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By David Schultz
The fate of the Affordable Care Act (ACA) may well depend on the clarity of words and whether, to paraphrase the March Hare from Alice in Wonderland, Congress said what it means and means what it said. At least this appears to be the case after two courts of appeals split over whether “state” means state when it comes to legality of tax subsidies to help some individuals purchase health insurance as required by the ACA. These split circuit decisions speak volumes about legislative drafting, the power of administrative agencies and the role of the courts in overseeing both.
On July 21, 2014, the D.C. Court of Appeals in Halbig v. Burwell issued a split decision invaliding the tax subsidies to individuals in states where the federal government was operating the health care exchanges under the ACA. Just a few hours later, the Fourth Circuit Court of Appeals, in King v. Burwell, unanimously upheld the subsidies as constitutional. In both cases, the courts differed over how to interpret the word “state” in the law, even though they were using essentially the same tool of analysis to render their opinion.
The tool of analysis both courts used was articulated in Chevron v. NRDC, where the Supreme Court formulated a two-step process to be used to clarify statutory language. That case recognized a basic problem of language, which is its open texture. Words and phrases in the law are not always clear to what they mean. It is also hard to ascertain congressional intent, due to unclear language, conflicting goals or deference to administrative agencies to set up enabling rules. All of this is reminiscent of the classic law school problem of determining what constitutes a “vehicle” when a law says “No vehicles in the park.”
In general, Chevron says that if a court is asked to interpret a statute it needs first to ask if law is clear. If so, then the court should interpret it. However, what if the law is not clear? Here the Supreme Court said that the judges should defer to constructions of the law made by administrative agencies. The rationale of Chevron rests in the belief that the judiciary should generally defer to Congress and administrative agencies when it comes to making policy and clarifying what it means.
Justice Scalia and others have called Chevron the “reverse Marbury,” a reference to the 1803 case of Marbury v. Madison. In this case, the Supreme Court decision by Chief Justice Marshall effectively established the practice of judicial review for the federal courts. Chevron places significant authority and deference in the hands of administrators and agencies to interpret the law and exercise discretion. While post-Chevron decisions have refined the ruling, the basic test remains the same—courts should defer to reasonable agency interpretations of the law if they latter are unclear. So how does all this fit into the ACA?
The dispute is over the creation of the health care exchanges, under the ACA, and the mandate to have health insurance. At the heart of the ACA is the requirement that every individual should have health care insurance. If they do not have it though employment or other means, they are required to purchase it or be taxed. In the 2012 case of National Federation of Independent Business v. Sebelius, the Supreme Court upheld the mandate as a valid measure under Congress’ power to tax and spend for the general welfare. But the ACA also provided that if individuals could not afford to purchase health care insurance they would be eligible for tax subsidies to help them buy it. Moreover, the ACA called for the creation of health care exchanges as a way for uninsured individuals to purchase insurance. These exchanges would be run by states. In the event that a state opted not to create an exchange, the federal government would run the exchange in that state.
The problem is that in the language describing the subsidies, the language appears to provide only for subsidies that are run by the states and not the federal government. However, language elsewhere in the ACA implied or suggested that congressional intent was for the subsidies to be made available to all income-eligible individuals regardless of who ran the health care exchange. This is what the Internal Revenue Service (IRS) concluded when it wrote its rules for interpreting and implementing the ACA subsidy.
Using Chevron, the D.C. Circuit ruled that “state” meant state. The two judges said that because the language of the statute was clear it did not have to defer the IRS construction of the law and therefore subsidies would not be available to individuals who purchased their health care through a federally operated health care exchange.
The Fourth Circuit reached a contrary answer using Chevron. It said that law was not clear and therefore the IRS had reasonably construed the law to allow subsidies to be provided to health care exchanges run by the federal government. The issue here is all about how clear congressional intent was and then whether the courts should defer to the IRS’s interpretation of the law. Thus, two courts using the same interpretative tool of analysis came to contrary readings of the same statute. They differ over whether upon reading the ACA the meaning of the word “state” should be construed by simply reading one section of the law or by reading that section within the broader context of the entire law.
It may be years before there is a final determination here. The Obama administration has asked the entire D.C. Circuit to review the case. That could take a year or so and it is possible it could overrule the three-judge panel. If it does, assuming no more courts rule on this, the Supreme Court might simply defer to the lower courts and pass on the case. But if the D.C. decision is upheld, or other courts render contrary readings of the law, then the Supreme Court might well take and rule on the case in 2016–just in time for the next presidential election.
The morale of the story here is that no matter how clear one may think a law is, ambiguities persist. Yes, it seems inconceivable that a Democratic Party controlled Congress would not have wanted these subsidies available to individuals getting their health care through federal exchanges. But the ACA seems both clear and vague at the same time. Its ambiguities point to an important role for public administrators in clarifying the law and making sense of legislation. Such an interpretative role questions the sharp political/administration dichotomy that supposedly exists and which is described in public administration textbooks. It also points to the fact that what administrators do has the force of law and makes them important players in the policymaking process. In addition, it might question whether the Chevron test is really a neutral tool of interpretation or if it can be used by the courts to mask a political reading of the law, as some have said in questioning the D.C. Circuit decision.
Author: David Schultz is a professor in the school of business at Hamline University. He can be reached at [email protected]