Halbig and the Stability of the ACA

By Jeremy Kreisberg

I have previously blogged about an important case — Halbig v. Sebelius — before the U.S. District Court for the District of Columbia (DDC).  The case concerned whether the Affordable Care Act permits the IRS to issue tax credits to individuals purchasing insurance through federally facilitated exchanges.  In short, the challengers argued that because section 1401 of the ACA calculates tax credits only for individuals purchasing insurance through “an Exchange established by the State,” individuals purchasing insurance through an exchange established by the federal government cannot receive such tax credits.

Yesterday, DDC sharply rejected this argument, finding that the ACA — read as a coherent whole — requires the IRS to issue tax credits to individuals purchasing insurance through either a state or a federal exchange.  Needless to say, this case represents a triumph for the government.  For now (cases on the same issue are still pending in other districts, and this opinion will almost certainly be appealed to the D.C. Circuit), the government has dodged today’s biggest threat to the vitality of the ACA.

The substance of the case was summarized well by Professor Bagley over at the Incidental Economist.  So rather than dwell on the (very persuasive) reasoning of the court, I want to focus on one important doctrinal move in the case (after the jump):

In my previous post about the case, I noted that the Supreme Court had recently clarified that the framework for resolving statutory ambiguities should be highly deferential to the IRS’s interpretation notwithstanding the importance of the question resolved.  For now, this seems like good news for the Obama administration.

But fast forward to 2016, and imagine that a new president enters office who opposes the ACA.  Although there may be political and administrative obstacles, it is at least conceivable that this new administration would attempt to re-interpret the IRS rule so that tax credits would be available only in states that established their own exchanges.  And this idea is not entirely novel.  During the 2012 election, Tom Barker — an adviser to Governor Mitt Romney — indicated that a future administration could change this IRS rule. (Of course, the exchanges were not yet available to consumers in 2012, so perhaps the political and legal calculations would be very different in 2016.)

As a legal matter, this strategy can work if the ACA is judged by a court to be ambiguous regarding the tax-credits issue.  Such was the holding in National Cable & Telecommunications Ass’n v. Brand X Internet Services, which established that an agency would still receive Chevron deference even if a court had previously upheld a contrary interpretation as a reasonable construction of an ambiguous statute.  However, this case also stated the inverse rule — that an agency has no discretion to change an interpretation if a court holds that the statute it is interpreting is unambiguous.  This might sound like a lot of legal jargon.  But it suffices to say that the stability of a legal interpretation of a statute depends a great deal on whether a court finds that the statute is ambiguous.  If it is ambiguous, the agency can change it.  If it isn’t, then no luck.

So what about the ACA?  Does it unambiguously require the IRS to issue tax credits to individuals purchasing insurance through federally facilitated exchanges?  The answer, according to Judge Friedman, is yes.  Rather than simply defer to the IRS’s interpretation of the statute, the court held that Congress clearly intended for tax credits to be available to all consumers, regardless of whether their state established their own exchange or not.

Granted, there will be more cases to challenge the IRS rule.  And perhaps it is far-fetched to believe that a future administration would ever deny consumers tax credits simply because their state hasn’t established an exchange.  But yesterday remains a good day for the long-term stability of the ACA.

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