The IRS's Case In Halbig v. Sebelius Is Crumbling, With A Little Help From Its Friends (UPDATED)
First, a little background. The Patient Protection and Affordable Care Act of 2010 clearly, repeatedly, and consistently says that the above-mentioned subsidies and penalties are authorized only “through an Exchange established by the State.” The IRS breezed right past that explicit, recurring, and uncontradicted indicator of congressional intent, however, when the agency announced it would implement those subsidies and penalties in states that did not establish an Exchange and the federal government established one by default. The IRS is thus taxing the Halbig plaintiffs, who reside in states that did not establish Exchanges, without congressional authorization. The plaintiffs don’t like that.
The IRS won at the district-court level thanks to an opinion in which Judge Paul Friedman concluded that Exchanges established by the federal government are “established by the State.” That’s not quite as absurd as it may seem at first. Congress could have deemed federally established Exchanges to be “established by the State” in which they operate, if that had been Congress’ intent. Indeed, that’s what Congress did with respect to Exchanges established by U.S. territories. But Congress did not do so for federal Exchanges. Thus we are firm ground describing Friedman’s ruling as absurd. Congress intentionally offered subsidies only in states that established Exchanges for the same reason it makes numerous categories of federal spending and tax benefits conditional on state action: to induce states to carry out federal priorities.
Ever since the IRS’s victory, however, its friends have been inadvertently undermining the agency’s case.
For one, the Obama administration says it is implausible that Congress meant “established the State” literally. It “makes no sense,” the government asserts, to think that Congress even contemplated allowing federal Exchanges to operate without subsidies. Yale law professor Abbe Gluck writes, “it would be nonsensical to deprive citizens in federal-exchange states of the subsidies.”
Except…several of the government’s friends — including professor Gluck — have now conceded it does make sense, because Congress was actively considering that very idea. Separate amicus briefs by the AARP and the seven congressional Democratic leaders most responsible for the PPACA, as well as a recent blog post by Gluck all acknowledge that allowing federal Exchanges to operate without subsidies was a live issue during the debate that produced the PPACA. (Fun facts: two of those seven congressional Democrats sponsored the idea. And all seven ultimately voted for it in the PPACA, though they now disavow all knowledge. They were for it, before they were against it. Another group of key congressional Democrats complained back in 2010 that the PPACA’s Exchange subsidies, like the State Children’s Health Insurance Program, were conditional and that states could block them. They then voted for the PPACA, yet now claim they never intended subsidies to be conditional. They were against it, before they were for it, before they were against it.)
Gluck further concedes that Congress contemplated withholding those subsidies specifically if states failed to establish Exchanges when she acknowledges the Health, Education, Labor, and Pensions (HELP) Committee’s health care bill would have withheld subsidies from such states for four years.
The government has also argued that Congress deemed federally established Exchanges to be “established by the State,” despite the statute containing no explicit or implicit language to that effect. Gluck undermines this claim as well. In her discussion of the HELP Bill, she concedes that Congress knew how to deem a state to be an “establishing state” even if the state did not establish an Exchange — something the PPACA did not do. We already know, from the PPACA provisions concerning U.S. territories, that Congress knew how to treat non-states as though they were states. Gluck’s reaffirmation is appreciated nonetheless. Unfortunately, she goes on to assert that courts should interpret the PPACA as if it contains such deeming language for federal Exchanges, simply because a prior bill does.
The more the IRS’s defenders write about this case, the more they will undermine the agency’s position in court, because its position is untenable.
Odds and ends:
Gluck misattributes a line from my brief with Jonathan Adler to the appellants’ brief, and therefore does not provide readers a link to the source material. Here it is.
My coauthor Jonathan Adler offers his critique of Judge Friedman’s opinion at the Washington Post‘s Volokh Conspiracy blog.
Click here for critiques of the pro-IRS amicus briefs in Halbig, and here for a rundown of the pro-plaintiff briefs. Visit here for a complete list of reference materials on Halbig and related cases.
Update: Gluck offers “a quick response.” Of note, she again concedes that the HELP bill allowed federal Exchanges to operate without subsidies. Yet she somehow still claims, “Nothing in the HELP bill contemplates a federally operated exchange with no subsidies” and “Congress never contemplated a federal exchange with no subsidies.” I refer Gluck to her own post: “[a] limitation on the subsidies, for federal [Exchanges], was if the state refused to apply the employer mandate to its own state government employees.” Next, I noted above that Gluck incorrectly attributed to the Halbig plaintiffs’ brief something that Jonathan Adler and I wrote in our amicus brief. Gluck’s response? “Cannon also nits that I did not provide a link to his amicus brief (which I did not do because my post referred to his arguments on the blogs). Glad to provide it here.” Hmm. The problem wasn’t so much that Gluck forgot to include a link to the source of the quote; it was more that she misidentified the authors. Now she claims she was quoting my arguments on “the blogs” rather than our brief, even though her post prefaces the quote with “from the brief” (by which she meant the plaintiffs’ brief, not ours). My head hurts. The quote, which I wrote myself, sadly does not appear in any blog but Gluck’s, where it still lacks proper attribution and a link. Those would be appreciated.