Why did the D.C. Circuit Strike Down an ACA Regulation?

By Tom Watts

Yesterday morning, the D.C. Circuit decided Halbig v. Burwell, and the Fourth Circuit decided King v. Burwell. They addressed whether the text of the Affordable Care Act permits subsidies for individuals who purchase insurance on the federal health care exchange. The D.C. Circuit decided that it did not, while the Fourth Circuit decided that it did. Vox has a summary of the cases, and the Lexington Herald-Leader has an excellent FAQ on the rulings.

The decisions split along partisan lines: all four Democratic appointees (three on the Fourth Circuit panel and one dissenting on the D.C. Circuit panel) voted to uphold the subsidies, and both Republican appointees (the majority on the D.C. Circuit panel) voted to strike down the subsidies. Both Republican appointees reasoned that the law authorized tax credits for insurance purchased on an “Exchange established by the State,” and the federal exchanges are not established by any state, so the plain text should prevail. One concurring Democratic appointee on the Fourth Circuit appealed to the plain text as well: the statute provides that, if a state fails to set up an exchange, the Secretary of Health and Human Services sets up “such Exchange” (i.e., the federal exchange is the “Exchange established by the State”). This leads to the opposite result — though both are appealing to the plain meaning of the text!

The text also says, “An Exchange shall be a government agency or nonprofit entity that is established by the State.” The Democratic appointees read this as a definition: any exchange is understood to be established by the state, even if it was actually set up by the federal government. The Republican appointees read this as not definitional: it’s just there to say that a for-profit company can’t be an exchange. (But, I wonder, doesn’t that render “established by the State” superfluous?) There are a few other parts of the text that the decisions point to, but none seem particularly decisive to any of the six judges. The basic problem remains: how do we understand the phrase, “Exchange established by the State?” And the Republican and Democratic appointees disagree.

This is somewhat embarrassing for the judicial system. The judges are reading the same text, and while three of them think the text is ambiguous, three of them do not — but two of them read it unambiguously one way and the other reads it unambiguously the opposite way. Also, it seems hard to believe that it is merely coincidence that the Democratic appointees all voted one way and the Republican appointees both voted the other way. These facts give the appearance that partisan leanings are influencing how the judges are reading the text.

What’s particular embarrassing, though, is that the question in these two cases was of the interpretation of a statute, not of the Constitution. Liberals and conservatives may bring to the Fourteenth Amendment differing views on the nature of “equal protection of the laws” — e.g., do we provide identical treatment or accommodate differences? — but they do not ordinarily bring predetermined answers to the question, “What does the phrase, ‘Exchange established by the State,’ mean?” Statutory interpretation doesn’t seem like a natural place for political polarization, but here we are. (In the lower courts, Judge Spencer bucked the trend: he is a Republican appointee, but he read the text as the Fourth Circuit did.)

The next step for these cases is review en banc. If the partisan trend continues, the Fourth Circuit will not reverse, because its split of Democratic appointees to Republican appointees is 9-5, and the D.C. Circuit will reverse, because it is 7-4. As Vox rightly points out, this will not create a circuit split, so the Supreme Court might decline to hear these cases at that point. Two other cases on the same issue are also before the courts right now (and more are sure to be filed): Pruitt v. Burwell, in Oklahoma and appealable to the Tenth Circuit; and Indiana v. IRS, in Indiana and appealable to the Seventh Circuit. Unlike the D.C., Fourth, and Tenth Circuits, the Seventh Circuit is majority Republican-appointed, so it may be the best chance of a circuit split. Indiana v. IRS is not very far along, though, so a circuit split may be slow in coming, and the Supreme Court may not want to wait. The Supreme Court, of course, is majority Republican-appointed, but it’s hard to imagine that they would strike down the subsidies after (barely) upholding the individual mandate two years ago. In the meantime, though, as the cases work their way through the courts, the subsidies will stay in place.

This post has been edited to reflect Judge Spencer’s lower-court ruling.

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