How an Inaccurate Soundbite Might Take Down Obamacare

A challenge based on four words of the law amounts to little more than politics dressed up as a legal argument.

The Supreme Court is about to decide another blockbuster case arising under the Affordable Care Act (ACA). The specific issue is whether federal-tax subsidies are available to people who purchase health insurance from exchanges operated by the federal government or instead whether such subsidies are available only from exchanges established by the states. A decision in favor of the plaintiffs in King v. Burwell would most likely cripple the ACA in over thirty states and deprive millions of people of health insurance.

That the Supreme Court even agreed to hear the case is the result of an improbable conjunction of events. Two committed opponents of the ACA seized upon four words of the law out of almost 1000 pages, and through their persistent and energetic work, created a powerful soundbite that appealed to die-hard opponents of the ACA. They then took that sound bite and dressed it up in highly technical arguments about statutory interpretation that might well change how healthcare is paid for in the United States. But the soundbite is inaccurate, and the technical window dressing shouldn’t obscure the fact that the argument is based on a faulty reading of the text of the entire law as well as a misleading account of how and why the law was passed. At bottom, King v. Burwell is a political challenge to the ACA dressed up in legal garb.

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President Obama came to office in 2008 determined to enact the most comprehensive statutory overhaul of health insurance since the New Deal. The statute, modeled after a Massachusetts law, was built around three interdependent pillars. It was intended to require insurance companies to cover people with pre-existing conditions; require virtually everyone to buy health insurance; and require the government to help people afford the premiums through federal tax subsidies.

After extensive political machinations (including a few unseemly procedural moves) the bill was passed into law on March 23, 2010. The three assumptions discussed above, known as the three-legged stool of the ACA, were assumed to apply in every state and on every insurance exchange authorized by the new federal law. No member of the Obama Administration or Congress suggested otherwise. Nor did any member of Congress or any member of the Administration ever tell the states that if they didn’t establish their own exchanges, federal subsidies wouldn’t be available in their states. As Vox’s Sarah Kliff has written, the question simply didn’t come up:

The whole point of the federal exchanges, after all, was to make sure Obamacare worked in states that wouldn't or couldn't build an exchange of their own. Congress always meant for residents of all 50 states to have access to financial help. It was never a question, during the five years I've spent writing about Obamacare, whether this would be the case.

And the actual text of the ACA unambiguously supports this view. Section 1321 of the law details exactly what happens if a state chooses not to create its own exchange. Section 1321 says that, if a state does not establish its own exchange under Section 1311 of the law, the Secretary of HHS shall establish and operate “such exchange.”

There is no mention that such an “exchange” would not be a full blown, three-legged stool exchange—the only kinds of exchanges the ACA anticipates. If federal subsidies aren’t available on a federal exchange, the requirement for people in that state to buy health insurance also largely vanishes. What is left is an empty shell of an exchange that does not resemble anything dictated or even contemplated by the ACA. So, what happened? How did the argument that the states could deliver a serious blow to the ACA and change the very idea of an ACA exchange by simply not creating their own exchanges gain traction? The answer lies in the tireless work and full commitment of two men who badly want the ACA to fail.

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Michael Cannon works for the Cato Institute, a libertarian think tank. His Twitter biography describes him as the “Anti-Universal Coverage Club founder.” Jonathan Adler is a professor at Case Western Reserve Law School and a contributor to the Volokh Conspiracy, a legal blog now associated with the Washington Post. Adler spent considerable time writing op-eds supporting the first major challenge to the ACA that the Court resolved in 2012.

In late 2010 or early 2011, well after the law was passed, Adler came across an audio presentation from a meeting of ACA opponents, in which lawyer Tom Christina pointed to section 36B of the law, pertaining to how federal tax subsidies are calculated. Buried deep in this section was the statement that subsidies would be available (in the manner set forth in this complicated provision) to those consumers who purchased their insurance from “an exchange established by the state.”

