XPost: ba.politics, dc.media, soc.penpals   
   XPost: alt.burningman   
   From: gw@aimfire.com   
      
   JUL 22, 2014 2:31 PM EDT   
      
   By Noah Feldman   
      
   Just when you thought it was safe to get back in the water, the   
   judges in Washington took another big chomp out of the   
   Affordable Care Act. No, not the Supreme Court -- this time it   
   was the U.S. Court of Appeals for the D.C. Circuit.   
      
   In a 2-1 panel decision on partisan lines, the appeals court   
   ruled that the tax subsidies for insurance coverage purchased   
   from federal exchanges are illegal. The effect of the decision   
   is to drastically undercut Obamacare by enabling all 36 states   
   that don’t have their own exchanges to exempt millions of people   
   from the individual mandate that they buy insurance.   
      
   Meanwhile, across the Potomac River, the U.S. Court of Appeals   
   for the Fourth Circuit ruled the opposite way. It upheld the tax   
   credits for state exchanges as a permissible exercise of   
   Internal Revenue Service discretion to interpret an ambiguous   
   statute. But the D.C. opinion is the one that counts -- it's the   
   one that could send the U.S. health-care system into a death   
   spiral.   
      
   Related: Obamacare Takes a Body Blow   
      
   The background to these cases is a little complicated, but bear   
   with me. The Affordable Care Act required the states to set up   
   exchanges to enable their citizens and some employers to   
   purchase mandatory health plans. If the state does not set up   
   the exchanges, the law empowers the federal government to do so   
   itself.   
      
   The purpose of the exchanges is, of course, to provide a venue   
   for buying insurance to those people who are required by law to   
   have a health-care plan, known as “the individual mandate.” For   
   those who cannot afford to buy the insurance -- those making   
   between 100 percent and 400 percent of the poverty line -- the   
   law directed the IRS to provide tax subsidies.   
      
   The point of the subsidies is to get enough people covered by   
   the system to assure that it is viable, and that healthy people   
   don’t opt out of coverage, leaving only the sick inside the   
   system.   
      
   Two summers ago, the Supreme Court famously upheld the   
   individual mandate. But 36 states chose not to create their own   
   health exchanges. In their stead, the federal government   
   established its own. The D.C. Circuit case, Halbig v. Sebelius,   
   involves those federal exchanges.   
      
   In a stroke of legal creativity, anti-ACA activists noticed a   
   flaw in the law authorizing the tax subsidies. Section 1311 (D)   
   (1), the key provision, describes the exchanges for which the   
   subsidies could be granted by saying that “an Exchange shall be   
   a governmental entity or nonprofit entity that is established by   
   a State.”   
      
   The activists argued that this language means that the tax   
   credits may only be made available for a state exchange, not a   
   federally created one. If their interpretation is correct, then   
   it would be illegal for the IRS to extend tax credits for   
   coverage in the 36 states that lack a state exchange.   
      
   If this happened, Obamacare critics hoped, the law itself could   
   “crumble,” as one friend of the court brief put it.   
      
   Although a district court rejected their reading, today the D.C.   
   Circuit accepted it. In his opinion, Judge Tom Griffith, a   
   Republican appointee generally considered moderate, wrote that   
   the language of section B-1 was plain and unambiguous. A state   
   exchange, he insisted, could not mean a federal exchange created   
   in lieu of a state one.   
      
   The great benefit of Griffith’s position is that it follows an   
   intuitive literal reading of the statutory provision.   
      
   Undoubtedly, the drafters of the law did badly when they failed   
   to mention the possibility of a tax credit for a federal   
   exchange explicitly. The probable reason is that nobody   
   expected, when the law was being written, that states would   
   choose not to have exchanges of their own. Of course it was a   
   possibility -- that’s why the law provided for the federal   
   exchange option. But in drafting an enormously long and complex   
   statute, Congress often failed to provide for every eventuality   
   in clear terms.   
      
   The great drawback of Judge Griffith’s opinion, which was joined   
   by Judge A. Raymond Randolph, another Republican appointee, is   
   that it uses the statute to destroy itself.   
      
   In a notably clear and blunt dissent, Judge Harry T. Edwards   
   (disclosure: I clerked for him 16 year ago) explained why this   
   was so. Edwards declared up front that the case involved a not-   
   so-veiled attempt to “gut” the ACA.   
      
   He then painstakingly showed that the statute is best understood   
   as ambiguous. The chief reason for the ambiguity is that, as he   
   put it, Congress could not have intended to give the states the   
   effective power to destroy Obamacare simply by not creating   
   their own exchanges.   
      
   Under established precedents, if a statute is ambiguous, then   
   the courts must defer to a reasonable interpretation proffered   
   by the branch of government charged with implementing the law --   
   here, the IRS. Edwards therefore concluded that the tax credits   
   were indeed lawful.   
      
   It’s extremely unlikely that the D.C. Circuit will have the last   
   word. The government will seek a hearing before the whole D.C.   
   Circuit sitting en banc -- that’s a strategic decision to be   
   made by the solicitor general.   
      
   But make no mistake, this case is going to the Supreme Court.   
      
   There, the crucial question will be whose method of statutory   
   interpretation will prevail: the strict textualism of Justice   
   Antonin Scalia or the purpose-driven pragmatism of Stephen   
   Breyer. The swing vote may well be Chief Justice John Roberts,   
   who last time saved the individual mandate and kept the ACA   
   alive. Oh, and politics may matter just a little bit, too.   
      
   In the meantime, the ACA is not yet quite dead. But there’s   
   blood in the water, and the great whites in robes are circling.   
      
   To contact the writer of this article: Noah Feldman at   
   noah_feldman@harvard.edu.   
      
   To contact the editor responsible for this article: Tobin   
   Harshaw at tharshaw@bloomberg.net.   
      
       
      
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