How Congress Works (And the ObamaCare Subsidies Lawsuit)

Many thanks to Rick for inviting me to contribute.  It’s that crazy time of year when time is short, but I could not resist beginning my blogging gig with a couple of quick posts about the pending Obamacare health exchange lawsuit, which should be decided within the next week or so by a district court in Washington D.C.(Judge Paul Friedman), and followed by several similar decisions in suits pending in Virginia, Oklahoma and Indiana.  The case is incredibly important—if the challengers win, consumers on more than half of the Obamacare health insurance exchanges will receive no tax subsidies to help cover the cost of insurance, an outcome that will devastate the operation of the Act. The case, in my view, is also incredibly weak.  And perhaps most significantly for law professors, the case shows us just how much lawyers and courts have to learn about the legislative process.  This post will offer some “Congress 101,” and explain how an understanding of the ACA’s legislative process should have put this case to bed long ago.  In my next post on this subject, I will tackle some of the other issues in the case, including some interesting Chevron arguments.

A quick summary of the case, for those not up to speed: The health reform statute, the ACA, sets up new insurance marketplaces (like Expedia for health insurance) and provides generous subsidies to individuals and families with incomes up to 400% of the federal poverty level to help them buy insurance in those marketplaces, which are called insurance exchanges. The statute makes states the default operators of those exchanges but if a state chooses not to operate one or fails to, the federal government steps in.  As most readers know, more than half of the states have decided not to operate their own exchanges, and so the federal government is doing so (how it’s doing in that regard is another important story, but one not relevant here).

 What is relevant here is that the ACA is a very badly drafted statute.  And it’s badly drafted for a simple reason that turns out to be important to understanding how the pending litigation should be resolved:  Because Senator Ted Kennedy died in the middle of the legislative process and was replaced by Republican Scott Brown, the statute never went through the usual legislative process, including the usual legislative clean-up process. Instead, because the Democrats lost their 60th filibuster-preventing vote, the version that had passed the Senate before Brown took office, which everyone initially had thought would be a mere first salvo, had to effectively serve as the final version, unchangeable by the House, because nothing else could get through the Senate.  In the end, the statute was synthesized across both chambers by an alternative process, called “reconciliation,” which allows for only limited changes but avoids a filibuster under Congress’s rules.  Keep this in mind and read on….

So, the statute is sloppy.  It has three section 1563s, for example, as Tim Jost has pointed out.  The section at issue in this case, the one introducing the tax subsidies, is another example of the sloppiness.  It states that the subsidies shall be available to individuals enrolled in insurance “through an Exchange established by the State under section 1311” of the Act (emphasis added). The challengers argue that this text clearly excludes individuals enrolled through federally-operated exchanges from receiving the subsidies.   Section 1321 of the Act, however, further discusses the state exchanges and sets forth the process for the federal government to step in when the states fail to operate them. In such case, the Act provides, HHS shall “establish and operate such Exchange within the State” (emphasis added).  The Government points to this and other language to argue that when the federal government operates a state exchange it stands in shoes of the state exchange and is “such an exchange” for purposes of the Act. At a minimum , the Government argues, the statute is more than sufficiently ambiguous to trigger agency deference.

There are other provisions that bear on the issue, most importantly 26 U.S.C. 36B(f)(3), which requires the exchanges to provide information about the tax subsidies for each consumer both to the consumer and to the federal government.  That section directs its reporting requirements to both “[e]ach Exchange … under section 1311(f)(3) [the state exchanges] or 1321c [the federal exchanges].”  In other words, 36B(f)(3)assumes that the federal exchanges will also be reporting information about tax subsidies—a requirement that is arguably nonsensical if consumers on federal exchanges are not eligible for those subsidies.

My view is that whatever you believe about the merits of these respective textual arguments, a basic understanding of the ACA’s legislative process makes clear that Congress intended for the subsidies to be available on the federal exchanges.  I think the statute is sloppy, but I think its meaning is plain—and not because I am relying on fuzzy notions of statutory purpose. Rather, there are formalist, structural features of the legislative process that make this case an easy one.   (For more about the unforgivable ignorance of lawyers and courts about how Congress works, see my two articles, Statutory Interpretation from the Inside—An Empirical Study of Congressional Drafting, Delegation and the Canons: I and II, 65 Stan. L. Rev. 901,, and 66 Stan. L. Rev. (forthcoming 2014), (both with Lisa Bressman)).

  1. Why Understanding the ACA’s Use of Reconciliation Should End This Litigation

Mostly absent from the briefing for either side in the case is the fact that the section in the bill that most clearly provides for both state and federal exchange subsidies—the information reporting requirement in section 36B(f)(3), quoted above—was added during the Reconciliation process.  The other sections in dispute were added in the earlier, Ted Kennedy, Senate draft.   In contrast, 36B(f)(3) came in months later. That subsection makes clear the assumption that the subsidies would be available on the federally-operated exchanges as well as on the state exchanges.  Let me explain now why the fact that 36B(f)(3) came in through Reconciliation should be the ballgame.   

As noted, the Reconciliation process was the House-Senate bill-synthesizing process that was used in the ACA instead of the usual Conference Committee process.  Everyone who follows Congress knows that the Conference stage is the most important stage of the legislative process.  Even the courts, which are generally ignorant about the legislative process,  acknowledge this fact about the importance of Conference.  It’s the key stage for two reasons.  First, it’s where the critical compromises get worked out across the two chambers.  And second, it is the last stage of the process. In the case of the ACA, Reconciliation took the place of Conference, and Reconciliation was particularly important because the two chambers did not have their usual back and forth during the ordinary legislative process (again, because everyone was stuck with Kennedy version of the Senate-passed bill). Reconciliation was the only way, in the ACA story, that the two chambers reached a final agreement.  It was the critical moment, and the provisions added then are where the courts should focus their attention, and where any ambiguities should be resolved.

