Sick, Drugged, and Billed

 All Economic Stakeholders in American Healthcare Are Incentivized by Perpetual Sickness – Except One

Why Insurers Are Not Fighting to Eliminate PPACA

No, insurers aren't fighting to eliminate PPACA, why would they? Big business loves big government.

Visit with Michael Berry Last Night to Discuss King v Burwell and Other PPACA Topics

  

All Michael Berry Radio Show podcasts can be heard here.  

Michael's show can be heard live on these 12 stations. 

A playlist of my 2015 radio appearances can be found here.

  

Breaking, Supreme Court Upholds Subsidies in all 50 States (King v Burwell)

The Supreme Court issued its decision this morning upholding the IRS's interpretation that has allowed subsidies in all 50 states.  Hence, PPACA will continue to deliver subsidy support as it has been.  

From the AP:  

The Supreme Court on Thursday upheld the nationwide tax subsidies under President Barack Obama's health care overhaul, in a ruling that preserves health insurance for millions of Americans. 

The justices said in a 6-3 ruling that the subsidies that 8.7 million people currently receive to make insurance affordable do not depend on where they live, under the 2010 health care law. 

The outcome is the second major victory for Obama in politically charged Supreme Court tests of his most significant domestic achievement. 

Chief Justice John Roberts again voted with his liberal colleagues in support of the law. Roberts also was the key vote to uphold the law in 2012. Justice Anthony Kennedy, a dissenter in 2012, was part of the majority on Thursday. 

"Congress passed the Affordable Care Act to improve health insurance markets, not to destroy them," Roberts wrote in the majority opinion. 

Nationally, 10.2 million people have signed up for health insurance under the Obama health overhaul. That includes the 8.7 million people who are receiving an average subsidy of $272 a month to help pay their insurance premiums. 

Of those receiving subsidies, 6.4 million people were at risk of losing that aid because they live in states that did not set up their own health insurance exchanges. ...

Here is a key portion from the Supreme Court's decision:

When analyzing an agency’s interpretation of a statute, we often apply the two-step framework announced in Chevron, 467 U. S. 837. Under that framework, we ask whether the statute is ambiguous and, if so, whether the agency’s interpretation is reasonable. Id., at 842–843. This approach “is premised on the theory that a statute’s ambiguity constitutes an implicit delegation from Congress to the agency to fill in the statutory gaps.” FDA v. Brown & Williamson Tobacco Corp., 529 U. S. 120, 159 (2000). “In extraordinary cases, however, there may be reason to hesitate before concluding that Congress has intended such an implicit delegation.” Ibid. 

This is one of those cases. The tax credits are among the Act’s key reforms, involving billions of dollars in spending each year and affecting the price of health insurance for millions of people. Whether those credits are available on Federal Exchanges is thus a question of deep“economic and political significance” that is central to this statutory scheme; had Congress wished to assign that question to an agency, it surely would have done so expressly. Utility Air Regulatory Group v. EPA, 573 U. S. ___, ___ (2014) (slip op., at 19) (quoting Brown & Williamson, 529 U. S., at 160). It is especially unlikely that Congress would have delegated this decision to the IRS, which has no expertise in crafting health insurance policy of this sort. See Gonzales v. Oregon, 546 U. S. 243, 266–267 (2006). This is not a case for the IRS. 

It is instead our task to determine the correct reading of Section 36B. If the statutory language is plain, we must enforce it according to its terms. Hardt v. Reliance Standard Life Ins. Co., 560 U. S. 242, 251 (2010). But oftentimes the “meaning—or ambiguity—of certain words or phrases may only become evident when placed in context.” Brown & Williamson, 529 U. S., at 132. So when deciding whether the language is plain, we must read the words “in their context and with a view to their place in the overall statutory scheme.” Id., at 133 (internal quotation marks omitted). Our duty, after all, is “to construe statutes, not isolated provisions.” Graham County Soil and Water Conservation Dist. v. United States ex rel. Wilson, 559 U. S. 280, 290 (2010) (internal quotation marks omitted). 

We begin with the text of Section 36B. As relevant here, Section 36B allows an individual to receive tax credits only if the individual enrolls in an insurance plan through“an Exchange established by the State under [42 U. S. C. §18031].” In other words, three things must be true: First, the individual must enroll in an insurance plan through “an Exchange.” Second, that Exchange must be “established by the State.” And third, that Exchange must be established “under [42 U. S. C. §18031].” We address each requirement in turn. 

First, all parties agree that a Federal Exchange qualifies as “an Exchange” for purposes of Section 36B. See Brief for Petitioners 22; Brief for Respondents 22. Section 18031 provides that “[e]ach State shall . . . establish an American Health Benefit Exchange . . . for the State.” §18031(b)(1). Although phrased as a requirement, the Act gives the States “flexibility” by allowing them to “elect” whether they want to establish an Exchange. §18041(b). If the State chooses not to do so, Section 18041 provides that the Secretary “shall . . . establish and operate such Exchange within the State.” §18041(c)(1) (emphasis added). ...

Congress passed the Affordable Care Act to improve health insurance markets, not to destroy them. If at all possible, we must interpret the Act in a way that is consistent with the former, and avoids the latter. Section 36B can fairly be read consistent with what we see as Congress’s plan, and that is the reading we adopt. The judgment of the United States Court of Appeals for the Fourth Circuit is affirmed.  

And from the Dissenting Justices:

JUSTICE SCALIA, with whom JUSTICE THOMAS and JUSTICE ALITO join, dissenting. 

The Court holds that when the Patient Protection and Affordable Care Act says “Exchange established by the State” it means “Exchange established by the State or the Federal Government.” That is of course quite absurd, and the Court’s 21 pages of explanation make it no less so. ... 

Words no longer have meaning if an Exchange that is not established by a State is “established by the State.” It is hard to come up with a clearer way to limit tax credits to state Exchanges than to use the words “established by the State.” And it is hard to come up with a reason to include the words “by the State” other than the purpose of limiting credits to state Exchanges. ...

The Act that Congress passed makes tax credits available only on an “Exchange established by the State.” This Court, however, concludes that this limitation would prevent the rest of the Act from working as well as hoped. So it rewrites the law to make tax credits available everywhere. We should start calling this law SCOTUScare.  

 

How the King v. Burwell Supreme Court Case Could Impact Subsidies to Purchase Exchange Plans

These maps posted yesterday as part of a longer story over at the Washington Post.  A decision from the Supreme Court is expected in June.  These maps show what that decision could mean to persons presently receiving subsidies in a fashion that appears to be outside of the statutory language of PPACA.

This first map shows the people currently eligible for government tax dollars to help them buy Obamacare plans. The darkest areas have the highest proportion of people eligible to receive tax handouts (often over one-third) while the lightest counties have the lowest proportion.

And this second map shows the folks who could lose that handout if the Supreme Court rules that the IRS did, in fact, erroneously interpret "state" to mean "state or federal".

What Happens If the Supreme Court Rules Against the Administration in King v. Burwell?

Andrew Kloster (Legal Fellow in the Edwin Meese III Center for Legal and Judicial Studies) and Alden F. Abbott (Deputy Director of the Meese Center) have written an outstanding, comprehensive, yet very readable summary about what will happen to health reform if the plaintiffs win in King v. Burwell at the Supreme Court.

Absent action by the federal government or states, a ruling against the Obama Administration would mean that:

1. The overwhelming majority of individuals currently subjected to the individual mandate would be exempted as they would not be required to purchase unaffordable care. 
2. The absence of those subsidies would also neuter the employer mandate in the 34 states that chose not to set up their own exchanges. And
3. Federalism would be preserved as each of those 34 states could then opt to address the exchange situation on a case by case basis as they see fit.  

Read the whole article here. 

Oklahoma's Message to Sup. Ct. Justice Kennedy Re IRS' Illegal Subsidies for Obamacare Enrollees in States Opting Out of Exchanges

The below quoted language is Oklahoma's Attorney General, Scott Pruitt, writing in the Wall Street Journal in response to comments made by Justice Kennedy during Wednesday's Supreme Court case, King v. Burwell.  The case hinges on wording in the 2010 Affordable Care Act stipulating that premium tax credits—i.e., subsidies for states like Oklahoma and 35 other states—are available for people who enroll in ObamaCare “through an exchange established by the State.” 

36 states opted not to open up a state-run Exchange, and instead, chose to let the federal government open and operate those Exchanges.  Most of the law's proponents want subsidies available in all 50 states irrespective of who runs the state's Exchange.  However, many states and opponents of PPACA do not want subsides available in their state because the availability of subsidies substantially increases the likelihood and prevalence of individual mandate fines and employer mandate penalties.

This leaves us with the question: does "through an exchange established by the State" mean through an exchange established solely by the state or either by the state or federal government?

