Federal Appeals Courts Divide Over Obamacare Subsidies—and Over “Textualism”

Last week, in Halbig v. Burwell, a divided panel of the U.S. Court of Appeals for the D.C. Circuit ruled that the Internal Revenue Service (IRS) lacked the statutory authority to provide health insurance subsidies for the millions of Americans who are subject to the Affordable Care Act’s (ACA’s) minimum coverage provision but live in states that did not establish their own health insurance “exchanges.” While professing regret over the “significant consequences” of their ruling “for the millions of individuals” who will lose their health insurance if the decision is ultimately upheld by the full D.C. Circuit and the Supreme Court, the court blamed Congress for having tied its hands.

Yet on the very same day, a unanimous panel of the U.S. Court of Appeals for the Fourth Circuit reached the exact opposite conclusion in King v. Burwell. Where the D.C. Circuit saw clear statutory language barring the federal subsidies, the Fourth Circuit saw ambiguity—and thus deferred to the IRS pursuant to the cardinal rule of administrative law permitting an agency reasonable room to fill in statutory gaps.

The issues in this latest round of Obamacare challenges are ideologically charged. Indeed, Judge Harry Edwards began his dissent from the D.C. Circuit ruling by stating the obvious: the plaintiffs’ “case is a not-so-veiled attempt to gut” Obamacare.

But intertwined with the ideological divide is a long-running methodological disagreement over how courts should read statutes. The Fourth Circuit in King and Judge Edwards in his Halbig dissent exemplified an approach known as purposivism, which holds that courts ought to construe statutes in accordance with the evident purpose of the legislature.

By contrast, the D.C. Circuit majority opinion repeatedly invoked a rival interpretive approach known as “textualism”—under which courts must give effect to clear statutory language, even if they think that the legislative purpose might be better achieved by departing from or adding to the text.

Rooted in judicial restraint, textualism in principle ensures that judges give proper deference to legislators on policy matters. But as practiced by the D.C. Circuit in Halbig, textualism is more nearly the opposite: a means of undermining electorally accountable officials. To borrow the late Justice William Brennan’s description of originalism in constitutional interpretation, the D.C. Circuit’s version of textualism is “arrogance cloaked as humility.”

State and Federal Insurance Exchanges

The ACA requires millions of Americans who do not receive health insurance through their employers or from the government to purchase qualifying private health insurance or pay higher taxes. The ACA obligates states to establish “exchanges” that vet and list qualifying plans; however, under two Supreme Court decisions from the 1990s, Congress cannot actually require states to enact or enforce a law, and so the ACA also allows that in the event that a state does not establish an exchange, the federal government will establish one for the residents of that state.

In most respects, state and federal exchanges operate identically. Last week’s rulings concerned a linguistic oddity of the ACA—a provision that authorizes the IRS to provide refundable tax credits for low- and middle-income purchasers of health insurance on exchanges “established by the State.” The IRS determined that the credits should be available for anyone eligible, regardless of whether they are shopping on a state or a federal exchange. The Fourth Circuit upheld that determination, but the D.C. Circuit panel concluded that the statutory language permitted the tax credits only in states operating their own exchanges, and not in those states where the federal government operates the exchange.

That ruling is enormously consequential because eligibility for tax credits goes into determining income levels, which in turn determine whether an individual is obligated to purchase health insurance in the first place. Without the tax credits in the federal exchange states, Obamacare could unravel, because the tax credits help ensure that there is a large pool of relatively healthy people with health insurance. Absent that pool, the ACA’s obligation on insurers to cover people with pre-existing conditions could lead to an “adverse selection” problem, whereby only sick people purchase insurance, making insurance financially unsustainable.

Purposivism Versus Textualism

Indeed, the federal government pointed to the interconnection between the tax credits and the ACA’s core purpose of expanding coverage to argue that Congress could not possibly have intended for people who receive coverage through federal exchanges to be ineligible for tax credits. In addition, the government pointed to other provisions of the ACA that appear to assume that tax credits would be available regardless of whether an exchange is state-run or federal-run.

The Fourth Circuit and Judge Edwards found these arguments sufficiently persuasive to establish that the language of the ACA was at least unclear about whether subsidies are available on federally-run exchanges. And, as noted above, such ambiguity is all that is needed to validate an otherwise reasonable agency interpretation of a statute.

But the D.C. Circuit majority would have none of it. Each of the specific provisions to which the government pointed could have some other purpose, the court argued, and thus, individually and collectively, these other provisions were deemed insufficient to overcome Congress’ failure to include specific reference to federal exchanges in the tax credit provision.

