King: Obamacare Subsidies as Textualism’s Big Test

In November, I participated in a SCOTUSblog symposium on King, the Obamacare case that the Court will hear this week. The case, as I argued then and still deeply believe, is textualism’s biggest test yet. Will the textualists show us -as they have been arguing for the past 30 years–that textualism is indeed a sophisticated and objective method of statutory interpretation that is a safeguard against judicial activism?  Textualism has had enormous success in the federal courts over the past decade, but those judges who have moved in textualism’s direction will surely question those moves if textualism doesn’t deliver what it promised.  Given that we are going to hear a lot of textualism talk this week and in the coming months, and to help folks get up to speed on these issues, I have reprinted (with permission ) my SCOTUSblog contribution below:

Obamacare’s opponents have depicted the challenges in King v. Burwell, Halbig v. Burwell, and the other subsidies cases as the choice between clear statutory text and vague notions of statutory purpose.   This is a smart strategy, because it creates the illusion of an easy choice for the Court’s textualists, and even for most of the other Justices. Textualists have spent three decades convincing judges of all political stripes to come along for the ride, and have had enormous success in establishing “text-first” interpretation as the general norm. In so doing, textualists have repeatedly emphasized that textual interpretation is to be sophisticated, “holistic” and “contextual,” not “wooden” or “literal,” to use Justice Scalia’s words. A lot of us (myself included) have gone to bat for this version of textualism, arguing that it is democracy enhancing and in furtherance of rule-of-law values, such as predictability.

The King challengers put all that on the line, and threaten all that textualists have accomplished. This is because King is not actually a text-versus-purpose case. Rather, King is about the proper way to engage in textual interpretation; specifically, about the interpretation of five words in a long and complex modern statute. And no one has to – or should – go outside the four corners of the Affordable Care (ACA) to decide it. So let’s cast aside the red herring of untethered purpose, and ask the question that gives King significance beyond the politics of health reform (and is a reason for the Court to avoid those politics): Will the Court follow, what Justice Scalia just five months ago (in Utility Air Regulatory Group v. EPA) called “the fundamental canon of statutory construction that the words of a statute must be read in their context and with a view to their place in the overall statutory scheme”?

The five words at issue sit in a provision that requires the ACA’s insurance subsidies to be calculated based on premiums for individuals enrolled through an “Exchange established by the State under 1311” (ACA § 1401); the question is whether the IRS properly interpreted the ACA to allow those subsidies also to be available on federally operated exchanges (which now are the majority of exchanges). Section 1311 establishes the state-run exchanges and so, read in a vacuum, Section 1401 appears at first glance to deny the subsidies on federal exchanges. In context, however, the words are at a minimum highly ambiguous, and arguably actually clearly provide for subsidies on the federal exchanges.

Justice Scalia, an ardent proponent of judges not engaging in “legislation” under the guise of interpretation, has argued that the Court’s role is to adopt the interpretation that “does least violence to the text” (Green v. Bock Laundry). The IRS’s interpretation accomplishes that goal: Section 1401 can still be read literally because the section that authorizes the federal exchanges, Section 1321, provides that if a state does not establish an exchange under Section 1311, the Department of Health and Human Services (HHS) “shall . . . establish and operate such Exchange within the State.” In other words, HHS must “establish” a Section 1311 exchange, which is a state exchange. Moreover, the Act defines “Exchange,” with a capital E, three times in the statute as a “state” exchange. And HHS, in Section 1321, is told to establish “such [capital E] Exchange.” The Court need not add or delete a single word of the ACA to reach this conclusion. (In fact, the Court shouldn’t be engaging in that enterprise in the first place. This is a Chevron case: an agency interpretation is at issue, and so all that is required is that the agency’s own construction be reasonable.)

On the other hand, as amply detailed in the briefing, the ACA’s text – not its purpose or its legislative history, or anything else that textualists don’t generally consider – is slashed to pieces under the challengers’ reading. Two examples from a list of many offered in the briefing:

  •  Section 36B(f)(3) requires “[e]ach Exchange (or any person carrying out 1 or more responsibilities of an Exchange under section 1311(f)(3) or 1321(c)” to report the premiums doled out. Section 1321 is the federal exchange provision, and so this section is rendered meaningless if the federal exchanges have no subsidies.
  • Likewise Section 1312(f) provides that only “qualified individuals” can purchase on an Exchange but defines a qualified individual as one who “resides in the State that established the Exchange.” Failure to understand a federally operated exchange as the legal equivalent of a state exchange would mean that federal exchanges have no customers.

