As I have written about in columns and testimony, the most significant challenge to Obamacare was never Hobby Lobby but Halbig vs. Burwell that has been pending in the D.C. Circuit. I described Halbig in my testimony as a live torpedo in the water for Obamacare. Well, that torpedo just hit. The D.C. Circuit has found that the Obama Administration effectively rewrote the law on a critical provision dealing with tax credits and state exchanges. It is another major blow against the Administration and more importantly another judicial finding that President Obama exceeded his authority in his effort to “go it alone” in ordering such changes to federal laws.

As I suggested in the last blog, the decision was 2-1 with Judge Harry T. Edwards (a Carter appointee) in the dissent and Judges Thomas B. Griffith (a George W. Bush appointee) and A. Raymond Randolph (a George H.W. Bush appointee) in the majority. Randolph wrote a concurring opinion. I obviously agree with the result. I have testified that I believe that the text is clear in the Act and that the Obama Administration effectively altered the language when 34 states decided to defy the government and refuse to create state exchanges. The implications for the viability of the ACA, at least as originally designed, are huge.

When the Administration’s witnesses raised the lower court win in Halbig during the last hearing, I cautioned the Committee to wait to see what was coming because I doubted that the D.C. Circuit would agree with the trial court on its statutory interpretation. As discussed earlier, Halbig challenges the massive federal subsidies in the form of tax credits made available to people with financial need who enroll in the program. In crafting the act, Congress created incentives for states to set up health insurance exchanges and disincentives for them to opt out. The law, for example, made the subsidies available only to those enrolled in insurance plans through exchanges “established by the state.”

But despite that carrot — and to the great surprise of the administration — some 34 states opted not to establish their own exchanges, leaving it to the federal government to do so. This left the White House with a dilemma: If only those enrollees in states that created exchanges were eligible for subsidies, a huge pool of people would be unable to afford coverage, and the entire program would be in danger of collapse.

Indeed, the Halbig plaintiffs — individuals and small businesses in six states that didn’t establish state exchanges — objected that, without the tax credits, they could have claimed exemption from the individual mandate penalty because they would be deemed unable to pay for the coverage. If the courts agree with them, the costs would go up in all 34 states that didn’t establish state exchanges, and the resulting exemptions could lead to a mass exodus from Obamacare.

The administration attempted to solve the problem by simply declaring that even residents of states without their own exchanges were eligible for subsidies, even though the law seemed to specifically say they were not. The administration argues that although the statute’s language does limit subsidies to residents of places with exchanges “established by the state,” that wording actually referred to any exchange, including those established by the federal government. In January, a district court judge upheld that interpretation, allowing the subsidies to continue.

The D.C. Circuit rejected the statutory interpretation of the Administration as well as its argument that the actual language of the law would lead to absurd results:

The fact is that the legislative record provides little indication one way or the other of congressional intent, but the statutory text does. Section 36B plainly makes subsidies available only on Exchanges established by states. And in the absence of any contrary indications, that text is conclusive evidence of Congress’s intent. Cf. Ethyl Corp. v. EPA, 51 F.3d 1053, 1063 (D.C. Cir. 1995) (“At best, the legislative history is cryptic, and this surely is not enough to overcome the plain meaning of the statute.”). To hold otherwise would be to say that enacted legislation, on its own, does not command our respect—an utterly untenable proposition.

The court acknowledges that this decision will rock the ACA at its foundations but says that it must protect congressional authority against executive over-reach:

We reach this conclusion, frankly, with reluctance. At least until states that wish to can set up Exchanges, our ruling will likely have significant consequences both for the millions of individuals receiving tax credits through federal Exchanges and for health insurance markets more broadly. But, high as those stakes are, the principle of legislative supremacy that guides us is higher still. Within constitutional limits, Congress is supreme in matters of policy, and the consequence of that supremacy is that our duty when interpreting a statute is to ascertain the meaning of the words of the statute duly enacted through the formal legislative process. This limited role serves democratic interests by ensuring that policy is made by elected, politically accountable representatives, not by appointed, life-tenured judges.

The dissent by Randolph is quite short and is intended to amplify his view that a “Supreme
Court tax decision, and a tax decision of this court, flatly reject the position the government takes in this case. . . Justice Brandeis’ opinion for the Supreme Court in Iselin v. United States is controlling: ‘What the government asks is not a construction of a statute, but, in effect, an enlargement of it by the court, so that what was omitted, presumably by inadvertence, may be included within its scope. To supply omissions transcends the judicial function.'”