What about the broader argument that Congress must have meant for subsidies to be available on federally-run exchanges to prevent the ACA from unraveling? In a footnote, the D.C. Circuit majority half-heartedly noted an argument by the plaintiffs that Congress could have deliberately chosen to make subsidies available only on state exchanges as a means of inducing states to create their own exchanges. But even the majority did not conclude that there is any reason to think that this was Congress’s actual goal.

Instead, the core of the D.C. Circuit argument was the textualist credo that it is not the job of courts to effectuate the purposes of statutes. Why not? The best textualist answer relies on democratic principles. Legislation is typically the result of compromise among competing factions and interests, and thus serves multiple, sometimes-conflicting purposes. As the Supreme Court has said in its textualist mode, no statute pursues all of its purposes at all costs. Thus, a judge who construes a statute to effectuate what the judge regards as the statute’s single purpose will often upset the delicate balance among competing purposes that was struck by the legislature.

Stated in the abstract, textualism as just described makes sense. It functions as a reminder to judges not to substitute their views about what laws the legislature should have enacted for those laws it actually enacted.

Textualism can be quite moderate. For example, Justice Antonin Scalia—textualism’s most prominent champion—distinguishes textualism from “strict construction.” Judges should not construe statutes strictly, he says; they should construe statutes “reasonably.” Reasonable construction, moreover, pays attention to the overall statutory context, not just to the literal meaning of individual words or phrases.

Over the last several decades, the moderate version of textualism has become widely accepted, so much so that some scholars now question whether there remains any distinctively textualist position. About the only consistent difference between self-styled textualists and other judges is that the former completely abjure reliance on legislative history in construing statutes. But even judges who do not consider themselves textualists accept the caution that legislative committee reports and individual floor statements do not necessarily reflect the considered view of the legislature as a whole—especially when they conflict with clear statutory text.

Textualism Run Amok

Although moderate textualism has become mainstream, the version of textualism employed by the Halbig majority was hardly moderate. It was more like strict construction.

At every turn, the court ignored indications that Congress’s failure to include the word “federal” in its description of the insurance exchanges where tax credits would be available was simply an isolated oversight. The court also set an impossibly high threshold for overcoming what it claimed was clear statutory text.

Perhaps most galling was the D.C. Circuit majority’s sanctimonious invocation of principles of democracy. The court stated that its brand of textualism “serves democratic interests by ensuring that policy is made by elected, politically accountable representatives, not by appointed, life-tenured judges.” In fact, it does the exact opposite.

Much of the argument for textualism assumes that judges face a choice between their own understanding of the legislature’s purpose and the understanding reflected in the text the legislature expressly enacted. But in many circumstances, there is a third actor: the executive branch of government.

Modern administrative law recognizes that in writing laws to address highly complex, often unpredictable circumstances, Congress cannot in advance specify in precise detail exactly how the law shall apply. Accordingly, as explained in the landmark 1984 Supreme Court ruling in Chevron U.S.A. v. NRDC, when faced with unclear statutory text, courts should defer to reasonable interpretations of that text by the federal administrative agencies charged with implementing the law.

Chevron deference, as it is known, rests on two main grounds. First, specialized agency personnel have expertise in their particular areas of competence that exceeds any expertise of Congress, which legislates on a very wide range of subjects. Second, unlike unelected judges who are by design politically unaccountable, administrative agencies are subject to the ultimate political control of the President.

Thus, a judge who accepts an agency’s interpretation of an unclear statute as reasonable—regardless of whether that judge would construe the statute exactly the same way if it were entirely up to her—serves democratic values. She leaves the decision in the hands of the politically accountable executive, rather than taking it for herself.

It should now be apparent why the D.C. Circuit majority’s rhetoric about democracy rings hollow. In order to avoid deferring to the democratically accountable officials in the Obama Administration, the court had to find that the language of the ACA clearly forbids tax credits for health insurance purchased on federally established exchanges, even in the face of arguments that, taken as a whole, the ACA clearly requires such tax credits.

The determination of what counts as clear statutory text is the Achilles heel of the brand of aggressive textualism practiced by the D.C. Circuit in Halbig. Statutory text can sometimes be clear, even when it governs complex circumstances, but it is least likely to be clear in the sorts of cases that reach the federal appeals courts because, by definition, those cases produced sharp disagreement.

At least in the agency context, aggressive textualism ends up rehearsing the very flaw that its proponents attribute to purposivism: it substitutes the views of judges for those of democratically accountable officials. Resting that judgment on a fictive statutory clarity in no way mitigates the damage.

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