Justice Scalia’s own statutory interpretation treatise argues (at pages 63 and 168) that “there can be no justification for needlessly rendering provisions in conflict if they can be interpreted harmoniously,” and that statutory provisions should not be interpreted to render them ineffective or superfluous.

Textualists also advocate structural, contextual interpretation. As Justice Scalia’s treatise puts it (at 168): “[N]o interpretive fault is more common than the failure to follow the whole-text canon, which calls on the judicial interpreter to consider the entire text, in view of its structure and of the physical and logical relation of its many parts.” The subtitles of the ACA immediately surrounding the provision in question are a set of interlinking pieces: they add new requirements on insurers to make insurance accessible; impose the infamous individual mandate on the public to populate the insurance pools; and create the federal and state exchanges and authorize the subsidies (which the exchanges deliver) to make insurance purchase accessible and affordable enough for the individuals now required to purchase it. In their 2012 joint dissent in NFIB v. Sebelius, Justices Scalia, Kennedy, Thomas, and Alito read these parts as making no logical sense without one another and also read the statute to include subsidies on federal exchanges:

“Congress provided a backup scheme; if a State declines to participate in the operation of an exchange, the Federal Government will step in and operate an exchange in that State.”

and then:

“That system of incentives collapses if the federal subsidies are invalidated. Without the federal subsidies, individuals would lose the main incentive to purchase insurance inside the exchanges, and some insurers may be unwilling to offer insurance inside of exchanges. With fewer buyers and even fewer sellers, the exchanges would not operate as Congress intended and may not operate at all.

The 2012 Supreme Court brief of the state governments likewise read the statute as providing subsidies through the federal exchanges: “If a State is not willing to create and operate an exchange, the federal government will step in and do so itself. ACA § 1321(c). Subtitle E then establishes tax credits and other subsidies for the lower-income individuals and small businesses that purchase plans on the exchanges. ACA §§ 1401–21.” It is no coincidence that the section of the ACA in which all this appears is entitled “State Flexibility Relating to Exchanges”; the provision establishing the federal exchange (Section 1321) also has the title “State Flexibility.” By using this terminology, the text by its own terns gives states the choice – without penalty – between operating an exchange or letting the feds do it for them.

The 2012 plaintiffs – represented by the same lawyer in King – even argued that the entire Affordable Care Act should have been struck down without the subsidies, because it could not function without them.

Textualists apply several canons of construction premised on the assumption that Congress does not write statutes to fail. One is constitutional avoidance. Another is severability. (Both were used to save the ACA in NFIB.) Related is the major questions rule, which presumes that Congress is not subtle when it makes a major statutory move. The King challengers are asking the Court to adopt a reading that assumes that Congress purposefully designed the federal exchanges without the very same subsidies that in 2012 even the ACA’s opponents viewed as essential to the statute’s functioning. In other words, they are now arguing that Congress intentionally configured the federal exchanges to be doomed to fail. If that isn’t a major question that requires an explicit statutory statement, what is? The purpose of all of these rules – avoidance, severability, major questions – is to keep judges from “legislating”; that is, from interpreting a statute in ways that would make it unrecognizable to enacting Congress, as the proposed reading surely would.

In an effort to lend plausibly to their interpretation, the challengers have spent the past year constructing a narrative that the Exchange provisions operate exactly like Medicaid does: that Congress needed a “stick” – taking away the subsidies – to convince the states to operate the exchanges themselves. I have illustrated elsewhere that this reading of legislative history is inaccurate, but more importantly for this post, note that the challengers have to look outside the text of the statute to even try to construct this narrative. The text is fatal to this argument. Another common textual rule of interpretation, exclusio unius, draws strong inferences from Congress’s utilization of statutory structure in one part of a statute or related statutes and its omission from another. Medicaid is explicit that states lose their funding (and there is no federal fallback) if they do not cooperate. The ACA has not one word on that point in the exchange context and instead does what Medicaid doesn’t: the ACA provides fallback federal exchanges. This is exclusio unius 101: Medicaid shows that Congress knows how to be explicit if it wishes to use a federalism “stick.” The lack of an analogous provision for the exchanges leads to precisely the opposite of the challengers’ reading under textual analysis.

Textualists have spent the past thirty years persuading even their opponents of the jurisprudential benefits of a sophisticated text-based interpretive approach. The King challengers put that all at risk. To be clear: my argument isn’t about the merits of the ACA. The ACA isn’t perfect health policy. But the King challenge is all about the ACA’s merits. They have vowed to destroy the statute at any cost, even if it means corrupting textualism to do it.

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