Tuesday, November 27, 2012

A Rejoinder to Michael Cannon Re the Rearguard Challenge to Obamacare

Michael Cannon has a post up responding to my post from yesterday critiquing his and Jonathan Adler's backdoor challenge to Obamacare.  I don't want to get in an endless back-and-forth on the blogs, so I will stop after this post.  But I thought I'd offer this rejoinder to Cannon's most recent post, as I regard that post as essentially conceding the crucial points in the argument.

To review the bidding:  The ACA imposed on individuals a mandate that they obtain health insurance.  To enable them to obtain health insurance, the ACA directed states to set up exchanges and provided individuals with tax credits to make the insurance purchased on those exchanges affordable.  Recognizing that states might not cooperate, the ACA provided that where the state does not establish the "required exchange," the federal government shall "establish and operate such exchange within the State."  42 U.S.C. § 18041(c)(1).

Despite this language , Cannon and Adler argue that the ACA forbids the IRS from providing tax credits to individuals who purchase insurance on federally-operated exchanges.  They make this argument even though Cannon recognizes that the exchange system will unravel -- that the exchanges won't be able to do what they were intended to do -- if participants cannot receive the tax subsidies that the ACA provides.  They argue that this result is required by Congress's use of the phrase "Exchange established by the State under section 1311" in the ACA provision that describes how the premium tax credits should be calculated, 26 U.S.C. § 36B(b)(2)(A), (c)(2)(A)(i).  But to read the "established by the State under section 1311" language as exclusionary would fly in the face of the "establish and operate such exchange" language that also appears in the statute.  More to the point, it would make the entire backup option that the ACA provides -- that the federal government will operate exchanges in states that don't set them up -- largely unable to achieve its purpose.  Again, Cannon basically admits this.

In other words, Cannon and Adler are arguing that a single statutory phrase -- a phrase that does not purport to identify what individuals can receive the ACA's premium tax credits -- trumps other statutory language and the overall structure of the ACA.  For such an argument to be plausible, Cannon and Adler have a pretty significant burden to explain why Congress would want to withhold the premium tax credits from participants in the federally-operated exchanges.  In the post to which I responded, Cannon attempted to do just that.  He gave two reasons why Congress would have wanted to grant tax credits only to participants in state-operated, but not federally-operated exchanges: (1) that "[i]n order to have state-run Exchanges, the bill needed some way to encourage states to create them without 'commandeering' the states"; and (2) that "[c]onditioning the tax credits on state compliance was the only way the [Senate Finance] Committee could even consider legislation directing states to establish Exchanges."

As I showed in my post yesterday, neither of these reasons explains why Congress would have wanted to grant tax credits to participants in state-operated exchanges while denying them from federally-operated exchanges.  Because the ACA gave the states the option to set up their own exchanges or stand aside and let the federal government do it directly, there was no commandeering problem to solve.  And the Senate Finance Committee's jurisdiction extends to granting tax credits to participants on federally-operated exchanges just as much as it extends to granting tax credits to participants on state-operated exchanges.

Tellingly, Cannon's post today largely acknowledges that I was right on these points.  But, Cannon argues, "[j]ust because Congress didn’t have to do something doesn’t mean Congress didn’t do it."  Well, sure.  But Cannon misunderstands his burden here.  He's the one who is taking a single statutory phrase and unnecessarily reading it as in conflict with other statutory language and with the overall structure of the statute.  So he's the one who has to explain why Congress would have intended that phrase to have that meaning and to trump the statute's other language and overall structure.  The best he can come up with is that Congress was trying to solve two problems (the commandeering problem and the committee jurisdiction problem) that he seems to admit weren't even problems.

But it is implausible to think that Congress would have intended to create a statute that was so at war with itself -- and that rendered largely useless its crucial backup provision for federally-operated exchanges -- in order to solve two nonproblems.  The far more plausible interpretation of the statutory text is the one that I set forth in my previous post: when Congress said that the federal government shall step in and operate the "required exchange," that language meant that the federally-operated exchange stands in the shoes of the exchange that the state was directed to, but did not, set up, and participants on federally-operated exchanges are entitled to the same tax credits as are participants on state-operated exchanges.

To borrow from Forrest Gump, that's all I have to say about that.


Blogger Baratta said...

Apologies for the length of this comment, I would have posted it on Cannon's blog, but it doesn't accept them.

Some other reasons for Cannon's implausible reading of the statute and in my opinion frivolous claim include:

Constitutional Avoidance-
Cannon's argument that the Act is designed to punish States that do not establish exchanges and therefore coerce them into doing so by conditioning tax grants leads to strong Federalism concerns and legitimate Constitutional questions under the Medicaid portion of NFIB v. Sebelius. A Court should therefore avoid this reading if plausible one is available which avoids such issue (note that Roberts in NFIB found it necessary to interpret the Act under the Commerce Clause because reading the penalty textually as a tax was not "a 'fairly possibly' one" (opinion of Roberts, C.J., at 32)(quoting Crowell v. Benson, 285 U. S. 22, 62
(1932)). For this reason alone the district court will likely dismiss his claim.

APA Argument-
Regulations are due Cheveron deference if they are reasonable in light of a statutory ambiguity, as must be assumed for Cannon's twisted reading to be accepted.

However, an argument suggesting ambiguity is weak because the text of the PPACA clearly leads to the conclusion that the Final rules are duly authorized.

Textual arguments-
Cannon reads the word "States" out of context in 1311(a). The implication of his argument is that the word States refers to State governments," not as "the people of a geographic district. It is clear from the text that States can have both meanings. The language of 1321(c) directs the Secretary to establish Exchanges "within the State" that does not do so itself--it is clear the meaning of State here is the geographic barrier. The use of the word "States" in 1311(a) has the same meaning, when the Secretary awards amounts "to States." Given that States have differing populations and therefore associated amounts with the Exchanges within their borders, this reading is the most logical conclusion.

There shall be appropriated to the Secretary, out of any moneys in the
Treasury ... an amount necessary to
enable the Secretary to make awards ... to States in the amount
specified in paragraph (2) for the uses described in paragraph
(3) A State shall use amounts awarded under this subsection for ... establishing an American Health Benefit
Exchange, as described in subsection (b).
(b)(1) Each State shall, not later than January 1, 2014, establish an American Health Benefit Exchange
. . .

1321(b) Each State that elects ... to apply the requirements described in subsection (a) shall, not later than January 1, 2014, adopt and have in effect . . .

Another provision serves as overwhelming evidence that his reading is implausible. Under 1321(c), the Secretary "shall take such actions as are necessary to implement such other requirements."

Facilitating the use of the exchanges falls under what is necessary to their success, as Cannon concedes.

(c) If a State is not an electing State . . . the Secretary shall ... establish and operate such Exchange within the State and the Secretary shall take such actions as are
necessary to implement such other requirements.
(Emphasis mine)

Finally, 1321(d) provides:

Nothing in this title shall be construed to preempt any State law that does not prevent the application of the provisions of this title.
(Emphasis mine)
This implies that the title should be construed to preempt laws that would "prevent the application" of the law, which Cannon also concedes his construction would do.

7:00 PM  

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