This is from Attorney General Pruitt:

... [In oral argument yesterday,] Justice Kennedy was asking, if Congress did in fact condition ObamaCare’s tax credits on a state having set up an exchange, does that amount to an unconstitutional coercion of the states? In short: no. 

First, in the last ObamaCare case, NFIB v. Sebelius (2012), the Supreme Court said a statute is coercive only if it amounts to “a gun to the head” that “leaves the States with no real option but to acquiesce.” Here, we know that states had an option not to acquiesce in establishing health-care exchanges because they did not, as a matter of fact, acquiesce. Compare and contrast this with the Medicaid expansion at issue in NFIB v. Sebelius, where no state had refused the expansion, precisely because it was so coercive. 

There is no merit to the argument that the states were unaware of the consequences of refusing to establish an exchange. Oklahoma, for example, where I am attorney general, sued the Internal Revenue Service months before making its decision to decline to set up an exchange, arguing that the ObamaCare tax credits and subsidies could not be given in Oklahoma. Oklahoma knew the consequences of its decision but was not coerced into cooperating with implementation of the Affordable Care Act. 

Likewise, in January 2012, seven states, including Virginia, Maine and North Dakota, asked the federal government for “a written legal opinion from the Office of the Attorney General or a declaration from a federal court certifying that the federal government is authorized to establish an exchange under federal law, and detailing the authority of the federal government in all operational aspects of the exchange, including, but not limited to the authority to administer premium tax credits.” Those seven states were aware of the possibility that the IRS might have no authority to grant tax credits in states that declined to establish an exchange. ...

Second, there is no legal precedent for a finding of coercion based solely on the fact that a federal program does not work well when the states decline to assist in its implementation. This sort of “well, Congress did such a bad job that states have no choice but to step in and bail Congress out by acquiescing” argument is, as U.S. Solicitor General Donald Verrilli put it Wednesday, “novel.” That is precisely why the federal government never made this argument in any brief, and why Mr. Verrilli was quick to distance himself from it at oral argument. 

Third, this sort of federal program isn’t antithetical to federalism, it is federalism. As we explained in our amicus brief to the court, this carrot-and-stick approach is found in dozens of federal programs sprinkled throughout the United States Code. The states are not children that the federal government must paternalistically “protect” from the consequences of their choices by rewriting statutes. In our constitutional system, states are free to make decisions and bear the political consequences, good or bad, of those choices. 

Declining to establish a state exchange allowed Oklahoma to voice its strong political opposition to the Affordable Care Act as a whole, as well as to make a statement that it wanted neither the large-employer mandate nor the individual mandate to have effect within its borders. That was the trade-off. Oklahoma declined the premium tax credits, but freed itself of those mandates, and that was a choice the state was happy to make. 

So to Justice Kennedy I say this: King v. Burwell isn’t about protecting the states from their choices, it is about allowing coequal sovereigns to make their choice and bear the consequences of that choice. ...
  

Compliance & Reform Updates: SCOTUS Hears Federal Subsidies Case; Cadillac Tax Comments Sought; Penalties for No Coverage & ADA Violated at End of FMLA Leave

Healthcare Reform

IRS Invites Comments on Cadillac Tax Implementation for 2018
March 4, 2015-BB&T Insurance Services
Excerpt: “For taxable years beginning in 2018, the Affordable Care Act (ACA) imposes a 40 percent excise tax on high-cost group health coverage. This tax, also known as the “Cadillac tax,” is intended to encourage companies to choose lower-cost health plans for their employees… The Cadillac tax is on the "excess benefit," which is the amount that the cost of coverage exceeds certain statutory dollar limitations. There are separate statutory limitations for self-only coverage and other-than-self-only coverage. The Notice contains a discussion of how the statutory limit might be determined where an employee has self-only coverage for some benefits and other than self-only coverage for other benefits.”

The Cadillac Tax: How a 40% Tax Really Could Mean a 60% Tax

March-Employee Benefit News

Excerpt: "The Cadillac tax is a nondeductible excise tax, which increases the cost impact on for-profit employers. And depending upon who the “coverage provider” is that pays the tax, employers may be paying out closer to 60% to cover the excise tax, say Laderman and Stover. For insured plans, insurers likely will build the excise tax into the premium rates they charge employers. Because the premium amount is taxed for the insurer as income, they’ll likely build in 60% to ensure the 40% is covered after taxes. The tax treatment could also prove costly for non-profits and governments. How the tax treatment will play out remains to be seen."

Mid-argument updates: King v. Burwell (Latest update: 11:06)
March 4, 2015-SCOTUS
Excerpt: “In the midst of a discussion of context and the consequences of petitioners’ reading, Justice Kennedy raised a question that will surely receive a lot of scrutiny in the coming discussion of the case. He pointed out that, under petitioners’ reading, the federal government would be all but forcing states to create their own exchanges. That’s true not just for the headline reason covered by this case – that their citizens would be denied benefits – but for a very perceptive reason that Justice Kennedy added: namely, state insurance systems will fail if the subsidy/mandate system created by the statute does not operate in that particular state.”

FAQ: What Are The Penalties For Not Getting Insurance?
March 3, 2015-Kaiser Health News
Excerpt: “The $95 penalty has gotten a lot of press, but many people will be paying substantially more than that. A single person earning more than $19,650 would not qualify for the $95 penalty ($19,650 – $10,150 = $9,500 x 1percent = $95). So the 1 percent penalty is the standard that will apply in most cases, say experts. For example, for a single person whose modified adjusted gross income is $35,000, the penalty would be $249 ($35,000 – $10,150 = $24,850 x 1percent = $249).”

King v. Burwell: What to Expect From the Supreme Court Argument
March 2, 2015-Olgetree Deakins
Excerpt: “…the Supreme Court is not expected to issue a decision in King until close to the last day of the current term. The Supreme Court’s order disposing of the case—referred to as its “mandate”—is not issued until at least 25 days after the decision is announced, and the Court has discretion to withhold its mandate beyond that minimum period. In practice, this means that an adverse outcome for the government may have a somewhat delayed impact. However, rather than attempting to anticipate the substance of the Court’s decision, employers should continue their ongoing ACA compliance efforts and await further official guidance before suspending or modifying those efforts in reliance on King.”

More Clarification on Illegality of Employers Reimbursing Employees for Individual Health Policies

March 6, 2015-Alston Bird Employee Benefits and Executive Compensation Advisory

Excerpt: 

• "Mere pay increase that is not restricted is OK. If an employer increases compensation to assist employees with payments for individual market coverage, the arrangement is not an employer payment plan as long as the increased compensation is not conditioned on the employee’s purchase of individual market coverage.
• Including premium reimbursements (conditioned on purchase of coverage) in income still results in an [impermissible] employer payment plan. If an employer pays an individual market premium directly or reimburses an employee upon proof of premium payment, the arrangement would be an employer payment plan subject to Notice 2013-54 even if the employer includes the amount in taxable income." This arrangement will run afoul of new Reform laws for groups over 50 employees. 

In Other News
EEOC Charges Employer Violated ADA By Terminating Employment At FMLA Leave End
March 2015-Solutions Law Press
Excerpt: “Employers considering terminating the employment of employees not ready to resume their usual duties when their eligibility for medical leave ends under the Family & Medical Leave Act (FMLA) or other leave policies should first consider whether the employee qualifies for accommodation under the Americans With Disabilities Act. That’s the message transmitted by a new Employment Opportunity Commission (EEOC) Americans With Disabilities Act (ADA) lawsuit against ValleyLife of Phoenix, Arizona.”

Latest Jobs Report is Nowhere Near as Good as Most Media Reporting

March 6, 2015-Mish's Global Economic Trend Analysis

• Civilian Non-institutional Population: +176,000
• Civilian Labor Force: -178,000
• Not in Labor Force: +354,000
• Participation Rate: -0.1% to 62.8%

On the Michael Berry and Craig Roberts Radio Shows Today for the Latest on Obamacare

In the 5 PM CST hour of the Michael Berry Show:

And, in the 6 PM hour: 

Later on in the evening I was on Lifeline with Craig Roberts.  My discussion begins at the 47 minute point:
  

And continues into his second hour, concluding at 20:30: 

  

PPACA's Architect Explains Why Obamacare Drafters Needed to Deceive the Public to Pass It. A Visit with Armstrong and Getty, 11/10/14

• On one hand, the Obama Administration likes to point out that last week's election is somehow diminished because two-thirds of the electorate chose not to vote.  

• Nevertheless, recent audio illuminates that in order for them to succeed in major initiatives, it would be a lot better if as few people as possible knew or understood what was being passed. 

