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What Obamacare's latest challengers are getting wrong

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On Tuesday, two federal appeals courts handed down contradictory rulings on whether Obamacare's subsidies are legal in the 36 states that have federally-run exchanges.

Halbig v. Burwell, which came out of the D.C. Circuit, has commanded the lion's share of attention because its three-judge panel ruled against the government, decreeing subsidies illegal in most states. Several hours later, the Fourth Circuit released an opinion in King v. Burwell, another lawsuit on the same issue. The latter court unanimously upheld the subsidies.

I spoke with Nicholas Bagley, a law professor at the University of Michigan, about the cases. Prior to teaching, he was an attorney on the Appellate Staff in the Civil Division at the U.S. Department of Justice and served as a law clerk to Justice John Paul Stevens at the U.S. Supreme Court and to Judge David Tatel of the D.C. Circuit.

Bagley has closely tracked these lawsuits, offering analysis and commentary at The Incidental Economist. We chatted about some points that are hotly disputed in media coverage of the cases.

What follows is a transcript of our conversation, edited for length and clarity.

Adrianna McIntyre:  There's been a lot of back-and-forth about what Congress "really" intended when they passed the Affordable Care Act. Some challengers have argued quite confidently that Congress meant to withhold subsidies on federal exchanges, even though nobody has come forward to corroborate that narrative. What's your take on the challengers' conception of intent?

Nicholas Bagley: When the challengers talk about "Congressional intent," they really talk in two different registers. In one register you have the Michael Cannons of the world, who seem to genuinely believe that Congress intended to deprive tax credits to people with federally-established exchanges. Almost no one else adheres to that view. People who were around during the debate over the ACA don't recall anyone mentioning any such threat and there's no such threat that's manifest on the face of the statute. The notion that Congress intended to level this threat is fictional.

There's another register in which challengers sometimes speak, and that's to say, "Look, it's really hard to say what Congress really meant. We can't just poll members of Congress. We're better off just looking to the text instead of speculating." For those challengers, once you figure out what the text of the statute means, the only question that remains is whether assigning that meaning to the statute would generate some kind of absurd result. If not, then you apply the statute as written, even if you might harbor doubts about whether Congress really truly meant it.

Here, I take the less extreme position from challengers to be that a reasonable Congress could have crafted a statute that deprived people on federal exchanges of tax credits. For them, that should be the end of the story, no matter what Congress "really" meant.

AM: Tuesday's rulings spawned a firestorm of media coverage. What do you think has been the biggest mistake so far in the way people are writing about the lawsuits?

NB: In some circles, this case is being framed as a clash between people who adhere to the text of statutes and people who disregard the text of statutes whenever they believe it contradicts some Congressional purpose. I think that dichotomy is false.

Both the D.C. Circuit and the Fourth Circuit were trying to figure out the meaning of the text that Congress enacted — but they went about doing so quite differently. The D.C. Circuit adopted a cramped technique where it adhered to the literal meaning of snippets of the statute taken more or less in isolation. The Fourth Circuit tried to construe  those isolated snippets in light of the broader context of the statute as a whole.

But it's not that the Fourth Circuit doesn't care about the rule of law and the D.C. Circuit does — that's just ridiculous. Both care about the law, but they go about figuring out what it is in quite different ways.

AM: I want to pose a question that has been one of the most controversial so far, at least in media coverage of the lawsuit: Was this a drafting error?

NB: The language of the statute is unfortunate and certainly sloppy. Whether it was an "error" is, in some sense, not the urgent question here. The urgent question is how we make sense of the words that Congress used when it enacted the statute. And we have to make sense of those words whether it was an error or not.

So, here, Congress used the phrase "established by the State under 1311." In the context of a statute where states had primary responsibility for establishing exchanges and the federal government would be a fallback, do we construe that language to indicate an intent of Congress to threaten the states that chose not to set up their own exchanges with the loss of tax credits? Read in context, there's just no evidence that Congress meant to issue any such threat. In fact, there's a lot of evidence that Congress meant by the words it selected something quite different.

