In The Arena What the D.C. Circuit Got Wrong About Obamacare

Abbe R. Gluck is professor of law at Yale Law School, where she specializes in federal legislation and health law.

Health reform’s intense politics continue to defy all expectations. On Tuesday, federal courts of appeals in D.C. and Virginia reached opposite conclusions in a pair of identical challenges to the provision of critical financial subsidies under the Affordable Care Act (ACA). The cases pit a single line of a 2,000-page law against what the rest of the statutory text makes clear Congress actually intended.

The Fourth Circuit in Virginia upheld the subsidies—indicating the government had the better argument, but regardless applying the longstanding rule that when a statute is not clear, courts defer to the agency administering the statute (in this case, the IRS). The D.C. Circuit, however, ruled the other way, reading one provision of this massive and complex federal law out of context. That opinion not only misinterprets the statute—with enormous practical consequences—but also does a deep disservice to conservative jurists and lawyers who have spent the last 30 years arguing that text-based interpretation is sophisticated, not literalistic, and serves democracy.


The stakes are enormous: If the D.C. Circuit’s opinion ultimately carries the day, more than $36 billion dollars in financial relief will be denied to the approximately 7 million people expected to be insured with the help of this financial assistance. It also places Republicans in a real dilemma, especially as the election cycle heats up: The result, if the ruling stands, would be massive red-state/blue-state disparity, as millions of middle-class Americans are deprived in red states of access to medical care, because it is mostly the red states whose subsidies are now at issue.

A little background: The fundamental aim of the ACA is getting as many Americans insured as possible. The statute does this by expanding Medicare and Medicaid for eligible populations and also by requiring insurers to give all other Americans access to insurance at reasonable rates. To keep the insurance markets from crumbling under this new requirement, the law requires all of those Americans to actually buy insurance, thereby expanding the customer pool. It helps Americans do this by subsidizing the cost of insurance, with financial assistance provided through the act’s new health insurance exchanges. Without the subsidies, the purchase of insurance becomes unaffordable for many Americans; they won’t enter the pool; and the insurance markets will come under extreme financial pressure. (Some call this the “death spiral” scenario.)

In Tuesday’s cases, the challengers took advantage of the happenstance way in which the ACA was drafted to argue that the subsidies are permitted only through insurance exchanges operated by states. The statute gives the states first dibs to run the exchanges, but requires the federal government to operate them for such states if the states fail to do so. Most Republican-run states have refused to run the exchanges, leaving 36 state exchanges in the hands of the federal government and subject to the legal challenge.

It is true, as the plaintiffs argued, that a single provision of the statute provides that subsidies shall be available to exchanges established by states, and that that provision does not also mention the federal government. But it is also emphatically true that the rest of the statutory text makes quite clear that the subsidies were also intended on federal exchanges. Another provision of the statute requires reporting to the IRS of subsidies doled out on federal and state exchanges alike—and that provision expressly mentions the federal exchanges. The statute also, in several other places, mentions state exchanges in ways that clearly are intended to refer to exchanges operated by the states or exchanges operated by the federal government for the states.

The Congressional Budget Office likewise scored the ACA without distinguishing between the availability of subsides on state and federal exchanges, and there is nothing in the legislative record indicating that Congress was trying to create a two-tiered system of insurance access in the statute. The D.C. Circuit opinion did look to the record, but unfortunately fixated on an irrelevant draft of the statute from the Senate HELP Committee. But that committee’s draft wasn’t the one actually adopted by Congress. The Finance Committee’s draft was—further evidence that courts need to understand the complete statutory context when interpreting laws as complex as this one.

As all Congress-watchers know, the ACA went through an unusual legislative process, forgoing the usual textual “clean up” most major laws receive at the conference committee stage or at other subsequent amendment stages. Sophisticated textual analysis of complex laws like this one requires attention to the statutory text as a whole, in context, and not in isolation. That’s how the Virginia appeals court read the ACA today, and the Supreme Court itself offered the same admonition last month, through an opinion by Justice Antonin Scalia in the EPA case.

In fact, it was Justice Scalia himself, together with Justices Anthony Kennedy, Clarence Thomas, and Samuel Alito, who interpreted the health reform statute precisely this way in the 2012 health reform case—holistically, and assuming the statutory text makes subsidies available on state and federal exchanges alike. In their joint dissent, they wrote: “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: “In the absence of federal subsidies to purchasers, insur­ance companies will have little incentive to sell insurance on the exchanges. … That system of incentives collapses if the federal subsidies are invalidated.” The dissenters also assumed: “By 2019, 20 million of the 24 million people who will obtain insurance through an exchange are expected to receive an average federal subsidy of $6,460 per person”—numbers that only make sense if the federal exchanges are included.

The D.C. Circuit bent over backwards today to come up with reasons why a reasonable Congress might have drafted the statute in the way the challengers contended it should be read. But no one who followed the enactment of the Affordable Care Act actually thinks Congress intended such a reading. The very smart textualists on the D.C. Circuit will have another chance to get the statute right when the government seeks review from that full court en banc. Let’s hope that the court can put politics aside and interpret the statute as we would hope massive and complex federal laws should be interpreted in a well-functioning democracy.