I joined Jack and Joe for a brief visit this morning to explain Medicare's "doc fix" and its relation to the newly surfaced audio from Jonathan Gruber.  Gruber, an MIT Economist was one of the key persons who drafted PPACA.  “Lack of transparency” helped the Obama administration and congressional Democrats pass the Affordable Care Act, Gruber explained.  “Lack of transparency is a huge political advantage,” said Gruber.  “And basically, call it the stupidity of the American voter or whatever, but basically that was really, really critical for the thing to pass.”

That audio is reportedly from last year but just surfaced over the weekend.  Last week, I'd given Joe a thumbnail sketch on the "doc fix" in Medicare and how that single element was obfuscated and exploited during the passage of Obamacare.  In light of this recent, audio, Jack and Joe wanted me to come on today for brief summary on how the two topics intertwine.

17 times in 11 years, Congress and the President have delayed mandated Medicare reimbursement cuts as part of the so called ‘doc fix’.  Those cuts have been required by law since 1997 and neither party has had the gumption nor the wherewithal to either implement them, or more prudently, enact an honest solution.  However, in passing PPACA, the CBO scored the law as if the Medicare cuts would actually occur.  Not one congressman, senator or member of the executive branch truly believed such a cut would really happen.  But that didn't matter, as Gruber's above audio summarizes so nicely.  Being genuine would make it awfully hard to legislate for the "stupid" voters.

Here is my audio from the 8:00 AM hour of today's Armstrong and Getty Show (my discussion begins at 12:54.  The longer discussion before I join begins at 7:56):

• For more on my reference to healthcare's slowdown beginning long before Obamacare, see "It's The Cost-Sharing, Stupid: Health Care Spending Is Slowing Because Americans Control More Of Their Health Dollars," from Avik Roy in Forbes, June 16, 2013.  

Last year Professor Gruber also made it clear that under his reading of PPACA, only states who set up their own Exchanges would be able to issue subsidies to their residents.  This, once again, became relevant over the weekend as the Supreme Court has finally decided to weigh in on this issue.  The Obama Administration has been arguing in federal courts over the past year or more that it would be ludicrous for PPACA to fail to provide subsidies in the 34 states who chose not to set up an Exchange and allow the federal government, instead, to administer that Exchange.  (Read more about that on this site, under the Oklahoma vs. Obamacare tab.)  It is going to be rather difficult for the Administration to ague to the Supreme Court that it is absurd to think Obamacare would not permit such subsidies in the federal Exchanges with one of their chosen drafters publicly saying things like this:  

  

Supreme Court Decides to Hear Case on the Legality of Subsidies in the 34 Federally Facilitated Exchanges

This was just posted by Lyle Denniston at SCOTUSblog:

The Supreme Court, moving back into the abiding controversy over the new health care law, agreed early Friday afternoon to decide how far the federal government can extend its program of subsidies to buyers of health insurance. At issue is whether the program of tax credits applies only in the consumer marketplaces set up by 16 states, and not at federally-run sites in 34 states.

Rather than waiting until Monday to announce its action, which would be the usual mode at this time in the Court year, the Justices released the order granting review of King v. Burwell not long after finishing their closed-door private Conference. ...

Read full post.
 

Insurers and CMS Negotiate an Escape Clause Foreseeing the Possible Collapse Obamacare in 2015

Insurers who participate in the PPACA Exchanges must sign an annual agreement with CMS.  The 2015 version of the contract with the 30+ federally facilitated Exchanges contains some interesting language.

Insurers, clearly worried that the Halbig case could be taken up by the Supreme Court, have negotiated an out clause and the federal government has agreed.  If the taxpayer-funded premium reduction handouts are invalidated during 2015 (which absolutely has become a reasonable possibility) insurers can opt out of their 2015 contracts.  I.e., insurers can bail out and the federal Exchanges would quickly crumble. 

It certainly could be an interesting year.  

Here is the exact language on page 6 of the linked pdf:  

Yeah, its ridiculously laden with acronyms.  Translation guide: 

• QHPI means an Issuer that provides Health Insurance Coverage through QHPs (Qualified Health Plans) offered through the FFE.  
• FFE means Federally Facilitated Exchange. 
• APTCs means Advanced Payments of the Premium Tax Credit.  
• CSRs means Cost Sharing Reductions. 
• CMS means The Centers for Medicare and Medicaid Services. 

Quite simply this proves that the insurance industry believes that the Halbig, King, Indiana or Oklahoma case(s) could successfully kill the federal subsidies.  It also proves that those same insurers agree Obamacare is unworkable without the massive taxpayer handouts.  

Hat tip to Health Reform GPS for the pointer.
  

Oklahoma Federal District Court Also Rules Obamacare Subsidies Illegal in Federal Exchanges (Pruitt v. Burwell)

Yesterday, Oklahoma became the first state to defeat the federal government on the issue of the Patient Protection and Affordable Care Act ("Obamacare") subsidies in the 34 states where Exchanges were established by the federal government.  This decision only impacts Oklahoma and has been stayed pending the Obama Administration's appeal.  However, it does bolster the argument that the U.S. Supreme Court should step in and decide this issue.

This is from Michael Cannon, writing at Forbes:

The U.S. District Court for the Eastern District of Oklahoma handed the Obama administration another – and a much harsher — defeat in one of four lawsuits challenging the IRS’s attempt to implement ObamaCare’s major taxing and spending provisions where the law does not authorize them. The Patient Protection and Affordable Care Act provides that its subsidies for private health insurance, its employer mandate, and to a large extent its individual mandate only take effect within a state if the state establishes a health insurance “Exchange.” Two-thirds (36) of the states declined to establish Exchanges, which should have freed more than 50 million Americans from those taxes. Instead, the Obama administration decided to implement those taxes and expenditures in those 36 states anyway. Today’s ruling was in Pruitt v. Burwell, a case brought by Oklahoma attorney general Scott Pruitt. 

These cases saw two appellate-court rulings on the same day, July 22. In Halbig v. Burwell, a three-judge panel of the U.S. Court of Appeals for the D.C. Circuit ordered the administration to stop. (The full D.C. Circuit has agreed to review the case en bancon December 17, a move that automatically vacates the panel ruling. In King v. Burwell, the Fourth Circuit implausibly gave the IRS the thumbs-up. (The plaintiffs have appealed that ruling to the Supreme Court.) A fourth case, Indiana v. IRS, brought by Indiana attorney general Greg Zoeller, goes to oral arguments in federal district court on October 9. 

[On September 30, 2014], federal judge Ronald A. White issued a ruling in Pruitt that sided with Halbig against King, and eviscerated the arguments made by the (more senior) judges who sided with the government in those cases. ...

Set forth below is an excerpted version of yesterday's 20-page ruling.  For readability most internal citation and issues of lesser interest (such as standing) have been removed.  The full opinion can be read here.

---

Introduction

Section 1311 (b)(1) of the ACA requires that “[e]ach State shall, not later than January 1, 2014, establish an American Health Benefit Exchange. . . for the State.”

This directive, however, runs afoul of the principle that Congress cannot compel sovereign states to implement federal regulatory programs.  The Act also provides, therefore, that states may choose not to establish such Exchanges.  Oklahoma has so chosen.  Under section 1321 of the Act, each state may “elect[] . . . to apply the requirements” for the state exchanges, or if “a State is not an electing State . . . or the [Health and Human Services] Secretary determines” that the State will fail to set up an Exchange before the statutory deadline, “the Secretary shall (directly or through agreement with a not-for-profit entity) establish and operate such Exchange within the State.”

Additionally, Congress authorized federal subsidies (in the form of tax credits) paid directly by the Federal Treasury to the taxpayer’s insurer as an offset against his or her premiums. The Act provides that a tax credit “shall be allowed” in a particular “amount,” 26 U.S.C. §36B(a), based on the number of “coverage months of the taxpayer occurring during the taxable year.”  A “coverage month” is a month during which “the taxpayer . . . is covered by a qualified heath plan . . . enrolled in through an Exchange established by the State under section 1311 of the [ACA].”  The subsidy for any particular “coverage month” is based on premiums for coverage that was “enrolled in through an Exchange established by the State under [section] 1311 of the ACA.” 

Further, the Act contains an “employer mandate.”  This provision may require an “assessable payment” by an “applicable large employer” if that employer fails to provide affordable health care coverage to its full-time employees and their dependents.  The availability of the subsidy also effectively triggers the assessable payments under the employer mandate, inasmuch as the payment is only triggered if at least one employee enrolls in a plan, offered through an Exchange, for which “an applicable premium tax credit . . . is allowed or paid.”  Oklahoma contends it has standing in this case (among other reasons) because it constitutes an “applicable large employer” and the receipt of tax credits by any of its employees would trigger its liability for a penalty under that provision for failure to provide adequate coverage to those employees.