In his dissent, Judge Edwards relies on Chevron to simply give deference to the agency in the interpretation of the law:

Because IRS and HHS have been delegated authority to jointly administer the ACA, this case is governed by the familiar framework of Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). Under Chevron, if “the statute is silent or ambiguous with respect to the specific issue,” we defer to the agency’s construction of the statute, so long as it is “permissible.” Id. at 843. The Government’s permissible interpretation of the statute easily survives review under Chevron. The Act contemplates that an Exchange created by the federal government on a State’s behalf will have equivalent legal standing with State-created Exchanges. 42 U.S.C. § 18041. And the ACA would be self-defeating if taxpayers who purchase insurance from an HHS created Exchange are deemed ineligible to receive subsidies.

Appellants’ argument cannot be squared with the clear legislative scheme established by the statute as a whole.

The Administration would be moronic not to opt for an appeal en banc to the full D.C. Circuit given its make up. However, as I discussed earlier, even those more liberal judges will have to deal with two recent decisions that seem to reject the holistic interpretive approach of the Administration. See the testimony linked here. The political fallout will also be interesting. Some states might consider creating state exchanges to guarantee tax credits for their citizens. However, citizens in the other states may want the effective option to exempt themselves from the individual mandate that constructively exists in the 24 states. In any case, there is not expected to be any significant changes pending appeal. However, if it stands, it could allow for an exodus from the Act.

While many will simply dismiss this as a predictable move by Republican appointees, I believe that that claim unfair to these judges, unsupported by the decision, and a continuation of our rather poisonous political debate where every opposing voice is denounced as without honor or good faith. The same objection could be made to the Democratically appointed judge in dissent. In reality, all three remained faithful to their views of statutory interpretation, or legisprudence. It is true that the D.C. Circuit has a better array of judges for the Administration but not because of who appointed them. The judges include a number who agree with the broad deference given to agencies, as does Edwards. However, even those judges will have to reconcile recent decisions by the Supreme Court that rejected the same type of “holistic” interpretations. On Michigan v. Bay Mills Indian Community, for example, Justice Elena Kagan held:

But this Court does not revise legislation, as Michigan proposes, just because the text as written creates an ap¬parent anomaly as to some subject it does not address. Truth be told, such anomalies often arise from statutes, if for no other reason than that Congress typically legislates by parts — addressing one thing without examining all others that might merit comparable treatment . . . This Court has no roving license, in even ordinary cases of statutory interpretation, to disregard clear language simply on the view that (in Michigan’s words) Congress ‘must have intended’ something broader.”

Justice Kagan concluded by declaring that “We will not rewrite Congress’s handiwork.” Likewise, the Court rejected an agency interpretation in Utility Air Regulatory Group v. EPA where the federal agency called for the same deference on an interpretation of the Clean Air Act. However, Justice Scalia wrote for the Court that such interpretations constitute the unconstitutional rewriting of federal law:

We conclude that EPA’s rewriting of the statutory thresholds was impermissible and therefore could not validate the Agency’s interpretation of the triggering provisions. An agency has no power to “tailor” legislation to bureaucratic policy goals by rewriting unambiguous statutory terms. Agencies exercise discretion only in the interstices created by statutory silence or ambiguity; they must always “‘give effect to the unambiguously expressed intent of Congress.’” National Assn. of Home Builders v. Defenders of Wildlife, 551 U.S. 644, 665, 127 S. Ct. 2518, 168 L. Ed. 2d 467 (2007) (quoting Chevron, 467 U.S., at 843, 104 S.Ct. 2778, 81 L. Ed. 2d 694). It is hard to imagine a statutory term less ambiguous than the precise numerical thresholds at which the Act requires PSD and Title V permitting. When EPA replaced those numbers with others of its own choosing, it went well beyond the “bounds of its statutory authority.” Arlington, 569 U.S., at ___, 133 S. Ct. 1863, 185 L. Ed. 2d 941, 951 (emphasis deleted).
The Solicitor General does not, and cannot, defend the Tailoring Rule as an exercise of EPA’s enforcement discretion.

These two successive losses for the Administration were, of course, followed by the major loss in Hobby Lobby, where the Court rejected the exemption system devised by the Department of Health and Human Services (HHS) for corporations with religious objections to the contraception provisions of the ACA.

These decisions present additional support for the challengers on how courts are to approach statutory text. While critics insist that the language in the law is a “typo,” that is the type of spin that courts are not supposed to engage in. Any language could be dismissed as mistaken or irrelevant under such approaches. Moreover, the level of deference given to agency by Edwards is disturbing to us who are concerned with the rise of the “Fourth Branch” represented by federal agencies.

In any case, this will be fascinating to watch both legal and politically as the impact of this ruling takes hold.

Here is the decision: Halbig opinion