The Supreme Court will be handing down its decision in King v. Burwell in about a month’s time, and the availability of tax subsidies to help fund the purchase of health insurance will be decided. A good bit of the news coverage over the last month or so has been about the disaster that will befall the health insurance marketplaces in states that may lose subsidies and about the resulting political peril in which Republicans in those states will find themselves. Specifically, the ACA’s individual mandate and mandatory coverage provisions make health insurance coverage so expensive that, without the benefit of tax subsidies, only sick people will purchase insurance, making insurance even more expensive and causing a state’s health insurance market to go into a death spiral. State governments would have no other choice and would be coerced into establishing exchanges just to obtain the subsidies.
During oral argument before the Court, several of the justices asked questions about the potential for such a death spiral and its statutory and constitutional implications. Much of that discussion centered on the doctrine of constitutional avoidance, under which an ambiguous statute with two possible interpretations, one constitutional and the other quite likely unconstitutional, ought to be ascribed the meaning that is constitutional. In particular, Kennedy stated that “if Petitioners’ argument is correct, this is just not a rational choice for the States to make and that they’re being coerced. . . . And that you then have to invoke the standard of constitutional avoidance.” But Justice Kennedy does not say what that doctrine would require.
The news coverage and all the discussion on the Internet have been centered on the presumption that, if the Court invokes constitutional avoidance, it will result in the availability of the subsidies in the federal exchange being upheld, but that is not necessarily the only or even the most logical conclusion. As explained below, invoking the doctrine of constitutional avoidance shouldn’t require that the subsidies be made available under the federal exchange, but it could, grounded in the Court’s strong presumption that acts of Congress are constitutional, result in the Court concluding, as a matter of statutory interpretation, that Congress could not have intended the ACA’s individual mandate or mandatory coverage provisions to apply in any state that has not yet established its own exchange because the ensuing death spiral would coerce that state to establish an exchange in order to get the subsidies.
The Government’s Argument
The government’s argument is that the ACA is ambiguous, not because the subsidies provision in Section 1401 is ambiguous on its face, but when read in context with the other provisions in the Act. Section 1401, read alone, unambiguously makes the tax credits available “through Exchange established by the State under 1311,” with Section 1311 being the section under which a State may establish an exchange. The federal exchange is established under a different section, Section 1321. In addition, “State” is a defined term in the ACA, meaning the 50 states and the District of Columbia. It does not include the federal government. Section 1401 unambiguously favors the plaintiff’s position.
However, the government cites the portion of Section 1321 under which, when a state fails to establish an exchange, the federal government must establish “such Exchange.” The argument essentially is that one of the possible meanings of the ambiguous phrase, “such Exchange,” must be transported from Section 1321 to the unambiguous Section 1401 to make Section 1401 read “in context” to mean the opposite of what it actually says. This formulation of the argument is idiotic.
It makes no sense to take an ambiguous section and pick one possible meaning to cause an unambiguous section to mean something it doesn’t. The more sensible approach is to construe the ambiguous section consistently with the plain meaning of the unambiguous section. However, there is an alternative formulation of this argument from which the Court could draw the conclusion that the ACA is ambiguous with respect to the availability of subsidies.
Section 1321 contains an admittedly ambiguous phrase, “such Exchange.” The scope of the meaning of the word “such” is not fully articulated. The plaintiffs believe that it just means an exchange of the same type and character as a 1311 exchange. But it also could mean that 1321 exchanges incorporate the benefits afforded to 1311 exchanges elsewhere in the Affordable Care Act, including with respect to the availability of subsidies.
With a dispute over these two possible meanings, the first question for the Court is whether both interpretations are reasonable, and if so, the second the question is whether one of them raises serious constitutional issues.
The First Problem – The Government’s Interpretation is not a Reasonable One
It has long been a canon of statutory construction that statutes imposing taxes should be construed strictly against the drafter, so that any tax liability imposed is very clear in the statute. In this case, the plaintiffs’ argument is that they should be exempt from taxation under the individual mandate because without the tax credits in Section 1401, the cost of health insurance would exceed eight percent of each of their incomes. To interpret “such Exchange” in a non-obvious way to result in the imposition of the individual mandate tax would be unreasonable in that it runs afoul of this long-standing principle on how the Court interprets tax law.
In addition, Section 1321 is not even part of the IRS code. To interpret that section to authorize billions of dollars of tax credits arising out of the single word, “such,” would not seem even remotely to resemble the type of reasonable interpretation that the Court should accept.