This contention arises because the Internal Revenue Service (“IRS”) has promulgated a regulation (the “IRS Rule”) that extends premium assistance tax credits to anyone “enrolled in one or more qualified health plans through an Exchange.”  It then adopts by cross-reference an HHS definition of “Exchange” to include any Exchange, “regardless of whether the exchange is established or operated by a State . . . or by HHS.”  In other words, the IRS Rule requires the Treasury to grant subsidies for coverage purchases through all Exchanges – not only those established by states under §1311 of the Act, but also those established by HHS under §1321 of the Act.  The IRS Rule is under challenge in this case, with plaintiff arguing that the regulation is contrary to the statutory language.

The Merits of the Case

Finding this claim to be justiciable, the court turns to the merits.  As just noted, the court has the benefit of two recent opinions by courts of appeals, which reach opposite
conclusions. In Halbig v. Burwell, 758 F.3d 390 (D.C.Cir.2014), the majority struck down the IRS Rule.  In King v. Burwell, 759 F.3d 358 (4th Cir.2014), the IRS Rule was upheld.  For the reasons described below, this court finds the Halbig decision more persuasive.  This court also independently relies on Tenth Circuit and Supreme Court authority.

[T]he majority in Halbig resolved the issue at the first stage of Chevron, finding that inasmuch as “the ACA unambiguously restricts the section 36B subsidy to insurance purchased on Exchanges ‘established by the State,’ we reverse the district court and vacate the IRS’s regulation.”

The majority in Halbig acknowledged that sections 1311 and 1321 do establish “some degree of equivalence between state and federal exchanges[.]”  This equivalence is such, the court went on, that “if section 36B had authorized credits for insurance purchased on an ‘Exchange established under 1311,’ the IRS Rule would stand.”  That is not, however, the language chosen by Congress.  Instead, credits are authorized only for coverage purchased on an “Exchange established by the State under section 1311.”  Faced with that statutory language, “the government offers no textual basis – in sections 1311 and 1321 or elsewhere – for concluding that a federally-established Exchange is, in fact or legal fiction, established by a state.”

In contrast, the court in King adopted the “legal fiction” interpretation.  It resolved the case at step two of Chevron, finding the statutory language ambiguous, giving deference to the IRS’s determination, and upholding the IRS Rule as a permissible exercise of the agency’s discretion. King, 759 F.3d at 363.

In other words, the “legal fiction” reading does not appear to comport with normal English usage, as Professor Richard Epstein describes:

These long and learned opinions should not obscure the fact that at the root of the case is a simple question: Do the words an “exchange established by a State” cover an exchange that is established by the federal government “on behalf of a state”?  To the unpracticed eye, the two propositions are not synonyms, but opposites. When I do something on behalf of myself, it is quite a different thing from someone else doing it on my behalf.  The first case involves self-control. The second involves a change of actors. It is not, moreover, that the federal government establishes the exchange on behalf of a state that has authorized the action, under which case normal principles of agency law would apply. Quite the opposite: the federal government decides to act because the state has refused to put the program into place. It is hard to see, as a textual matter, why the two situations should be regarded as identical when the political forces at work in them are so different. 

This is a case of statutory interpretation.  “The text is what it is, no matter which side benefits.” Bormes v. United States, 759 F.3d 793, 798 (7 Cir.2014).  Such th a case (even if affirmed on the inevitable appeal) does not “gut” or “destroy” anything.  On the contrary, the court is upholding the Act as written.  Congress is free to amend the ACA to provide for tax credits in both state and federal exchanges, if that is the legislative will.

It is a “core administrative-law principle that an agency may not rewrite clear statutory terms to suit its own sense of how the statute should operate.”  Util. Air Regulatory Group v. EPA, 134 S.Ct. 2427, 2446 (2014). 

  Footnote 24 on Page 19: 

The court permitted plaintiff to supplement the record with statements made by Professor Jonathan Gruber, who was involved in the ACA’s drafting. (#115).  It is evidently undisputed that in January, 2012, Prof. Gruber made the statement “if you’re a state and you don’t set up an Exchange, that means your citizens don’t get their tax credits.”  What is disputed is whether Prof. Gruber’s statement was “off the cuff.”  The statement evidently has now been disavowed on his part. In any event, the court does not consider this statement as reflecting “legislative intent” (a concept in which the court has little faith anyway) because Prof.  Gruber is not a member of Congress and his statement was made after the Act had passed.  The court takes the statement for the limited relevance of words of interpretation, not intent.  That is to say, the statement cuts against any argument that the plaintiff’s interpretation is absurd on its face, or that plaintiff’s argument that the statutory language might support a reading of “incentivizing” states to set up exchanges is “nonsense, made up out of whole cloth.”  Halbig, 758 F.3d at 414 (Edwards, J., dissenting).

Conclusion and Holding

The court holds that the IRS Rule is arbitrary, capricious, an abuse of discretion or otherwise not in accordance with law, pursuant to 5 U.S.C. §706(2)(A), in excess of statutory jurisdiction, authority, or limitations, or short of statutory right, pursuant to 5 U.S.C. §706(2)(C), or otherwise is an invalid implementation of the ACA, and is hereby vacated.

The court’s order of vacatur is stayed, however, pending resolution of any appeal from this order.

  

Stories Causing Atlas to Shrug, August 15th 2014 Edition

7.2 million more Americans are dependent on Medicaid due to Obamacare. That is more than "bought" Obamacare plans with government subsidies. And here.

As many as 300,000 illegal aliens have received taxpayer dollars to buy Obamacare. Think we'll ever get that money back?

Study: California taxpayers cover 95% of state employee health costs.

The IRS failed to do background checks on some private contractors who handled confidential taxpayer information, exposing more than a million taxpayers to an increased risk of fraud and identity theft.

The U.S. Federal Bureau of Investigation released a new statistic, which states 8 out of every 10 law enforcement members are overweight.

  

What Happens to Obamacare if Subsides in Federal Exchanges Continue to Be Disallowed?

Megan McArdle wrote an outstanding column about the status of Obamacare in the wake of the Halbig and King rulings last week.  I encourage you to read the whole article here.  Below is an excerpt of her work followed by my commentary.

... [R]ight now, [the prospect of Halbig being affirmed is] the only one possibility interesting enough to explore. So let’s hop to it.

...[H]ow many states decide to create exchanges? I’ve heard from several people today who thought it was obvious that most of the 36 states now on federal exchanges would simply withdraw and build their own in order to keep the subsidies flowing. This seems quite possible, because voters hate losing stuff, and especially subsidies. And state legislators do love them some free money.

On the other hand, that outcome is hardly inevitable. Law professor Jonathan Adler pointed out in a conference call yesterday that Ohio would have to amend its constitution to allow the government to establish a state exchange, and barriers in some other states are high as well. State exchanges cost millions to build and to run. States can still apply for federal money to build exchanges, Adler said, but the annual operating costs have to come out of either user fees or tax revenue. In lower population states, or poor states, that might be enough to keep legislators on the sidelines. So might the fear of primary challenges, even if the administration comes up with some easy administrative workarounds to lower the cost.

In the states that don’t establish exchanges, the most likely outcome is a death spiral. For one thing, without the subsidies, fewer people would be subject to the mandate, because the cost of a policy would become “unaffordable” as the Internal Revenue Service defines it for the purposes of assessing mandate penalties. Even if that weren’t the case, without the subsidies, a lot of people would find it cheaper just to pull out and pay the penalties. The most likely people to do this? Healthy youngsters paying more in premiums than they get in health services. If they exit the exchanges, premiums will rise, and the markets will spiral downhill. ...

The most interesting question, I think, is what an adverse ruling would do to the insurance companies. A lot of big insurers mostly stayed out of the exchanges for the first year, waiting to see how they’d develop. Perhaps because the administration has sweetened the pot considerably for insurers over the last eight months, this year, they seem to be wading in deeper, albeit still cautiously.

But what if the pot of subsidy money starts shrinking, rather than growing? That was always going to be a problem, because the risk corridor program, through which the government has funneled many of its pot-sweeteners, ends in 2016, and starting in 2019, the law changes its indexing formula in a way that may require subsidized families to pay a higher share of their income toward premiums. ...

In the end, some states will probably create their own exchanges, and many probably won’t. That wedge between the states with subsidies and the states without would leave an unstable fault line at the heart of the law, one that might cleave at any moment and destroy the whole thing.

I added the emphasis because I wholeheartedly concur with her conclusion.  Most states will not rush to open an exchange except, possibly, the very blue-est of the blue.  Large corporations operating in non-exchange states will have a clear competitive advantage in employee compensation and benefits.

They will be able to chose to offer healthcare benefits as they see fit for their market-segment without the herculean administrative and legal task of compliance with PPACA.  Mini-meds will be back on the table for low-wage and youth dominated industries.  And employers won't have to pay extra to TPAs, brokers and attorneys for the excessive new regulatory and plan requirements. 

