In Part One of this two-part series, I contended that the reading of the Obamacare statute offered by the plaintiffs in the important King v. Burwell case pending in front of the Supreme Court was problematic for reasons grounded in federalism. In particular, I argued that even if the plantiffs’ reading—that Congress, by using the phrase “established by the State” in certain places in the Act, intended that citizens of states that did not set up exchanges would not be eligible for federal tax credit health insurance subsidies—reflected the best overall interpretation of the statute, such a reading could not be accepted because it fails the requirement that Congress speak in a “clear voice” if it wants to condition the receipt of federal moneys on things that participating states must do. In the space below, I discuss possible counterarguments to my thesis, and also explain why I believe the federalism perspective I discuss adds an important element to the federal government’s position in the King case.
Should the Clear-Voice Requirement Apply When There Is Only One Condition?
Perhaps the most forceful counterargument to my thesis is that the “clear voice” requirement on which I rely should not apply when the alleged congressional spending condition in question is the only condition in the picture, as distinguished from the more common instances in which everyone agrees that Congress imposed some conditions on states for the receipt of federal funds, but the question is whether one or more additional conditions were stated clearly enough by Congress. Why should this difference arguably matter? Because when everyone agrees Congress has clearly imposed some conditions, and participating states have already satisfied those conditions, participating states can be said to have already done something for the federal government. If those states are then confronted with additional, arguably unclear requirements they must also satisfy, the terms of the bargain seem to be changed. Since the Supreme Court has observed, first in the seminal case of Pennhurst State School & Hospital v. Halderman, that “[l]egislation enacted pursuant to the spending power is much in the nature of a contract,” when states take actions to satisfy some federal conditions, they could be said to have transferred “consideration” to the federal government (in the form of helping the federal government accomplish whatever policies are furthered by the conditions the states have met.) By contrast, if there is one and only one condition (and its clarity is in doubt), no states can be said to have given any consideration to the federal government in any respect.
But if the presence of consideration were necessary, a state faced with a statute that created a clear condition on federal funding alongside an arguable and in any event unclear condition would be unable, prior to the state’s having done anything to satisfy the clear condition, to obtain a judicial declaration that the unclear condition is not valid on account of its lack of clarity. At most, a state could get a court to declare whether the unclear condition was in fact an actual condition. Yet I believe that a court in this situation would apply the “plain voice” requirement to free the state from having to satisfy any unclear conditions.
And remember too that the Court has said that conditional spending is “much in the nature” of a contract, not that it is a contract itself. And there is another doctrine, known as “promissory estoppel,” that is “much in the nature” of a contract but that does not require consideration, and instead focuses on the reliance placed on a promise. Consider the following hypothetical. Congress promises a state $X of funding to be used for highway construction for each of the next three years. In Year Two, Congress’s budget has provided for the expenditure, but now someone urges that there is the non-obvious requirement in the original statute that states that receive the funding raise their legal drinking age to 25. Could a state be allowed to object to this unforeseeable condition even though the state (up to this point) has not given the federal government anything beyond spending the federally disbursed money as directed? I think the answer is yes, because a state could have relied on the federal promise of funding in deciding how to budget its own state funds for roadwork. Or in deciding what roadway safety laws to enact or reject. And if this is true for road funding, the same would have to be true for money earmarked for healthcare. So if Congress promised three years’ worth of federal funding to states for Medicaid (without requiring states to spend any matching funds during this period), and passed laws authorizing the federal expenditures, no one could try in Year Two to assert an unclear condition and apply it to the states, even if it were the only condition anyone had ever suggested was in the statute.
Now it is true, of course, that the states that accepted these (highway or healthcare) funds might not have actually relied on the federal promises when they built their own budgets or policies, and that these states would in fact be no worse off if an unclear condition were to be imposed after the statute was adopted than they would have been if the condition had been clearly expressed by Congress at the outset. But the same is true for the conditional spending mechanism struck down by the Court in the 2012 Obamacare case, National Federation of Independent Business v. Sebelius, which I discussed extensively in Part One. When the Court there invalidated the Medicaid expansion provisions of Obamacare and said that states were not clearly on notice of the possibility of the conditions involved in the expansion when Congress first offered the states Medicaid money decades ago, the Court did not say, or even suggest, that had states actually been told way back when of a possible subsequent expansion that any states would have been likely to turn down the funding at the outset (even before the expansion condition was imposed). And, in fact, no one could suggest that states would have been likely to do that.