AM: Setting aside for a moment that it's not the pertinent question, are there reasons the government might hesitate to frame this as some kind of mistake?

NB: There are judicial doctrines that allow courts to correct obvious errors in statutory text — the omission of an obvious word, for example, or an incorrect cross-reference where it's obvious what the cross-reference was supposed to be. But the courts are pretty reluctant to correct mistakes unless the mistakes are manifestly clear. Here, we don't have what they call a "scrivener's error." This isn't the transposition of two words on accident or just a slip of the pen.

From the government's perspective, arguing that the statutory text is a mistake exposes them to the rejoinder that mistake or not, it needs to be applied as written. What the government needs to say instead is that the text as written does not mean what the challengers think it means, and that it in fact means something quite different.

That's why the case is framed not in terms of whether it was a "mistake," but in terms of how we best make sense of the words that Congress selected.

I think if pressed, the government would concede that it's unfortunate language — that it is not the best articulation of what Congress meant. But it's perfectly acceptable to say that the literal meaning of a snippet of legislative text can accrue a different meaning when read in context.

AM: Some people have tried to draw parallels between the exchanges and Medicaid, arguing that since Medicaid expansion conditioned program funding on expansion — at least until the Supreme Court made expansion voluntary — it's perfectly plausible to say that tax credits were conditioned on states establishing their own exchanges. What's your take on that?

NB: Under the Medicaid statute, the baseline rule is — and has always been — that if you want to participate in Medicaid, you have to play by Medicaid's rules. If Medicaid thinks you're not playing by their rules, the program has always been able to cut off your funding. Medicaid doesn't have to approve a state Medicaid plan.

The context of the Affordable Care Act is quite different. This was a brand new scheme of state exchanges with a federal backdrop. There was no convention about who got tax credits on which exchange under what circumstances — Congress was crafting these out of whole cloth. If Congress really meant to make tax credits available only on state-established exchanges, you would expect that intent to be clear on the face of the statute.

In other words, Congress wouldn't have pussyfooted around the threat to withhold subsidies from federal exchanges. It would have made the threat known, and in a manner that the states could understand. But in fact the states did not see any threat in the ACA — because there wasn't any such threat. In the Medicaid context, they emphatically understood the threat. That's the difference.

AM: What do you make of the D.C. Circuit's use of other examples of "bad policy" within the Affordable Care Act — the problems in Guam and the U.S. territories, for example — to suggest that this might just be another example of Congress not thinking through the consequences of their legislation?

Well, it's very strange to point to a portion of the law that's not working, and say that because it doesn't work well, other portions of the law might not work well, so we're relieved of any responsibility to interpret the statute in a manner that could make it work well.

I would have thought that the best approach would be to try to make the statute work as well as possible given the constraints of the statutory text, and not to spike the legislation out of a misplaced fidelity to a piece of legislative text shorn of context.

AM:  What's your sense of what happens if the Halbig ruling does end up as the law of the land?

NB: I think there's been too much doom-and-gloom in the media. There's this instinctive reaction that the Affordable Care Act may itself be unraveling, and I think there's very little reason to believe that's likely to happen.

Even if the litigation is ultimately successful at the Supreme Court — and it's a long road between now and Supreme Court review — we have experience with a Supreme Court ruling that leads to differential outcomes on a state-by-state level. When the Supreme Court issued its decision upholding the ACA, it allowed states to choose whether to opt into the Medicaid expansion. The fact that the ACA operated differently across the states wasn't reason enough to discard the whole statute. And I suspect we would see similar patterns develop here: that there would be participating states and non-participating states. I think the number of participating states would go up as state legislatures and the state governors realize that so many of their taxpayers — many of whom will have grown accustomed to the tax credits to purchase their tax plans — clamor for states to set up their own exchanges.

Reports of the imminent demise of the Affordable Care Act have been overstated.