Obamacare was 2,400 pages when passed.  It is somewhere in the neighborhood of 25,000 to 40,000 pages now, including regulatory releases and court decisions.  If it holds to the same reg-pages to statute-pages ratio as did Medicare and Medicaid, it will likely be north of 140,000 pages when it is fully implemented.  Let that sink in.  Granted, no one business or person would ever need to read all of that as many aspects would relate to matters not-impacting your specific situation.  But if someone did want to read the entire law, they'd have to read 383 pages a day, every single day for a year - no days off. 

John Conyers would not undertake the challenge.  Remember this?  

The economic advantages for employers in the more free, exchange-less states will be monumental.  Hiring will be better, employees won't be tethered to artificially depressed sub-30-hour work-weeks and the entirety of Obamacare would crumble as the exchange states are forced to abandon the Rube Goldberg Machine of healthcare in order to remain remotely competitive. 

  

King v. Burwell, U.S. 4th Circuit (No. 14-1158) July 22, 2014

The below is an edited version of the King case for people would would like to read enough of it to know what the issues, arguments and rules are but do not wish to read all 46 pages. For more coverage on the Halbig and King decisions see my post here and see the full text of the case here. My limited commentary below is in [blue]. The rest of the words are the court's.  My factual setup and background are skeletal in this edited version because we covered that in the prior post on Halbig which you can see here.

Overview of the Issue

Pg. 5:  The plaintiffs-appellants bring this suit challenging the validity of an Internal Revenue Service (“IRS”) final rule implementing the premium tax credit provision of the Patient Protection and Affordable Care Act (the “ACA” or “Act”). The final rule interprets the ACA as authorizing the IRS to grant tax credits to individuals who purchase health insurance on both state-run insurance “Exchanges” and federally-facilitated “Exchanges” created and operated by the Department of Health and Human Services (“HHS”). The plaintiffs contend that the IRS’s interpretation is contrary to the language of the statute, which, they assert, authorizes tax credits only for individuals who purchase insurance on state-run Exchanges.

Short Answer

Pg. 5:  For reasons explained below, we find that the applicable statutory language is ambiguous and subject to multiple interpretations. Applying deference to the IRS’s determination, however, we uphold the rule as a permissible exercise of the agency’s discretion. We thus affirm the judgment of the district court.

Background

Pg. 9:  The plaintiffs in this case are Virginia residents who do not want to purchase comprehensive health insurance. Virginia has declined to establish a state-run Exchange and is therefore served by the prominent federally-facilitated Exchange known as HealthCare.gov. Without the premium tax credits, the plaintiffs would be exempt from the individual mandate under the unaffordability exemption. With the credits, however, the reduced costs of the policies available to the plaintiffs subject them to the minimum coverage penalty. According to the plaintiffs, then, as a result of the IRS Rule, they will incur some financial cost because they will be forced either to purchase insurance or pay the individual mandate penalty.

Analysis

Pg. 15:  Turning to the merits, “we review questions of statutory construction de novo.” Orquera v. Ashcroft, 357 F.3d 413, 418 (4th Cir. 2003). Because this case concerns a challenge to an agency’s construction of a statute, we apply the familiar two-step analytic framework set forth in Chevron U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837 (1984). At Chevron’s first step, a court looks to the “plain meaning” of the statute to determine if the regulation responds to it.  Chevron, 467 U.S. at 842-43. If it does, that is the end of the inquiry and the regulation stands. Id. However, if the statute is susceptible to multiple interpretations, the court then moves to Chevron’s second step and defers to the agency’s interpretation so long as it is based on a permissible construction of the statute. Id. at 843.

Pgs. 18-19: ... [P]laintiffs assert that because state and federal Exchanges are referred to separately in § 1311 and § 1321, the omission in 26 U.S.C. § 36B of any reference to federal Exchanges established under § 1321 represents an intentional choice on behalf of Congress to exclude federal Exchanges and include only state Exchanges established under § 1311.

There can be no question that there is a certain sense to the plaintiffs’ position. If Congress did in fact intend to make the tax credits available to consumers on both state and federal Exchanges, it would have been easy to write in broader language, as it did in other places in the statute....

However, when conducting statutory analysis, “a reviewing court should not confine itself to examining a particular statutory provision in isolation. Rather, [t]he meaning – or ambiguity – of certain words or phrases may only become evident when placed in context.” Nat’l Ass’n of Home Builders v. Defenders of Wildlife, 551 U.S. 644, 666 (2007) (internal citation and quotation marks omitted). With this in mind, the defendants’ primary counterargument points to ACA §§ 1311 and 1321, which, when read in tandem with 26 U.S.C. § 36B, provide an equally plausible understanding of the statute, and one that comports with the IRS’s interpretation that credits are available nationwide.

Pg 20:  [Under the terms of the ACA], [i]n the absence of state action, the federal government is required to step in and create, by definition, “an American Health Benefit Exchange established under [§] 1311” on behalf of the state.

Having thus explained the parties’ competing primary arguments, the court is of the opinion that the defendants have the stronger position, although only slightly. Given that Congress defined “Exchange” as an Exchange established by the state, it makes sense to read § 1321(c)’s directive that HHS establish “such Exchange” to mean that the federal government acts on behalf of the state when it establishes its own Exchange. However, the court cannot ignore the common-sense appeal of the plaintiffs’ argument; a literal reading of the statute undoubtedly accords more closely with their position.

As such, based solely on the language and context of the most relevant statutory provisions, the court cannot say that Congress’s intent is so clear and unambiguous that it “foreclose[s] any other interpretation.” Grapevine Imports, 636 2 F.3d at 1377.

Pg. 24: ... [W]hile we think the defendants make the better of the two cases, we are not convinced that either of the purported statutory conflicts render Congress’s intent clear.  Both parties offer reasonable arguments and counterarguments that make discerning Congress’s intent difficult. Additionally, we note that the Supreme Court has recently reiterated the admonition that courts avoid revising ambiguously drafted legislation out of an effort to avoid “apparent anomal[ies]” within a statute. Michigan v. Bay Mills Indian Cmty...slip op. at 10 (May 27, 2014). It is not especially surprising that in a bill of this size – “10 titles stretch[ing] over 900 pages and contain[ing] hundreds of provisions,” NFIB, 132 S. Ct. at 2580, – there would be one or more conflicting provisions. See Bay Mills, at 10-11 (“Truth be told, such anomalies often arise from statutes, if for no other reason than that Congress typically legislates by parts.

Pgs. 26-28:  The plaintiffs argue extensively that Congress could not have anticipated that so few states would establish their own Exchanges. Indeed, they argue that Congress attempted to “coerce” the states into establishing Exchanges by conditioning the availability of the credits on the presence of state Exchanges.

The plaintiffs contend that Congress struck an internal bargain in which it decided to favor state-run Exchanges by incentivizing their creation with billions of dollars of tax credits. According to the plaintiffs, however, Congress’s plan backfired when a majority of states refused to establish their own Exchanges, in spite of the incentives. The plaintiffs thus acknowledge that the lack of widely available tax credits is counter to Congress’s original intentions, but consider this the product of a Congressional miscalculation that the courts have no business correcting.

... [I]t is at least plausible that Congress would have wanted to ensure state involvement in the creation and operation of the Exchanges. Such an approach would certainly comport with a literal reading of 26 U.S.C. § 36B’s text. In any event, it is certainly possible that the Senators ... were ... under the assumption that each state would establish its own Exchange, and that they could not have envisioned the issue currently being litigated.

Although Congress included a fallback provision in the event the states failed to act, it is not clear from the legislative record how large a role Congress expected the federal Exchanges to play in administering the Act. We are thus of the opinion that nothing in the legislative history of the Act provides compelling support for either side’s position.

Having examined the plain language and context of the most relevant statutory sections, the context and structure of related provisions, and the legislative history of the Act, we are unable to say definitively that Congress limited the premium tax credits to individuals living in states with state-run Exchanges. We note again that, on the whole, the defendants have the better of the statutory construction arguments, but that they fail to carry the day. Simply put, the statute is ambiguous and subject to at least two different interpretations. As a result, we are unable to resolve the case in either party’s favor at the first step of the Chevron analysis.

Pg. 29:  [W]e cannot discern whether Congress intended one way or another to make the tax credits available on HHS-facilitated Exchanges. The relevant statutory sections appear to conflict with one another, yielding different possible interpretations. In light of this uncertainty, this is a suitable case in which to apply the principles of deference called for by Chevron. See Scialabba v. Cuellar de Osorio, ... slip op. at 14 (June 9, 2014) (“[I]nternal tension [in a statute] makes possible alternative reasonable constructions, bringing into correspondence in one way or another the section’s different parts. And when that is so, Chevron dictates that a court defer to the agency’s choice....