This tells us a couple of related things. First, the “clear voice” requirement is not about actual reliance, but rather even the mere hypothetical possibility of reliance on federal assertions. The “clear voice” requirement is a kind of a prophylaxis designed to avoid detrimental reliance before it occurs. And, like all prophylactic devices, it applies even to situations in which the evil to be avoided would not come to pass in any event. Second, and related, the “clear voice” requirement seems largely about showing respect for states by giving them all the information clearly up front to facilitate informed decision making, even if in the real world the decisions by states in such high stakes take-it-or-leave-it settings would not be likely to be affected much by additional clarity. In fact, this is precisely how the Court explained the “clear voice” requirement in Pennhurst, where the majority explicitly observed that “the crucial inquiry is not whether a state would knowingly [have acted differently if the condition had been clearly stated] but whether Congress spoke so clearly that we can fairly say that the State could make an informed choice.” In the context of Obamacare, if the setting up of a state exchange was in fact a condition for a state to receive federal tax credit subsidies, respect for states required Congress to say this “clearly [enough] that we can fairly say that the State could make an informed choice” about whether to set up an exchange or not.
Does It Matter Whether Federal Money Ever Enters State Coffers?
But what about the fact that the federal subsidies under Obamacare are going not necessarily into state coffers, but rather directly to the healthcare consumers? Does this feature automatically remove the case from the conditional spending doctrinal category? At least in the context of the King plaintiffs’ reading of Obamacare, I think not. The key facts are that, under their reading, tax subsidies are available to individuals as citizens of a particular state qua citizens of that particular state, and subsidy eligibility turns on the actions of that person’s particular state government to set up an exchange or not. To see the point, imagine that Medicaid moneys were given not to state governments (conditioned upon the states expending matching funds and doing other things), but instead were given to the individual citizen beneficiaries, but only in those states that had expended matching funds and satisfied other conditions. I think the “clear voice” requirement should still apply. It is true that an individual’s eligibility for federal tax benefits can sometimes depend on the particularities of state law in the place of one’s residence, and that perhaps not all such interrelatedness between federal and state law triggers the a “clear voice” requirement. But when Congress intends (as the King plaintiffs assert Congress did in Obamacare) to give a state the direct choice of doing something the federal government wants it to do, in return for which the federal government will provide billions of dollars’ worth of federal subsidies targeted towards the eligible persons in that state, the state must be able to see that choice easily.
Nor is the situation altered by the fact that the federal subsidies may take the form of tax credits rather than moneys actually disbursed. In fact, the federal government may advance money to Obamacare subsidy beneficiaries (in the form of payments to health care insurers) prior to an individual filing her federal tax return, but even if that were not the case, there should be no difference between a credit and a dollar disbursement; both kinds of programs are enacted pursuant to Congress’s power to “tax” and to “spend” for the “general welfare,” and are thus laws “enacted pursuant to the spending power,” to use the Court’s phrase. Indeed, go back to Medicaid. If, instead of affirmatively doling out money to states conditioned upon their doing certain things, Congress credited states (that satisfied certain conditions) with respect to fees or payments those states otherwise owed the federal government, the “clear voice” requirement would surely apply as to the conditions that would generate the credits. (It is true that the Court under the Establishment Clause of the First Amendment has distinguished tax credits from expenditures, but its reasoning there was limited to certain peculiarities of Establishment Clause jurisprudence.)
Does The Federalism Argument Add Much to Other Arguments Already in the Case?
Finally, I think it important to reflect on why this federalism “clear voice” requirement could prove especially important in the King case. For starters, this is an argument that was not really addressed by the two judges of the D.C. Circuit who (last summer) ruled in favor of the reading of Obamacare advanced by the King plaintiffs, so we don’t know whether judges who are otherwise inclined to agree with the King plaintiffs would be unpersuaded by the “clear voice” line of argument. Indeed, even the Fourth Circuit that rejected the King plaintiffs’ reading did not rule on this argument (though a form of this argument was made in the State of Virginia’s amicus brief), so if observers believe (as many do) the Supreme Court’s grant of review in King means that there are at least four Justices who were unpersuaded by the Fourth Circuit ruling, having an argument that was not addressed in the Fourth Circuit opinion is a good thing for the federal government.