Adler later told Vox he didn’t think much about the provision until he mentioned it to Cannon, who says he realized that “this allowed states to block one of the three legs of Obamacare’s three-legged stool: the subsidies.” Eventually, Cannon and Adler figured out that they could dismantle much of the ACA if judges accepted the argument that federal subsidies were not available on federal exchanges (more than 30 states refused to create their own exchanges). They wrote an op-ed in the Wall Street Journal calling the problem a “glitch” that Congress had to fix and also argued that judges must follow the plain text of federal laws even if the results are uncomfortable and  surprising. The contention that the “plain text” of the law supported their interpretation seemed designed to put the government and other supporters of the ACA on the defensive from the beginning, and it succeeded.

A bit later, Adler and Cannon concluded that the language in 36(B) which they claimed supported their case was in fact not a “glitch,” but that rather, it had been formulated by Congress in a deliberate effort to coerce the states to create their own exchanges. To this day, however, no one has produced a single contemporaneous statement by any government official in either the Obama Administration or Congress who said the law contained that threat. And there is not a single passage in the law containing this threat.

Over the next few years, Cannon and Adler used articles, briefs, and various social media outlets to repeat over and over their mantra that federal subsidies aren’t available on federal exchanges because Congress expressly limited subsidies to exchanges “established by the state,” in Section 36B. And they repeated it often enough that, over time, an argument that was initially regarded as far-fetched began to seem first familiar, and then maybe even plausible.

But, it is not. If Congress had really wanted to take away the third leg of the iconic stool if states didn’t create their own exchanges, it had a perfect place to say so in Section 1321, which deals with the consequences of states not creating their own exchanges. But Congress didn’t say that states would lose their subsidies if they didn’t establish exchanges because that would have quite obviously subverted the very purpose of the ACA, which was to provide affordable health insurance in all fifty states.

To the extent Adler and Cannon claim that, regardless of intent, the law simply and unequivocally limits subsidies to exchanges “established by the state,” and the Court is bound by that language, that claim simply is not persuasive. Section 36B does not even purport to address where subsidies are available but rather details how to compute those subsidies. And the clear text of the law in Section 1321 supports that interpretation by requiring HHS to create the very same exchange where federal subsidies are available.

Moreover, Section 36B(a), in the words of one of this country’s leading experts on statutory interpretation, “expressly provides that the premium tax credits shall be allowed to any “applicable taxpayer,” who “is defined as a taxpayer whose annual household income is between 100% and 400% of the federal poverty level.” In other words, there is simply no limitation of subsidies to state exchanges in the actual text of the ACA, despite Adler’s and Cannon’s repeated attempts to find one.

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Nine lower court judges have resolved the legal issues in this case. Three of those judges held for the plaintiffs while the other six ruled for the government. All three judges who ruled against the government were appointed by Republican presidents.* Two sat on an appeals court panel in DC but their decision was vacated by the full appellate court. The third was a trial judge in Oklahoma (in a case brought by the State of Oklahoma) who ruled for the plaintiffs in an opinion relying mostly on the DC decision and containing virtually no independent legal analysis.

One of the first lessons law students learn is not to believe something just because a judge says it. The judges in DC who ruled for the plaintiffs based their decision largely on a mistaken assumption about the ACA.

The DC panel first held that the exchanges created by the federal government under Section 1321 were the functional equivalent of exchanges “established by the state” under Section 1311 for most purposes. This is clearly correct. They also said, however, that Section 36(B) says that subsidies are only available when the state itself actually establishes the exchange. This is the sound bite Adler and Cannon shared so often, so loudly, and in so many places. But it is not true. Here is the key passage from the DC opinion:

Sections 1311 and 1321 … to be sure, establish some degree of equivalence between state and federal Exchanges—enough, indeed, that if section 36B had authorized credits for insurance purchased on an “Exchange established under section 1311,” the IRS Rule would stand. But section 36B actually authorizes credits only for coverage purchased on an ‘Exchange established by the State under section 1311,’ and the government offers no textual basis… for concluding that a federally established Exchange is, in fact or legal fiction, established by a state.