Pg. 34:  The IRS Rule became all the more important once a significant number of states indicated their intent to forgo establishing Exchanges. With only sixteen state-run Exchanges currently in place, the economic framework supporting the Act would crumble if the credits were unavailable on federal Exchanges. Furthermore, without an exception to the individual mandate, millions more Americans unable to purchase insurance without the credits would be forced to pay a penalty that Congress never envisioned imposing on them. The IRS Rule avoids both these unforeseen and undesirable consequences and thereby advances the true purpose and means of the Act.

Conclusion

It is thus entirely sensible that the IRS would enact the regulations it did, making Chevron deference appropriate. Confronted with the Act’s ambiguity, the IRS crafted a rule ensuring the credits’ broad availability and furthering the goals of the law. In the face of this permissible construction, we must defer to the IRS Rule. See Scialabba, at 33 (“Whatever Congress might have meant in enacting [the statute], it failed to speak clearly. Confronted with a self-contradictory, ambiguous provision in a complex statutory scheme, the Board chose a textually reasonable construction consonant with its view of the purposes and policies underlying immigration law....

Concurrence

Pg. 38:  I would hold that Congress has mandated in the Act that the IRS provide tax credits to all consumers regardless of whether the Exchange on which they purchased their health insurance coverage is a creature of the state or the federal bureaucracy. Accordingly, at Chevron Step One, the IRS Rule making the tax credits available to all consumers of Exchange-purchased health insurance coverage, 26 C.F.R. § 1.36B-1(k), 77 Fed. Reg. 30,377, 30,378 (May 23, 2012), is the correct interpretation of the Act and is required as a matter of law. Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842-43 (1984).

[Amongst the 6 federal appellate judges that considered this matter and ruled on July 22, in both Halbig and King, Judge Davis, in this concurrence decided that "an Exchange established by the State" clearly and unambiguously meant and Exchange established by the federal government or the State.  To me this position the hardest to follow and the hardest to defend.]  

  

Halbig v. Burwell, Appeal from United States District Court for District of Columbia (No. 1:13-cv-00623), July 22, 2014

The below is an edited version of the Halbig case for people would would like to read enough of it to know what the issues, arguments and rules are but do not wish to read all 72 pages.  For more coverage on the Halbig decision see my post here and see the full text of the case here.  My edited version of King v. Burwell can be read here.  My limited commentary below is in [blue].  The rest of the words are the court's.

Background

Pg. 4:  Section 36B of the Internal Revenue Code, enacted as part of the Patient Protection and Affordable Care Act (ACA or the Act), makes tax credits available as a form of subsidy to individuals who purchase health insurance through marketplaces—known as “American Health Benefit Exchanges,” or “Exchanges” for short—that are “established by the State under section 1311” of the Act. 26 U.S.C. § 36B(c)(2)(A)(i). On its face, this provision authorizes tax credits for insurance purchased on an Exchange established by one of the fifty states or the District of Columbia.... But the Internal Revenue Service has interpreted section 36B broadly to authorize the subsidy also for insurance purchased on an Exchange established by the federal government under section 1321 of the Act....

Appellants are a group of individuals and employers residing in states that did not establish Exchanges. For reasons we explain more fully below, the IRS’s interpretation of section 36B makes them subject to certain penalties under the ACA that they would rather not face. Believing that the IRS’s interpretation is inconsistent with section 36B, appellants challenge the regulation under the Administrative Procedure Act (APA), alleging that it is not “in accordance with law.”...

Pg. 8: ... [T]he IRS acknowledged that “[c]ommentators disagreed on whether the language in section 36B(b)(2)(A) limits the availability of the premium tax credit only to taxpayers who enroll in qualified health plans on State Exchanges,” but asserted without elaboration that “[t]he statutory language of section 36B and other provisions of the [ACA],” as well as “the relevant legislative history,” supported its view....

This broader interpretation has major ramifications. By making credits more widely available, the IRS Rule gives the individual and employer mandates—key provisions of the ACA—broader effect than they would have if credits were limited to state-established Exchanges. The individual mandate requires individuals to maintain “minimum essential coverage” and, in general, enforces that requirement with a penalty.... The penalty does not apply, however, to individuals for whom the annual cost of the cheapest available coverage, less any tax credits, would exceed eight percent of their projected household income.... By some estimates, credits will determine on which side of the eight-percent threshold millions of individuals fall.... Thus, by making tax credits available in the 36 states with federal Exchanges, the IRS Rule significantly increases the number of people who must purchase health insurance or face a penalty.

Issue and Summary of Arguments

Pgs. 14-16:  On the merits, this case requires us to determine whether the ACA permits the IRS to provide tax credits for insurance purchased through federal Exchanges. To make this determination, we begin by asking “whether Congress has directly spoken to the precise question at issue,” for if it has, we must give effect to its unambiguously expressed intent. Chevron U.S.A., Inc. v. Natural Res. Def. Council, 467 U.S. 837, 842-43 (1984). The text of section 36B is only the starting point of this analysis. That provision is but one piece of a vast, complex statutory scheme, and we must consider it both on its own and in relation to the ACA’s interconnected provisions and overall structure so as to interpret the Act, if possible, “as a symmetrical and coherent scheme.” See FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 133 (2000). ...

Although both appellants and the government argue that the ACA, read in its totality, evinces clear congressional intent, they dispute what that intent actually is. Appellants argue that if taxpayers can receive credits only for plans enrolled in “through an Exchange established by the State under section 1311 of the [ACA],” then the IRS clearly cannot give credits to taxpayers who purchased insurance on an Exchange established by the federal government. After all, the federal government is not a “State,” see 42 U.S.C. § 18024(d) (defining “State” to “mean[] each of the 50 States and the District of Columbia”), and its authority to establish Exchanges appears in section 1321 rather than section 1311, see id. § 18041(c)(1). The government counters that appellants take a blinkered view of the ACA and that sections 1311 and 1321 of the Act establish complete equivalence between state and federal Exchanges, such that when the federal government establishes an Exchange, it does so standing in the state’s shoes. Furthermore, the government argues, whereas appellants’ construction of section 36B renders other provisions of the ACA absurd, its own view brings coherence to the statute and better promotes the purpose of the Act.

Short Answer

We conclude that appellants have the better of the argument: a federal Exchange is not an “Exchange established by the State,” and section 36B does not authorize the IRS to provide tax credits for insurance purchased on federal Exchanges. We reach this conclusion by the following path: First, we examine section 36B in light of sections 1311 and 1321, which authorize the establishment of state and federal Exchanges, respectively, and conclude that section 36B plainly distinguishes Exchanges established by states from those established by the federal government. We then consider the government’s arguments that this construction generates absurd results but find that it does not render other provisions of the ACA unworkable, let alone so unreasonable as to justify disregarding section 36B’s plain meaning. Finally, turning to the ACA’s purpose and legislative history, we find that the government again comes up short in its efforts to overcome the statutory text. Its appeals to the ACA’s broad aims do not demonstrate that Congress manifestly meant something other than what section 36B says.

Analysis

The problem confronting the IRS Rule is that subsidies also turn on a third attribute of Exchanges: who established them. Under section 36B, subsidies are available only for plans “enrolled in through an Exchange established by the State under section 1311 of the [ACA].” 26 U.S.C. § 36B(c)(2)(A)(i) (emphasis added); see also id. § 36B(b)(2)(A). Of the three elements of that provision— (1) an Exchange (2) established by the State (3) under section 1311—federal Exchanges satisfy only two: they are Exchanges established under section 1311. Nothing in section 1321 deems federally-established Exchanges to be “Exchange[s] established by the State.” This omission is particularly significant since Congress knew how to provide that a non-state entity should be treated as if it were a state when it sets up an Exchange. In a nearby section, the ACA provides that a U.S. territory that “elects . . . to establish an Exchange . . . shall be treated as a State.”2 42 U.S.C. § 18043(a)(1). The absence of similar language in section 1321 suggests that even though the federal government may establish an Exchange “within the State,” it does not in fact stand in the state’s shoes when doing so. See NFIB, 132 S. Ct. at 2583 (“Where Congress uses certain language in one part of a statute and different language in another, it is generally presumed that Congress acts intentionally.” (citing Russello v. United States, 464 U.S. 16, 23 (1983))).

[Because the court concludes that the statute is clear on its face and that subsidies are only intended in state exchanges, it notes that it is arguable but doubtful that precedent requires the court to go any further.  However, for the sake of argument, the court does look briefly at the congressional intent and notes that even if they did make it to this subsequent prong of analysis, it would conclude the same way.] 

Pg. 31: [A]ssuming arguendo that it is proper to consult legislative history when the statutory text is clear, we consider what light the ACA’s history offers....