The Fourth Circuit did rely on a related, but importantly different, kind of requirement of statutory unambiguity—the so-called Chevron doctrine (named after the 1984 Chevron, USA, Inc. v. Natural Resources Defense Council case)—under which federal courts defer to an administrative agency’s interpretation of an ambiguous statutory term, so long as the administrative interpretation is reasonable. But there are many reasons why one could reject Chevron deference in King and yet apply the “clear voice” requirement of Pennhurst. First, and most technically, Chevron deference applies only if Congress can be said to have delegated to the agency in question (here, the IRS) the authority to interpret the relevant provisions in the statute. Different Justices seem to require different levels of clarity in that initial delegation, and the 2013 Arlington v. FCC case (about which I wrote a Justia column) exposed unlikely rifts between ordinarily like-minded Justices on just how far Chevron should be extended. In particular, Chief Justice Roberts, joined by Justices Kennedy and Alito, declined to read Chevron broadly, largely because of fears that the federal executive had become too powerful and that giving federal agencies broad interpretive authority is particularly dangerous. In the context of Obamacare, there may be disputes about whether the Chevron framework should be applicable.
Second, even if the Chevron doctrine governs, under it federal courts must give effect to the “unambiguously expressed intent of Congress”; deference to the agency comes into play only after it is determined that Congress has not expressed such an unambiguous intent. Now it may seem that “unambiguous intent,” and “clear voice” capture the same idea, but I don’t think that the two concepts in these two settings are identical. In other words, it is possible to say that Congress’s intent was expressed unambiguously such that Chevron deference doesn’t apply, and yet still say that Congress hasn’t spoken in a sufficiently clear voice to satisfy the Pennhurst standard. In particular, many courts (including the Supreme Court) have used legislative history behind a statute, and also the way a statutory term may have been used in earlier statutes, to determine whether Congress’s intent with respect a particular statute was expressed unambiguously for Chevron purposes. But I can’t see how those extra-statutory sources could be used to decide whether Congress has spoken in a “clear voice” to put states on adequate notice in the conditional spending realm. On top of that, a provision whose meaning takes too much work for states to discern, even within the four corners of a single convoluted statute, might not be expressed by Congress in a “clear voice,” even if in the end Congress’s will is discernable to a high degree of confidence.
Relatedly, and more generally, Chevron is about separation of powers—the relationship between Congress, the federal judiciary and the federal executive. That is why the initial inquiry under Chevron is how much Congress delegated to the federal agency and how certain we can be about “the intent of Congress.” By contrast, the “clear voice” rule is about federalism—the relationship between the federal government and state governments. That is why, in conditional spending cases, the Court says that “[w]e must view [a federal statute] from the perspective of a state official who is engaged in the process of deciding whether the State should accept [federal] funds. . . . ” In conditional spending settings, we care less about how firm we are in our conviction of what Congress wanted, and more about what states would have necessarily understood.
Federalism and separation of powers push different buttons for folks. On and off the Court, many observers today seem to be (legitimately or not) concerned about broad assertions of federal executive authority. Recall that Chief Justice Roberts and Justices Kennedy and Alito have recently (in the Arlington case) expressed qualms about the breadth of Chevron precisely because they fear federal executive power. Chief Justice Roberts wrote that administrative agencies today “as a practical matter . . . exercise legislative power, . . . executive power . . . and judicial power. . .” and that the “accumulation of these powers in the same hands is not an occasional or isolated exception to the constitutional plan [, but rather] a central feature of modern American government.” These Justices (and it’s hard to imagine the federal government prevailing in King without winning over at least one of them) may be more receptive (as all three were in the Medicaid expansion setting in 2012) to arguments that are grounded in the distinctive respect owed states, and the Simon-says-like rules we should employ to make sure states aren’t duped or misled into making decisions without being able to be aware of the consequences.
Let us suppose that the same set of words could simultaneously be unambiguous for the purpose of telling a federal agency what to do and be ambiguous for the purpose of telling a sovereign state what to do, such that the doctrine of statutory interpretation articulated in Pennhurst should even have application once Chevron has been applied.
Let us also suppose that Pennhurst, a case involving a state that had accepted the proposed bargain in a federalism “contract,” should even apply either to a situation in which a state has declined the federalism “contract” by declining its only condition (i.e., not established an exchange) or to a situation in which a state has “accepted” the federalism “contract” by being ignorant of its only condition.