The Second Problem – Making Subsidies Available under Federal Exchange Raises Rather than Avoids Constitutional Issues
In the government’s view, making the subsidies available only under an exchange established by the state strongly raises the possibility of a constitutional violation. The government argues that the Court ought to adopt an interpretation of the ACA under which the subsidies are available under the federal exchange to avoid having to confront whether the federal government’s coercion of states into establishing exchanges violates federalism. However, leaving aside the arguments against the reasonableness of this interpretation, there are significant problems with this application of constitutional avoidance.
First, using constitutional avoidance grounded in federalism concerns to provide subsidies under the federal exchange would defeat the federalist goal of devolving power away from the central government. In avoiding rather than confronting the constitutional issue, the Court would concentrate more power over individuals in the central government and betray the very federalism principles that it would purport to uphold. It also would be taking a statute under which the central government invades state sovereignty by usurping primary authority over health care and health care insurance and “benefiting” the states whose authority has been usurped by cementing that concentration of federal power with a highly unreasonable interpretation of a single word, “such.”
Second, it is illogical for the Court to use constitutional avoidance grounded in federalism to place new burdens, burdens not contemplated by the plain language of the ACA, on the very sovereign states that the Court’s reasoning purports to benefit. If the subsidies are available in the federal exchange, then the governments of affected states, acting as employers, are burdened with a new tax, the employer mandate. The plain language of the ACA exempts those states from the application of the employer mandate.
The employer mandate only applies to an employer if at least one of its employees is eligible for a tax credit under Section 1401. If a state chooses not to establish an exchange, then under the plain language of Section 1401, none of its employees would be eligible for a tax credit, and the state government would be entirely free from the employer mandate. Making tax subsidies available under the federal exchange would punish the very states that chose, by not establishing an exchange, not to accept the burdens of the employer mandate.
Finally, interpreting a single word, “such,” in a section that is not even part of the IRS Code to allow the issuance of billions of dollars of tax credits would amount to the Court writing tax law instead of Congress writing tax law and would run afoul of the separation of powers. Only the Congress, not the Executive Branch and not the Judicial Branch, may create tax law.
If the Court wants to avoid the constitutional issue of coercion, a different approach to constitutional avoidance must be required.
Constitutional Avoidance – A Better Alternative
If the ACA’s individual mandate and insurance underwriting restrictions apply in any state not establishing an exchange, the health insurance market in such states will enter a death spiral, coercing state officials into scrambling to obtain subsidies by establishing an exchange. The Court’s presumption that acts of Congress are constitutional should lead to an interpretation of the individual mandate and the insurance underwriting restrictions such that they do not apply in any state not establishing an exchange.
While there is not a hint anywhere in the text of the ACA that Congress intended to make the individual mandate and the insurance underwriting restrictions applicable only in states establishing exchanges, it would not be the first time that the Court mandated an interpretation of a statute based solely on the assumption that Congress could not have intended something unconstitutional. In fact, that is what the Court did in NFIB v. Sebelius when it found the individual mandate to be a tax. The text of the ACA specifically calls the individual mandate a penalty, but the Court found that Congress’s taxing power under the Constitution supported the individual mandate even though the ACA did not call it a tax. In this case, while the ACA does not say that the individual mandate and the insurance underwriting restrictions apply only in states with their own exchanges, the Court could nonetheless find that to be Congress’s intention solely on the basis of its presumed intent not to violate the Constitution.
With this interpretation, the Court avoids having to directly confront the constitutional issue, which because there is no severability clause in the ACA, could lead to the invalidation of the entire ACA. The Court also does not burden, with the employer mandate, the very sovereign states benefitted by the application of constitutional avoidance, does not have to employ pretzel logic to find that Section 1401 means the opposite of what it says or that the word, “such,” in Section 1321 means billions are available to doled out without clear Congressional authorization, does not have to violate its canons of interpretation by imposing taxes on individuals via a highly dubious interpretation of the word, “such,” and does not have to employ the cynical argument that federalism concerns should dictate that power be further concentrated in the central government.
While it is my own view that the Court should reach and decide the constitutional issues in this case, and should invalidate the entire ACA, the beauty of this result is that it would be as if the ACA’s most onerous provisions, the individual mandate, the insurance underwriting restrictions and, for the most part, the employer mandate, were never made law in any state not establishing an exchange.