In passing the Patient Protection and Affordable Care Act (also known as “Obamacare”), Congress made a minor mistake — a drafting error that threatens the entire act. Two federal courts of appeals have issued conflicting rulings about how to interpret Congress’ poorly chosen words. And while the more favorable ruling seems likely to prevail, the act is still in grave danger. That's because even the more favorable one leaves it up to the executive to decide which interpretation of the Act is correct. That means that while Obamacare might seem safe for now, a future president could interpret the act in a way that would destroy it.
The problem revolves around the subsidies the act provides to help people buy health insurance. A poorly drafted provision, it says that subsidies are available to people who buy insurance on a healthcare exchange “established by [a] state.” Read in isolation, this language suggests that subsidies are not available to people who buy insurance on HealthCare.gov, the exchange run by the federal government in states that have not created an exchange. That’s 36 states, so the point makes a big difference to whether the act can work.
The act also, however, contains other language that leaves room for a different reading. It says that if a state does not create an exchange, the federal government will establish and operate “such exchange” within the state. This language (along with some other, rather opaque provisions) creates the possibility that the federal exchange is, for purposes of the act, deemed an exchange “established by [a] state.” The IRS adopted this reading when it promulgated regulations allowing subsidies to people who buy insurance through HealthCare.gov.
It’s not clear why Congress wrote the statute this way. Probably it’s just a mistake — the sort of thing that happens all the time when a huge statute is passed. Normally, it would be fixed by a “Technical Corrections” bill. But obviously the Republicans are not going to let an “Obamacare Corrections Bill” get through Congress. So we’re stuck with the act as drafted.
The statute therefore presents a classic clash between statutory interpretation philosophies. On the one hand, some of the statutory text could be read, narrowly and literally, to say that subsidies are available only in states that run their own exchanges. On the other hand, Congress can’t have intended that result. The subsidies are critical to the success of the whole statutory scheme. Congress can’t have intended to let individual states destroy the act by choosing not to create exchanges.
What is a court to do when statutory text conflicts with likely legislative intent? Some “textualist” judges believe that a court’s job is simply to read the statutory text and do what it says, even if what it says seems silly. That’s what the D.C. Circuit did last month. It said that “established by [a] state” means “established by [a] state,” and it prohibited the IRS from allowing subsidies to people who buy insurance on HealthCare.gov.
The 4th Circuit refused to read that one phrase in isolation. Also ruling last month, the 4th Circuit saw ambiguity in the statutory text. The 4th Circuit concluded that while the statute could be read to prohibit giving subsidies to people who buy health insurance on HealthCare.gov, it could also be read to allow them.
The 4th Circuit therefore invoked a tie-breaking principle established by the Supreme Court in the 1980s: Where statutory language is ambiguous, a court should uphold the interpretation given to the statute by the federal agency that administers it, as long as that interpretation is reasonable. Here, the 4th Circuit found the IRS’s interpretation to be reasonable in light of the vital role that subsidies play in the overall statutory scheme.
Coming just hours after the D.C. Circuit ruling, the 4th Circuit decision allowed Obamacare supporters to breathe a sigh of relief. As several commentators pointed out, the 4th Circuit’s ruling seems likely to prevail. Even though the phrase “established by [a] state” does, by itself, seem to limit available subsidies, the “such exchange” language, plus the vital purpose that subsidies play within the statutory scheme, show that the act should at least be regarded as ambiguous, which would allow the IRS’s interpretation to stand.
This sunny forecast, however, overlooks one critical point.
Assuming the 4th Circuit’s decision ultimately prevails, that decision only allows, and does not compel, the IRS to interpret the Affordable Care Act to provide subsidies for people who buy health insurance on HealthCare.gov. The 4th Circuit did not hold that the act clearly provides for such subsidies; it held that the act was ambiguous. If that’s correct, then it’s up to the IRS to decide whether the act provides for such subsidies or not.
The IRS is an executive agency. It’s part of the Treasury, and the Affordable Care Act technically vests the secretary of the Treasury with the power to promulgate the regulations interpreting the act’s subsidy provision. Of course under President Obama’s Treasury secretary, the regulations allow Obamacare to work. But what about the next president? Whom would President Ted Cruz, or President Rand Paul, or even President Jeb Bush appoint as Treasury secretary, and what would that secretary do?
It’s entirely possible, under the 4th Circuit’s ruling, that the next administration could promulgate new rules denying subsidies to people who purchase insurance on HealthCare.gov. If the statute is ambiguous, a court would have to uphold such an interpretation of the statute unless it were unreasonable. And while there would be a good argument that such an interpretation would be unreasonable (since without the subsidies, the statutory scheme could collapse), it’s rare for a court to find that a statute is ambiguous, and yet to strike down an agency’s interpretation of the statute as unreasonable.
So the 4th Circuit’s decision, although cheering Obamacare supporters for now, contains the seeds of Obamacare’s potential destruction. If that decision prevails, the fate of Obamacare could turn on the 2016 election. The next president, by simple executive action, without the need for congressional approval, could potentially undo this critical piece of the Affordable Care Act’s statutory scheme.
Would a Republican president really do that? It’s possible. True, Obamacare is becoming more popular as people realize it’s providing health insurance to millions while not causing the disastrous problems its detractors predicted. Perhaps by 2020 it will be so firmly embedded as to be beyond undoing. But perhaps not by 2016. For now, Republicans are still calling it the worst statute ever. The 4th Circuit’s ruling gives the next president the power to destroy Obamacare, and a Republican president would face great pressure to use that power.
There are already plenty of reasons why the 2016 election will be critical — Ruth Bader Ginsburg’s Supreme Court seat, for example. But the 4th Circuit’s ruling creates another. If it’s up to the president to decide whether Obamacare can work or not, then it really matters who our next president is.
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