Let us also suppose that, on the one hand, offering money to a state that the state may accept or reject in its capacity as a sovereign and, on the other hand, offering money to the residents of that state for the purpose of having those residents pressure the sovereign to undertake actions that it would not otherwise undertake (i.e., directly interfering in the sovereign’s internal relationship with its constituents) are actually the same thing.
Even then the question becomes, given a federalism problem, what is the proper remedy? It cannot be that the subsidies must be available in places where Congress unambiguously, under Chevron, stated they are not.
In NFIB, the remedy was to restrain the federal government from doing all that the Congress had authorized it to do, which is to say instead of taking all Medicaid funding from a non-compliant state, the Court ordered the federal government to withhold only the newly introduced Medicaid funding. In Pennhurst, the Court did not instruct the federal government not to impose the unclear condition; it concluded that Congress did not intend the condition in the first place, which would seem to indicate that the statute at issue in Pennhurst would have been found ambiguous under Chevron, as well.
In this case, the choice of remedy seems to be either to eliminate the only condition in the federalism “contract,” as advocated by the author, or to eliminate the spending, including in states where the state has established an exchange. However, eliminating the condition cannot be a valid exercise of the Court’s authority, leaving only the remedy of eliminating the spending altogether.
As the author indicates, if a state establishing an exchange is the sole condition of the subsidies, eliminating that condition would eliminate all the consideration in the federalism “contract.” However, it does not make sense to say that the states not establishing exchanges, (i.e., doing nothing) have somehow relied upon the absence of any conditions with respect to subsidies. Promissory estoppel applies only if the recipient of the benefit has changed its position by doing something or forbearing from doing something it otherwise would not do in reliance upon the promise of the benefit. None of those situations apply here.
The states that have not established exchanges have not “done something” in reliance upon the federal government’s “promise.” Nor can it be said that those have forborne from doing so in reliance upon the promise. The statute does not say that only taxpayers in states not establishing exchanges will receive the subsidies. At best, those states could have interpreted the statute to mean that the tax subsidies are available whether or not a state establishes an exchange, which is to say that the subsidies are unconditional. But if no conditions apply to the receipt of a continuing benefit then the continuing benefit is an unconditional gift, and an unconditional gift is not enforceable unless and until delivered. While the taxpayers that already have received the subsidies might be able to defend against a clawing back of those benefits (and even the state might be able to do so on their behalf), neither the state nor the taxpayers are able to enforce future gifts until they are delivered.
Finally, a separation-of-powers point: The article seems to suggest that, after concluding under Chevron that the Executive Branch does not have the authority to provide subsidies in states where Congress has not authorized them, the Court could rule that it somehow has the authority, not only to authorize spending where Congress has not, but to require spending where Congress has not.
That would be an odd result. If the subsidies may not constitutionally be withheld from states that have not established exchanges, the proper result would be to invalidate the subsidies altogether.
This is a straw man argument. If the provision challenged is unambiguous on its face, that’s as far as the courts go. How can you read anything ambiguous into “established by the states?” It’s not the court’s job to correct Congress’ mistakes.
Because that’s not what the statute says, and not what the statute as a whole conveys.
You are correct only to the extent “The Ghost of Byron White” added a gratuitous ‘s’ to the quote. The actual provision at issue says “established by the State under 1311 of the Patient Protection and Affordable Care Act”. Federal exchanges are established under section 1321. As far as I can tell, no provision states exchanges established under section 1321 are to automatically be treated as exchanges established under section 1311. Since one of the presumptions of the courts is a legislature knows how to write a law, I see no reasonable basis to conclude otherwise; just as it is the responsibility of the Voter to take care when casting votes, as one voting rights case noted, so too is it the responsibility of Legislators when drafting laws to take care commensurate with the solemnity of the occasion.
Perhaps the best article I’ve read yet on King v. Burwell.
I personally believe that the best strategy for the government is that Pennhurst establishes ambiguity while Chevron provides the remedy.
I still do not see, if the congress is presumed to know how to write a law, why it did not simply say section 1321 exchanges are to be treated the same as section 1311 exchanges for subsidy purposes and/or all other purposes when it went out of its way to specifically reference section 1311 exchanges.