Pg. 32: [I]t would be a strange canon of statutory construction that would require Congress to state in committee reports or elsewhere in its deliberations that which is obvious on the face of a statute.”). Instead, only when “apparently plain language compels an ‘odd result’” might we look to legislative history to ensure that the “‘literal application of a statute will [not] produce a result demonstrably at odds with the intentions of its drafters.’” Engine Mfrs. Ass’n, 88 F.3d at 1088 (quoting Public Citizen, 491 U.S. at 454, and United States v. Ron Pair Enters., Inc., 489 U.S. 235, 242 (1989)).

Pgs. 33-34: The Senate Committee on Health, Education, Labor, and Pensions (HELP) proposed a bill that specifically contemplated penalizing states that refused to participate in establishing “American Health Benefit Gateways,” the equivalent of Exchanges, by denying credits to such states’ residents for four years. See Affordable Health Choices Act, S. 1679, 111th Cong. § 3104(a), (d)(2) (2009). This is not to say that section 36B necessarily incorporated this thinking; we agree that inferences from unenacted legislation are too uncertain to be a helpful guide to the intent behind a specific provision. See Village of Barrington v. Surface Transp. Bd., 636 F.3d 650, 666 (D.C. Cir. 2011). But the HELP Committee’s bill certainly demonstrates that members of Congress at least considered the notion of using subsidies as an incentive to gain states’ cooperation. [Bold italics are mine.] 

Pg. 40: As the Supreme Court explained just this term, “an agency may not rewrite clear statutory terms to suit its own sense of how the statute should operate.” UARG, 134 S. Ct. at 2446. And neither may we. “The role of th[e] [c]ourt is to apply the statute as it is written—even if we think some other approach might ‘accor[d] with good policy.’” Burrage v. United States, 134 S. Ct. 881, 892 (2014) (quoting Comm’r v. Lundy, 516 U.S. 235, 252 (1996)) (third alteration in original); see also Lewis v. City of Chicago, 560 U.S. 205, 217 (2010) (“[I]t is not our task to assess the consequences of each approach [to interpreting a statute] and adopt the one that produces the least mischief. Our charge is to give effect to the law Congress enacted.”) ...

Conclusion and Holding

Pg. 41: The fact is that the legislative record provides little indication one way or the other of congressional intent, but the statutory text does. Section 36B plainly makes subsidies available only on Exchanges established by states. And in the absence of any contrary indications, that text is conclusive evidence of Congress’s intent. Cf. Ethyl Corp. v. EPA, 51 F.3d 1053, 1063 (D.C. Cir. 1995) (“At best, the legislative history is cryptic, and this surely is not enough to overcome the plain meaning of the statute.”). To hold otherwise would be to say that enacted legislation, on its own, does not command our respect—an utterly untenable proposition. Accordingly, applying the statute’s plain meaning, we find that section 36B unambiguously forecloses the interpretation embodied in the IRS Rule and instead limits the availability of premium tax credits to state-established Exchanges.

Dissenting Opinion

Pg. 71-72: The Supreme Court has made it clear that “[t]he plainness or ambiguity of statutory language is determined by reference to the language itself, the specific context in which that language is used, and the broader context of the statute as a whole.” Robinson, 519 U.S. at 341. We cannot review a “particular statutory provision in isolation . . . . It is a 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.” Nat’l Ass’n of Home Builders, 551 U.S. at 666. Following these precepts and reading the ACA as a whole, it is clear that the statute does not unambiguously provide that individuals who purchase insurance from an Exchange created by HHS on behalf of a State are ineligible to receive a tax credit. The majority opinion evinces a painstaking effort – covering many pages – attempting to show that there is no ambiguity in the ACA. The result, I think, is to prove just the opposite. Implausible results would follow if “established by the State” is construed to exclude Exchanges established by HHS on behalf of a State. This is why the majority opinion strains fruitlessly to show plain meaning when there is none to be found.

The IRS’s and HHS’s constructions of the statute are perfectly consistent with the statute’s text, structure, and purpose, while Appellants’ interpretation would “crumble” the Act’s structure. Therefore, we certainly cannot hold that that the agencies’ regulations are “manifestly contrary to the statute.” This court owes deference to the agencies’ interpretations of the ACA. Unfortunately, by imposing the Appellants’ myopic construction on the administering agencies without any regard for the overall statutory scheme, the majority opinion effectively ignores the basic tenets of statutory construction, as well as the principles of Chevron deference. Because the proposed judgment of the majority defies the will of Congress and the permissible interpretations of the agencies to whom Congress has delegated the authority to interpret and enforce the terms of the ACA, I dissent.

Legal Alert: D.C. Appellate Court Rules Obamacare Insurance Subsidies, Employer and Individual Mandates Effectively Illegal In 36 States

Hours Later, Another Federal Appellate Court Rules Opposite Way

For approximately two years we have covered a massive legal problem embedded deep within the text of PPACA itself. The subsidies individuals use to buy Obamacare policies and the resulting fines against employers who provide inadequate or unaffordable coverage are illegal in the 36 states that opted not to set up their own health exchanges.  I spoke specifically about the legality of these subsidies on the Armstrong and Getty Radio program on December 13, 2013.  

Today the federal appellate court in the District of Columbia ruled that the subsidies are, in fact, illegal.  Despite the ruling, the subsidies will continue to flow while this case is appealed, again, to the full D.C. Appellate Court or to the U.S. Supreme Court.  On this site, you can navigate to all of our past coverage on this issue at the Oklahoma v. ObamaCare tab on the right as the case initiated in Oklahoma was one of the first fleshing out this matter.  Today's D.C. Circuit decision is Halbig vs. Burwell. 

Only hours after the D.C. Circuit's ruling in Halbig, a different appellate court, the 4th Circuit Court of Appeals in Richmond upheld the IRS rule permitting subsidies for the millions of Americans who receive them through a federal exchange.  In direct opposition to the D.C. Circuit, the subsequent 4th Circuit ruling says that the rule issued by the Internal Revenue Service was “a permissible exercise of the agency’s discretion.” The conflicting rulings greatly increase the possibility that the dispute will ultimately be resolved by the Supreme Court in the spring to summer of 2015.

The D.C. Circuit is widely viewed as the second-most powerful court in the land, and their edict will likely overshadow the Fourth Circuit for now.  Obama administration lawyers will appeal the D.C. panel’s decision to the full D.C. Circuit. There, seven of the 11 judges are Democratic appointees. Because of the politics behind this law, that full-panel review will likely result in a decision aligned with with 4th Circuit and deem the subsidies legitimate.  We've had enough ambiguity and uncertainty on this already, though, that I suspect we are looking at a 60% to 75% chance the Supreme Court will take this case and we'll have a final decision on the matter by June of 2015.

If It Stands, the Halbig Decision Will Have Huge Impact on Obamacare and Employers

The D.C. Circuit ruling guts the employer mandate, in those same 36 states, because the $3,000 per employee fines only kick in if one of such an employers' workers buy subsidized covered on HealthCare.gov.  With no available subsidies, there will be no corresponding employer fines. 

The D.C. Circuit ruling also renders the individual mandate all but useless in the 36 states. If the amount a person is asked to pay for his insurance in an Exchange exceeds 8% of his income, he is exempted from the fines associated with the individual mandate.  Without these federal handouts to buy insurance, virtually nobody will fall under that 8% threshold, thereby freeing them from the federal rule compelling them to purchase a policy.  According to one analysis by the Constitutional Accountability Center, a think tank and law firm, without the subsidies, insurance would no longer be considered affordable by this standard for 99% of people who receive them.

California is one of the 14 states that set up its own Exchange. So while the ultimate meaning of the rulings does not impact the Golden State, on its face, it will practically impact all 50 states eventually if the subsidies are stricken.  The economy, employer costs, recruiting efforts, and competitive balance could not withstand a system whereby 14 states have to comply with all of the stringent requirements of PPACA while 36 of them, by in large, receive a pass.  I've already received a call from a senior health insurance consultant at one of the largest brokerages in the world who is looking at how an employer can take advantage of this ruling and create a significant advantage over competitors by bolstering hiring and operations in the 36 states. 

• For more on the practical implications see also: Halbig v. Burwell Would Free More Than 57 Million Americans From The ACA's Individual & Employer Mandates stating, in part: 

1. a victory for the Halbig plaintiffs would increase no one’s premiums, 
2. if federal-Exchange enrollees lose subsidies, it is because those subsidies are, and always were, illegal, and  
3. the winners under such a ruling would outnumber the losers by more than ten to one.  

