A Major Defeat for the IRS and Victory for Common Sense in Halbig v. Burwell

by Carrie Severino

Today was, ironically, a victory for Obamacare but a defeat for President Obama, as the D.C. Circuit upheld the text of the law over IRS attempts to rewrite it through regulation. The court came to the unremarkable but nonetheless controversial conclusion that, as Judge Randolph’s concurrence put it, “an Exchange established by the federal government cannot possibly be ‘an Exchange established by the State.’” This commonsense holding is another major defeat for the administration in its attempts to shore up the president’s namesake legislation through the clever use of pens, phones, and politicized regulators.

As Jonathan Keim and I have described (see our amicus briefthree-part seriesoral-argument discussion, and post-argument commentary), this case addresses attempts by the IRS to expand the scope of Obamacare’s premium subsidies. The law only provides those credits for plans purchased on exchanges “established by a State under section 1311” of the Affordable Care Act. As it turns out, just 14 states (and the District of Columbia) established their own exchanges, leaving the federal government to establish exchanges for the remaining 36 states. 

Dismayed that the resulting unavailability of subsidies would undermine their efforts to convince people to buy insurance on the exchanges, the IRS issued a regulation rewriting the section to authorize subsidies for exchanges established by the federal government, instead of just those “established by the State.” By offering these illegal subsidies, they induced an estimated 4 to 5 million people to buy insurance that otherwise would have been overly expensive.

But the subsidies don’t come for free. Not only do they cost taxpayers money, they also trigger the individual and employer mandates for more than 60 million people in the states that did not set up exchanges. The IRS regulation meant all of the people in those states would be forced to either buy insurance they didn’t want or face hefty fines. Several individuals and employers subject to those mandates brought suit in the D.C. Circuit and won in today’s decision.

The three-judge panel split 2–1. Judge Griffith wrote the majority decision for himself and Senior Judge Randolph, finding the regulation to be contrary to the text of the ACA. Randolph also filed a brief concurrence emphasizing that the precedent controlled their decision at both the D.C. Circuit and Supreme Court levels and labeling the IRS regulation “distortion, not interpretation.” Senior Judge Edwards filed a dissent that found the IRS rule was a reasonable interpretation of an ambiguous provision.

Griffith’s majority is detailed, workmanlike, and clear — probably written with an eye to the likely motion for rehearing en banc. After all, this case is precisely the type of challenge the president had in mind during his aggressive push last year to pack the D.C. Circuit with his own nominees. Now the active judges include a lopsided seven Democratic nominees and four Republican nominees. And although the D.C. Circuit traditionally has declined to take many cases en banc as a matter of collegial respect, the Obama administration’s politicization of the court may have changed that.

The plaintiffs argued — and the court ultimately agreed — that “a federal Exchange is not an ‘Exchange established by the State,’” and thus that the statute passed by Congress already unambiguously determined which exchanges were covered by subsidies. 

The court also actually agreed with the government on a significant point. It held that, although the federally operated exchanges were authorized under section 1321, they could be said to be established under section 1311 because that section describes the state exchanges they were replacing. But that didn’t get the government quite far enough. As the court analyzed the phrase, it has three functional parts: “(1) an Exchange (2) established by the State (3) under section 1311″ and “federal Exchanges satisfy only two: they are Exchanges established under section 1311. Nothing in section 1321 deems federally-established Exchanges to be”“Exchange[s] established by the State.’” Pretty straightforward stuff.

The court also noted that elsewhere in the ACA, several non-state entities were explicitly included in this definition. For example, territories (which have since been exempted from the law by ad-hoc executive determination) if they “elect[] . . . to establish an Exchange . . . shall be treated as a State.” 42 U.S.C. § 18043(a)(1). The fact that Congress included some non-state exchanges in this section strongly indicates that leaving others out was intentional.

But even in the face of such clear statutory language, the government had sought refuge in the absurdity doctrine, which says that the court will try to avoid truly absurd results even if the statute’s plain language seems to demand them. But the court found that each absurdity proposed by the government wasn’t actually odd enough to meet the “high threshold” for allowing the court to second-guess the words of Congress. It also noted that nothing in the statutory history supported the government’s position that “Congress meant something other than what it literally said.”

Ultimately, the dissent latched onto the government’s final attempt to shore up its interpretation by claiming that without subsidies, the entire ACA system would collapse under its own weight. But, as the Supreme Court held just this term, “an agency may not rewrite clear statutory terms to suit its own sense of how the statute should operate.”

This decision, when it goes into effect, will have broad ramifications for the millions of individuals who were promised subsidies that were not authorized by the ACA. It will simultaneously free tens of millions more from Obamacare’s onerous government mandates. But its biggest impact — achieved by simply enforcing the laws passed by Congress — will be the reinforcement of the basic democratic structure of our society.

Judge Griffith put it better than I could:

Within constitutional limits, Congress is supreme in matters of policy, and the consequence of that supremacy is that our duty when interpreting a statute is to ascertain the meaning of the words of the statute duly enacted through the formal legislative process. This limited role serves democratic interests by ensuring that policy is made by elected, politically accountable representatives, not by appointed, life-tenured judges.

Well said.