photo: John Quinn
Jonathan H. Adler/ Joseph White
A key architect of the U.S. Supreme Court challenge that could unravel President Barack Obama's health-care law is Jonathan H. Adler, JD, Johan Verheij Memorial Professor of Law at Case Western Reserve School of Law and director of the school's Center for Business Law and Regulation. Adler and others argue that the Affordable Care Act (ACA) only allows federal subsidies to help people buy insurance in states that have set up their own insurance marketplaces, or "exchanges." Among the vocal opponents of Adler's position is Joseph White, PhD, chair of the Department of Political Science and Luxenberg Family Professor of Public Policy. We've asked them to sum up their arguments, beginning with Adler.
JA:
The question for the Supreme Court is whether the Internal Revenue Service (IRS) gets to rewrite the plain text of a federal statute just because it is not working out the way some had hoped or planned. The IRS can only issue tax credits where it is authorized to do so under federal law, and the plain text of the Affordable Care Act authorizes tax credits for insurance purchased on "an Exchange established by the State under Section 1311." Federal exchanges, authorized by Section 1321, are established by the federal government, so they don't qualify. If this is a bad idea, or has unanticipated negative effects because some three dozen states have refused to establish their own exchanges, the proper way to fix it is with legislation, not administrative fiat.
JW:
The question is whether the IRS regulation is a "permissible construction" of the statute. Extensive precedent suggests that a phrase should not be read in isolation from the entire content and context of the statute. The government argues that both other text within the legislation and the overall logic of the legislation show that the exchanges set up by the Secretary of the U.S. Department of Health and Human Services are supposed to function as surrogates for exchanges "established by the State under Section 1311." There is no "administrative fiat," just the IRS interpreting the statute the way it was meant to be read—and had, in fact, been read by everybody else until the lawsuit was brought.
JA:
Courts only defer to an agency's interpretation if they first conclude the relevant text is ambiguous, and there is no ambiguity here. No provision in the Act authorizes or requires tax credits in federal exchanges, nor did any of the bill's supporters claim the ACA would provide tax credits in federal exchanges when it was enacted. The IRS knew of this problem before it proposed the regulation in 2011, but went ahead anyway. The first suit was not filed until 2012.
JW:
Wow, that's remarkable. The bill's supporters expected all exchanges to provide tax credits. As did all observers who explained and interpreted the bill at the time, including the leading research nonprofits focused on health issues... The Kaiser Family Foundation's explanations made no distinction between availability of funds depending on whether the state or the Secretary organized the Exchange. The Commonwealth Fund's explanations made no such distinction. The Congressional Budget Office (CBO), which has to estimate costs as part of a "scoring" process, and is very careful about projecting complications during implementation, made no such distinction. Where do you think they all got that idea? And why, exactly, was the Secretary instructed to set up exchanges if not to do the job of exchanges?
JA:
The bill's supporters expected there to be tax credits in every state because they expected every state to establish its own exchange, as they said repeatedly. Similarly, the CBO scored the ACA (and other reform proposals) on the same assumption. As for the exchanges themselves, their primary purpose was to allow comparative shopping—"Expedia for health insurance"—a function they can provide with or without subsidies. In any event, other reform bills expressly provided subsidies in federal exchanges. The law Congress enacted did not.
JW:
As then-CBO Director Douglas W. Elmendorf wrote in 2012, "To the best of our recollection, the possibility that those subsidies would only be available in states that created their own exchanges did not arise during the discussions CBO staff had with a wide range of Congressional staff when the legislation was being considered." That is a reference to the law Congress enacted. And it doesn't suggest an assumption that all states would create their own exchanges.
JA:
There is no dispute that another reform bill conditioned subsidies on state cooperation, and it was scored by CBO the same way, as the same letter acknowledges. It also noted CBO never did its own legal analysis.
JW:
I and many others read the law as saying an exchange set up by the Secretary is supposed to function as an exchange established by the state. But hey—I'm not on the Court. We'll see what the justices say.
