A central provision of the Affordable Care Act that provides tax breaks for poor people who buy health insurance through federal exchanges could be in jeopardy after heated oral arguments before a three-judge panel on Tuesday at the U.S. Court of Appeals for the D.C. Circuit.
“If legislation is stupid, I don’t see that it’s up to the court to save it,” said Senior Judge A. Raymond Randolph, who described the federal health care law as “cobbled together and badly written.”
Randolph and Judge Thomas Griffith seemed inclined to side with foes of the law, who told the panel that lower-income people are only eligible for tax credits if they buy health insurance through an exchange established by a state—not one set up by the federal government. Senior Judge Harry Edwards, by contrast, found the argument “preposterous” and said it would effectively “gut” the health care law. A Washington federal trial judge in January ruled for the government.
Jones Day partner Michael Carvin, who argued on behalf of a group of small-business owners and individuals in six states in Halbig v. Sebelius, described the issue as “a very straightforward statutory construction case. … If the statutory language is completely unambiguous, that should be the end of the matter.”
The health care law says that the tax credits are available for people who buy their insurance on an exchange “established by a state.” The law also says that if a state doesn’t set up an exchange, the federal government will step in and do it for them. What’s not clear is whether people who buy from a federal exchange also get the credit.
In 2012, the Internal Revenue Service issued a rule that made the tax credits available to everyone, regardless of whether the exchange is run by a state or the feds. In all, 34 states have declined to set up their own exchanges.
In a standing-room only fifth-floor courtroom, Carvin argued that the IRS rule was improper. Congress “very much wanted the states to run the exchanges,” he said. Conditioning the availability of billions of dollars in federal tax credits for their residents upon this provided a powerful incentive to do so.
He said that tax credits should only be available to residents of the 14 states that have created their own exchanges—and no one else.
Edwards rejected that assertion. “As far as I can see, no one understood what you are arguing now at the time the bill was passed,” he said. “Is there something to indicate that’s what [Congress] intended to do other than you asserting it? Something in the language or legislative history indicating they meant to set it up this way?”
He continued, “No one assumed that if you chose not to set up an exchange, if you couldn’t be bothered with it, it would gut the statute. Hello, where did that come from? … Something like this doesn’t hide away and then, ‘Oh my goodness, look what we have.’”
Justice Department Civil Division head Stuart Delery, who argued on behalf of the government, stressed that the purpose of the law is to provide affordable health care, and that means giving the tax credits to eligible people in all 50 states. “Without the subsidies, the exchange insurance market wouldn’t function,” he said. “Tax credits are key” to providing insurance to millions of Americans.
“There’s nothing to indicate this was conditioned on who created the exchange, no indication that was in play,” Delery said. “Ours is the most natural reading, and a reasonable reading, and thus entitled to deference.”
But Randolph didn’t seem to find it far-fetched that Congress might have intended the subsidies as an incentive to get states to set up their own exchanges.
The judge called the Affordable Care Act “a last-minute deal filled with a lot of predictions, even the title,” and said the predictions have not been born out. “The launch was an unmitigated disaster,” and the costs of implementation “have gone sky-high,” he said. “Suppose Congress made another prediction”—that if the tax credits were conditioned on setting up exchanges “all the states would line up for this deal.” But this prediction too was not borne out, he said.
Delery had a hard time persuading the judges that legislative history supported his position.
“The legislative history is a wash,” Griffith said. “There doesn’t seem to be any clear legislative history.” Without evidence of congressional intent, Griffith said, “You have a special burden” to show that the plain language of the statute “doesn’t mean what it appears to mean.”
Randolph added, “What we’ve got here is language that doesn’t seem malleable.”
If the court knows “the clear purpose of the statute”—in this case, to provide affordable health insurance—but Congress “didn’t legislate clearly enough, is it our job to fix the problem?,” Griffith wondered.
Randolph said no. The court can overrule plain statutory language based on the “absurdity principle, but I don’t see a stupidity principle.”