That last sentence, the one most important to the decision, is simply false. Section 36B, as mentioned earlier does not purport to define where subsidies are available just the amount of the subsidies. It also does not say that subsidies are “only” available on state exchanges or not available at all on federal exchanges. It just doesn’t say those things. Moreover, the government offered a clear “textual basis” for concluding that a Section 1321 exchange is, in fact and law, an exchange “established by the state” for purposes of offering federal subsidies. Section 1321 directs the Secretary of HHS to create a 1311 exchange if the states don’t, and even the DC judges admitted the two types of exchanges were designed to operate the same way. But, without federal subsidies, that is simply impossible.

Finally, as Nicholas Bagley has demonstrated, if the law is read as Adler and Cannon argue, federal exchanges would not be able to provide insurance to anyone because Section 1312 of the ACA says that only a person who “resides in the State that established the Exchange” may purchase insurance from the exchanges. If Congress meant to distinguish between state-established exchanges and federally established exchanges, the ACA would preclude people residing in a state with a federal exchange from purchasing insurance from that exchange. But, any reading of the law that requires HHS to create an insurance exchange that can’t sell insurance to anyone must be a flawed reading. This part of the text is just as important as Section 1311 which Adler and Cannon rely on so heavily but it provides a much better textual understanding of the ACA as a whole.

Although there were numerous other highly technical arguments raised by the DC majority and dissenting opinions, the crux of the DC panel’s rejection of the government’s argument is its statement that the law says that federal subsidies are only available if a state itself establishes an exchange. But the ACA simply does not say that.  The fact that Adler’s and Cannon’s sound bite strategy worked on three out of nine lower court judges tells us a lot about the ability of legal blogs, social media, and well-written legal briefs to convert weak legal arguments into political victories in the federal courts when the stakes are large enough and emotions run high. It tells us rather less about the merits of their argument.

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The King case is not an appeal from the DC decision (which has been vacated and thus no longer has any legal relevance) but rather from a different Court of Appeals case in which three judges unanimously agreed that the government should prevail.

The two primary rules of statutory interpretation governing the case are well-accepted and not complex. First and foremost is the rule that the law must be read as a whole and particular phrases must be interpreted in light of the entire text. Second, when a determination made by a federal agency is at issue, the Court must uphold the decision if it is reasonable unless it is inconsistent with clear statutory language. In other words, if reasonable people can disagree over the meaning of less-than-precise statutory language, the agency decision must be affirmed.

Thus, in King v. Burwell, the IRS’s decision to provide federal tax subsidies on federal health insurance exchanges must be upheld unless, looking at the entire law, the statute clearly forbids that interpretation.

Professor Adler is a statutory interpretation expert and thus quite familiar with these rules. Perhaps this is why he has stated unequivocally, from the beginning, that the plain text of the law precludes subsidies on federal exchanges. But, as the above discussion makes clear, the text not only does not prohibit such subsidies, it rather obviously  authorizes them. For the government to prevail, that interpretation does not even need to be the sole way of reading the statute. It only has to be a reasonable understanding. And there is no serious legal argument that it is not.

That’s a conclusion I reached on the merits. My  involvement with the legal issues in this case did not stem from a personal agenda. I am not a health policy expert, and I am agnostic as a matter of policy about the ACA. I first approached the case not knowing what I would find.

What I am is a long-standing critic of the Supreme Court of the United States. I am on the record many times over arguing that the Court is indifferent to legal doctrine when making decisions in hard cases. But, as The New York Times’ Linda Greenhouse has written, King is different than most cases the Court hears. The legal issues so strongly favor the government that a decision for the plaintiffs would be seen by many as naked and partisan politics.  Greenhouse even suggested that the very legitimacy of the Court is at stake. Jeffrey Toobin has also weighed in and said the plaintiffs’ case “borders on the frivolous.”  

Toobin is correct. The law Congress actually passed, as opposed to the imaginary one described by Adler and Cannon, both in its clear text and dominant purpose, created an “interdependent” three-legged stool on all health insurance exchanges authorized by the law. The Affordable Care Act simply does not contemplate that the federal government would be required to operate federal exchanges incapable of offering subsidies to make health insurance more “affordable.” Any other reading of the statute and its context would suggest that politics and personal values have once again trumped reason and law at the United States Supreme Court.

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​* This post originally stated that the judges ruled for the government. We regret the error.