The counterargument, of course, and one the challengers make, is that Congress could have done more to clarify its intentions during that Reconciliation process.  Sure, that would have done everyone a big favor.  But even assuming that the special rules of Reconciliation (which only allow certain budget-related changes) would have permitted such clarifying changes, that kind of negative inference makes little real-world sense –not  only because of the exceedingly messy context of the ACA’s drafting but, more importantly, because there is zero evidence that anyone thought there was anything to clarify. Because both chambers were certain that the subsidies applied to the federal exchanges, there was no reason to focus the chambers’ final-stage political efforts on uncontroversial provisions. 

And it is implausible that there was any doubt on the part of House that the federal exchanges would receive the subsidies.  Recall that the House wanted all of the exchanges federally run and only acceded to the Senate, state-led, default version because of the Ted Kennedy situation. Given the House’s reluctance to make that compromise in the first place, it is unthinkable that the House would have silently—without any commentary in media, on the floor, or in proposed reconciliation amendments—accepted a compromise that so greatly disadvantaged the federal exchanges that were its priority all along.   It is of no small moment that the Reconciliation bill originated in the House, and is where the House got to put its imprint on the legislation.  The language about the federal and state exchanges added as part of that bill cannot be read as anything other than as confirming  the common understanding that the subsidies would be available on both types of exchanges.

2.  The CBO Canon: Construe Statutory Ambiguities Consistent with the Assumptions of the Budget Score

When these cases were first proposed last year, I posted here ( an argument that Congress’s intent to give subsidies to the federal exchanges was evident from the simple fact that the budgetary estimate for the ACA—which was a central part of the legislative process—assumed that those subsidies would be available.  More generally, I proposed a new “CBO Canon” of statutory interpretation: a default interpretive presumption that ambiguous statutes should be construed consistent with the assumptions underlying the Congressional Budget Office’s estimate of the financial impact of the legislation. This proposed rule is especially relevant for statutes like the ACA, for which the President set a budgetary goal and news outlets repeatedly reported that the statute was tweaked over and over again to get the numbers just right.  

No Supreme Court case has ever utilized the CBO score in this manner, but all of the Supreme Court’s statutory cases claim to be about effectuating the legislative bargain. The challengers in this case also have claimed that the purported omission of the subsidies for the federal exchanges was intentional—that is, they are not trying to take an advantage of  something they claim to be a mere drafting error.   My recent empirical work with Lisa Bressman strongly suggests that congressional drafters rely on the budget score enormously in making their deals—indeed, much more so than they rely on the judicial rules of statutory interpretation and often even more than they rely on close readings of the statutory text itself.  In other words, if the idea really is to effectuate the congressional deal, as the challengers claim, the courts should construe statutory ambiguities in a way consistent with the assumptions made by CBO during the drafting process.

The government and amici have picked up the CBO argument in this case, including providing a letter to Congress from CBO director Douglas Elmendorf testifying to CBO’s initial and ongoing understanding that the subsidies would not be for the state exchanges alone. Opponents have offered nothing as a counterargument except for the fact that CBO’s initial calculation assumed, as did most others policymakers, that most of the exchanges would be state operated (because that is what the federalists now opposing the ACA wanted!). But that does not change the fact that CBO never understood the subsidies to be for the state exchanges alone.  And we have more evidence that Congress, the President, and the public all knew, followed and relied on that CBO estimate throughout the ACA drafting process than we have that any of those players were focused on the kind of hyper-technical textual arguments—made in the context of a 2,000 page statute—on which the challengers hinge this case.

3. The Legislative History is Irrelevant

The challengers also make a legislative-history based argument that likewise falls by the wayside once one understands the ACA’s legislative process.  They cite a stray remark by Senator Baucus in September 2009 explaining that the Finance Committee had jurisdiction over the bill (in addition to the Health, Education, Labor and Pensions Committee) because subsidies operate as tax credits.  As an initial matter, the Baucus comment had nothing to do with differentiating between the state and federal exchanges—it was an explanation of why the Committee had jurisdiction over amendments relating to health insurance coverage even as it would not have jurisdiction over medical malpractice amendments. But even if it were relevant, it tells us nothing about whether the subsidies might be offered on one, the other, or both. (Read the transcript for yourself: )  More importantly, it is simply not true, as the challengers claim, that also including subsidies for the federal exchanges would somehow have deprived the Finance Committee of jurisdiction over the ACA. There is zero evidence for any such argument in the record or in the rules of the Senate. 

Of greater general importance, a stray comment early in the drafting process of a statute with a legislative process as unorthodox as the ACA’s has no place in the judicial decision-making process.  Our recent empirical work suggests that congressional insiders would agree.  Legislative history has an important place in the statute-making process when the legislative history represents a consensus, is the product of deliberation, and is tied to the text of the ultimate legislation.  It has less relevance and is less reliable when the statute goes through a process so unpredictable that even its sponsors could not have charted its ultimate path.  (The challengers out-of-context use of the Baucus comment is proof positive of the risk of legislative-history cherry-picking in general, but is all the more risky in messy statutes like this one.) And this same risk goes for any other stray comment that either side might find.

There’s a lot more that could be said about how little we understand the legislative process and how important it is—both to this litigation and, more generally, to most legal questions that we now face.  Nor have I attempted to comprehensively chronicle each of the challengers’ more minor arguments in this kitchen-sink of a case, or to talk about how this case is yet another illustration of the specially divisive politics of health reform.  But I’ll leave it here for now, and return in a future post with some thoughts about the Chevron arguments, which are likely to be decisive.

 [cross-posted at Balkinization]


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