King v. Burwell: A post-mortem

[NOTE:  I am posting this now in stream of consciousness, adding links as appropriate later.  In doing so, I reserve the right to edit the text to conform to the links.]

So in the last Supreme Court term, the Court heard another challenge to the American Care Act, better known as Obamacare.  In that case, King v. Burwell, conservatives discovered post-passage a clause, which, read out of context, would appear to eliminate subsidies for individual insurance plans purchased on exchanges unless the state established the exchange instead of the federal government.

Although the ACA specifically contemplated federal exchanges, and its supporters and opponents alike understood that the exchanges and the entire health care system would fail without the subsidies-indeed, creating a "death spiral" which would not only render Obamacare ineffective but actually render serious harm on the markets of those states who lacked subsidies.  This "death spirial" is because without the subsidies, the individual mandate requirement would mostly be eliminated.  But, since health insurers would still be required to issue plans to sick people without charging them a higher rate or denying coverage for pre-existing conditions, healthy people would have an incentive to wait until they got sick until they had coverage.

Still, because conservatives believed that the destruction to the state markets would either require repeal of the ACA or at least destroy public perception of the ACA, conservatives pressed with their theory.  The theory was this:  in the section of the bill which calculated the amount of a tax subsidy,  the amount capped as the amount paid that was purchased "through an Exchange established by the State."  According to the challengers, that meant an insurance plan purchased on an exchange established by the federal government could not obtain any relief, since an Exchange established by the federal government cannot be "an Exchange established by the State," thus making the cap $0.  Now, this section - like the bill - was not a model of legislative drafting.  Indeed, the very section refers to "an Exchange established by the State under 1311," without specifying whether 1311 was a year, a number of plans, an amount of money, etc. - context makes plain that the authors meant "Section 1311."  And 1311 states that states "shall"  establish an American Health Benefit Exchange (referred to in this title as an ‘‘Exchange’’). 

But it turns out an Exchange established by the federal government could be "an Exchange established by the State."  This is because, up until this point in the legislation, there was only one kind of Exchange mentioned - one established by a state.  Indeed, the bill unconditionally, in  requires states to set up an exchange.   But, knowing that states might not comply - and knowing that federalism principles in fact does not permit Congress to order the states to comply - the Exchanges had a backup.

Specifically, if the state does not establish an exchange, Section 18041(c)(1) of the ACA directs the government to "establish and operate such Exchange within the State and the Secretary shall take such actions as are necessary to implement such other requirements."  Not "an exchange," but "such exchange," i.e., the same exchange the state was obligated (but failed) to establish.

Of course, the challengers generally tried to argue that two different types of exchanges were defined in the statute as a whole.  But there were serious problems with this attempt.  The most prominent problem, but not the only one, is that the challengers' interpretation would mean that federal exchanges would have no qualified purchasers who might buy things on the exchange, and that these exchanges would be largely.  A second problem is that there are no specific references to an "Exchange established by the federal government," meaning that the bill would have nothing to say about them specifically.  And a third problem is that the very distinction is belied by the fact that Section 1311 itself defines an exchange established by the State as an "Exchange."  Thus, under the challengers' views, an "Exchange" would expressly be defined as one established under 1311, but would actually mean, in a world with 2 different exchanges, an exchange established under 1311 or 18041. 

Now, is an exchange established by the federal government a Section 1311 "Exchange established by the State" or just a Section 18041(c) "Exchange?"  Outside of context, it obviously could be both.  Context could help - if the statute clearly delineated, in a meaningful way, between "Exchanges" and "Exchanges established by the state," defining the parameters of both, that would tend to show that there was an intended distinction, possibly eliminating ambiguity.  But in reality, other than the fact that the language sometimes isolated from "Exchange" to "Exchange established by the State," only one type of exchange was delineated.

In my view, these contextual problems foreclose any possibility that the "such exchange" that the federal-created exchange acted as was anything other than the only kind of exchange created, i.e., "an exchange established by the State under Section 1311."  Whether you disagree or not depends on your tolerance for ambiguity, and the use of context.  But, important for this post, note that *even without the context of all these problems,* it would still be ambiguous whether "such exchange" would mean an "exchange established by the State" or "an Exchange (but not one established by the State)."

The Court, unlike me, found the statute ambiguous as a whole.  It could have ruled for the government on that issue alone if it found, under a theory called Chevron deference, that the government had the right to define the ambiguity, though it would allow a Republican President to undo the ruling by simply changing the government's position.  The Court (correctly, in my view, to the extent it felt the need to reach this issue) rejected the use of Chevron, implicitly limiting or overruling another decision (called City of Arlington), that I disagree with.   

But, given all the policy and statutory problems caused by the challengers' interpretation, it rejected their argument and held that the law, properly read, renders the "such exchanges" created by the federal government "exchanges established by the State."  And then it states, implicitly but certainly not quietly, that it is done hearing creative challenges to the ACA by those who wish to see it undone.

I think this decision creates a very interesting question as to what it means for a statute to be ambiguous when there is no deference, nor any rule for construing the statute for or against a particular party.  But that is not the point of this post.

The purpose of this post is to explain the Burwell decision, and to set up the next post, which will explain why the challengers' post-mortem is wrong.