Last week, a study issued by the consultancy Avalere Health, provided that if those subsidies were removed this year from the 4.7 million people who received them in HealthCare.gov states, their premiums would have been an average of 76% higher than what they actually paid.  With that kind of a cost increase, only the very sickest in that pool of 4.7 million would find a way to purchase coverage, further speeding the Exchanges into an unsuitable spiral of aging and ill participants with skyrocketing premiums.

This is from Joe Carlson writing at Modern Healthcare about the earlier Halbig decision:

A federal appeals court has ruled the Obama administration cannot subsidize insurance premiums for nearly 7 million Americans, dealing a serious blow to the Patient Protection and Affordable Care Act.The ruling sets up an almost-certain appeal to the U.S. Supreme Court. 

Two judges with the D.C. Circuit Court of Appeals in Washington ruled Tuesday that the text of the reform law clearly forbids income-tax subsidies to go to low- and middle-income Americans who use one of the 34 federally run insurance exchanges.  [Note: Though initially intending to set up state Exchanges, Idaho and New Mexico defaulted to the federal government and Healthcare.gov bringing the total number of federally-facilitated Exchanges to 36, not 34.]  The tax subsidies have been flowing since the beginning of the year, based on a 2012 interpretation of the law by the IRS. 

The actual text of the law says the sliding-scale tax credits are only available for coverage purchased “though an exchange established by the state,” which only 16 states did. IRS officials had claimed the imprecise wording of the law contradicted Congress' overall intent to expand insurance coverage as widely as possible. But that argument did not win the day Tuesday. 

“Because we conclude that the ACA unambiguously restricts the section 36B subsidy to insurance purchased on Exchanges 'established by the State,' we reverse the district court and vacate the IRS's regulation,” the two-member majority wrote. ... 

The ruling does not automatically doom the subsidies. It's virtually certain that the administration will appeal Tuesday's ruling, either to a full panel of the D.C. Circuit Court or directly to the Supreme Court. Legal experts say the earliest the high court would rule is in the matter as soon as spring 2015 — setting up a period of national uncertainty, since the final word on the subsidies' legality would likely come after the re-enrollment period for next year. 

Economists have estimated that a ruling like Tuesday's, in favor of the plaintiffs in Halbig v. Burwell, would eventually cause 6.5 million people nationally to forgo insurance purchased with now-illegal tax credits. 

Nearly 7 million people used the exchanges to buy coverage in 2014, and more than 80% of them qualified for a tax credit that averaged about $2,900 per enrollee. Most of them are likely to forgo the coverage rather than pay the full price themselves, legal experts on both sides of the issue say. That would set up a situation where only people with immediate plans to use the insurance — that is, the sick or chronically ill — would be likely to find a way to pay for it. Skewing insurers' risk pools would most likely cause prices to rise, perhaps dramatically. 

The ruling could also destabilize non-group insurance markets outside the exchanges.
That's because the reform law required insurance companies to put individuals in the same risk pools for coverage, regardless of whether they use an exchange or not. In other words, the grouping of disproportionately sick individuals in the exchanges could cause non-group premiums to rise outside the exchanges as well, because individuals in each state are in the same risk pool. 

The Halbig case is not the only such lawsuit based on the legal theory that the reform law was only supposed to offer subsidies through federal exchanges. 

The Competitive Enterprise Institute, which coordinated Halbig v. Burwell, also has a case called King v. Burwell awaiting a decision before judges of the 4th U.S. Circuit Court of Appeals in Richmond, Virginia. In addition, federal lawsuits filed by state officials, Pruitt v. Sebelius in Oklahoma and Indiana v. IRS, are pending in U.S. District Courts in Oklahoma City and Indianapolis. 

Traditionally, the Supreme Court waits for two circuit courts to issue split rulings on the same question before taking up a case, though the court is free to accept cases involving urgent national questions if it chooses.

This is from the 4th Circuit's conflicting decision in King v. Burwell on pages 42-42:

In fact, Appellants’ [challengers to the subsidies] reading is not literal; it’s cramped. No case stands for the proposition that literal readings should take place in a vacuum, acontextually, and untethered from other parts of the operative text; indeed, the case law indicates the opposite. National Association of Home Builders v. Defenders of Wildlife, 551 U.S. 644, 666 (2007). So does common sense: If I ask for pizza from Pizza Hut for lunch but clarify that I would be fine with a pizza from Domino’s, and I then specify that I want ham and pepperoni on my pizza from Pizza Hut, my friend who returns from Domino’s with a ham and pepperoni pizza has still complied with a literal construction of my lunch order. That is this case: Congress specified that Exchanges should be established and run by the states, but the contingency provision permits federal officials to act in place of the state when it fails to establish an Exchange. The premium tax credit calculation subprovision later specifies certain conditions regarding state-run Exchanges, but that does not mean that a literal reading of that provision somehow precludes its applicability to substitute federally-run Exchanges or erases the contingency provision out of the statute.  

Other Coverage on Today's Decisions:

Federal Courts Zig and Zag on Obamacare Tax Credits
July 22, 2014 - National Center for Policy Analysis
Excerpt: "Both these rulings expose yet more flaws in Obamacare that need to be addressed. Many exchange enrollees will undoubtedly be angered by the uncertainty, but many others would be relieved to be able to dump health plans they didn’t want in the first place. States need to act fast to allow individuals the opportunity to enroll in health plans previously outlawed under Obamacare. While Democrats will undoubtedly blame Republicans for ‘dragging their feet’ in the creation of state exchanges, the truth is that the federal government discouraged states from operating their own exchanges with onerous regulations, inflexible deadlines, and the promise that states that could merely opt out and allow the federal government to do the job for them.”

D.C. Appeals court strikes Obamacare subsidies
July 22, 2014 – Politico
Excerpt: “Now that the court has sided with the plaintiffs, Obama administration can ask the full appeals panel to reconsider the case in an en banc hearing or appeal directly to the Supreme Court. The decision doesn’t immediately block the subsidies from the federal-run exchanges. If the subsidies are ultimately blocked, an estimated 7.3 million people — about 62 percent of those expected to enroll in federal-run exchanges by 2016 — could lose out on $36.1 billion, according to a report from the Robert Wood Johnson Foundation.”

Court Rules Against Obamacare Subsidies for Federal Exchange Insureds
July 22, 2014 – Insurance Journal
Excerpt: “President Barack Obama’s healthcare overhaul suffered a potentially crippling blow as a U.S. appeals court ruled the government can’t give financial assistance to anyone buying coverage on the insurance marketplace run by federal authorities. The decision, if it withstands appeals, may deprive more than half the people who signed up for Obamacare the tax credits they need to buy a health plan.”

BREAKING — D.C. Circuit strikes down tax credits in federal exchanges
July 22, 2014 – The Washington Post
Excerpt: “What comes next? The Administration will have to decide whether to seek en banc review of this decision or file a petition for certiorari. If I had to guess, I would say the former is more likely. Supreme Court review will likely wait until there are more decisions on this question. A decision remains pending in King v. Sebelius before the U.S. Court of Appeals for the Fourth Circuit and there are two pending cases in district courts. If this decision is upheld, it will present some three-dozen states with a choice: Establish exchanges so as to authorize tax credits for state citizens while also triggering penalties on employers and individuals who do not wish to purchase qualifying health insurance. As my co-author Michael Cannon notes, the implications of this decision go beyond its effect on tax credits.”

JACQUELINE HALBIG, ET AL., APPELLANTS v. SYLVIA MATHEWS BURWELL, IN HER OFFICIAL CAPACITY AS U.S. SECRETARY OF HEALTH AND HUMAN SERVICES, ET AL., APPELLEES
July 22, 2014 – The U.S. Court of Appeals for the District of Columbia
Excerpt: “On its face, this provision authorizes tax credits for insurance purchased on an Exchange established by one of the fifty states or the District of Columbia. See 42 U.S.C. § 18024(d). But the Internal Revenue Service has interpreted section 36B broadly to authorize the subsidy also for insurance purchased on an Exchange established by the federal government under section 1321 of the Act. See 26 C.F.R. § 1.36B-2(a)(1) (hereinafter “IRS Rule”).”

Courts Issue Conflicting Rulings on Health Care Law
July 22, 2014 - The New York Times
Excerpt: "The law 'does not authorize the Internal Revenue Service to provide tax credits for insurance purchased on federal exchanges,' said the ruling, by a three-judge panel in Washington. The law, it said, 'plainly makes subsidies available only on exchanges established by states.'  Under this ruling, many people could see their share of premiums increase sharply, making insurance unaffordable for them.  If it stands, the ruling by the District of Columbia court could undercut enforcement of the requirement for most Americans to have insurance."

Halbig v. Burwell, Edited
July 23, 2014 - Craig Gottwals
To see the full 72 pages of the case edited down to less than 6 you may read my posting here.

Halbig Obamacare, full ruling

You can read the Fourth Circuit's King v. Burwell decision here.