The Halbig Argument from Text: Cato Reflections Part II

On October 30, I was invited to participate in a Cato Institute panel discussion on Halbig, King, and related challenges to the Affordable Care Act. In the wake of the conference, I’ll be writing a few posts based on the panel discussion. If you’d like to watch the entire law-focused panel, I’ve created a C-SPAN clip here. Other reflections at Part I (Isolationism), Part II (Textualism), Part III (The Whole-Text Canon), Part IV (Halbig’s “Two Exchanges” Problem), and Part V (Creeping Constitutionalism).

Though much of the press/commentary surrounding the Halbig decision has focused on abstract legislative intent, the government’s lawyers—the ones actually litigating this case—have done a nice job of arguing based primarily on statutory text. As explained here, textualist arguments properly consider a statute’s intent, purpose, context, structure, etc. But those considerations are anchored in the text of the statute, as opposed to legislators’ floor statements, newspaper editorials, or the generalized purpose to insure everyone.

In this post, I’d like to generally outline the textualist (or at least a textualist) case for the government’s position in Halbig that I advanced during my portion of the Cato Halbig conference. You can, of course, read the government’s briefs yourself! But my goal here is to make things a bit more accessible and perhaps to add a few tweaks to the government’s arguments

These text-based arguments are worth exploring for two reasons: First, I think the government wins on the text and the text alone. No need for Chevron, no need for ambiguity, no need for difficult-to-divine congressional intent—just the text of the statute itself. Second, if the government’s supporters are going to convince people (whether judges or voters) then we need to advance arguments that do more than preach to the choir. Folks who already share the government’s generalized understanding of the ACA’s purpose or intent likely don’t need much convincing that subsidies are available on federal exchanges. But folks who are on the fence or who come to the debate (for whatever reason) hostile to the government’s position do need convincing. And to convince them we need to really engage with arguments that might speak to the unconverted. So here goes:

An Initial Textual Interpretation of Section 1321 Federal Exchanges

The natural place to start, and where the challengers start, is the specifically applicable provision: Section 1401 provides (among other things) that tax subsidies will be available on “an Exchange established by the State under section 1311.” The question is whether the “Exchange” in Section 1401 refers only to state-run exchanges or whether plans on federal exchanges are also eligible for subsidies.

When trying to understand a term in a statute, the term’s definition is always a good place to start. The ACA defines the term “Exchange” in section 1563 (well, one of the section 1563s; there are three of them in the ACA). “Exchange” is defined as an exchange “established under [section] 1311.” That’s not altogether helpful on its own, so we need to look at section 1311 to figure out what an “Exchange” is.

Section 1311 is entirely about state-established exchanges. That’s it and that’s all. It does not mention federal exchanges. Section 1311 provides that all states “shall” establish an exchange. It provides the requirements for exchanges. It tells the states how to go about setting up exchanges. The only kind of exchange covered in section 1311 is state-established exchanges. And the only section that provides for state-established exchanges is section 1311. In other words, to use the language of section 1311’s “Requirements,” a section 1311 exchange is “a governmental agency or nonprofit entity that is established by a State.”

Based on section 1311 and section 1563, one might think that only states can establish Exchanges under the ACA. But we know that is not true. Section 1321 provides for the federal government to create exchanges: If a state does not establish an exchange then the federal government “shall . . . establish and operate such Exchange within the State.”

The “Exchange” in section 1321 is not some different or exotic variety of exchange under the ACA. Section 1321 uses the same defined term “Exchange” as section 1311, meaning  that the “Exchange” in section 1321 is the same kind “Exchange” discussed in section 1311. So what does section 1321 mean? What sort of exchange does the federal government establish? The definition from section 1563 provides some clarity. If we include the definition of “Exchange” and combine the provisions (as we must) then we get this: under section 1321 the federal government “shall . . . establish and operate such exchange established under section 1311.” In other words, the federal government is establishing a section 1311 exchange.

I should note at this point that even the Halbig panel opinion agrees with me on the statutory interpretation thus far. It may sound somewhat convoluted to insert “established under section 1311” into the definition of a section 1321 federal exchange, but that’s what the definition requires; that’s how definitions work. And that’s what the Halbig majority concluded:

This suggests not only that the Secretary is to establish the type of exchange described in section 1311, but also that when she does so, she acts under section 1311, even though her authority appears in section 1321. Thus, section 1321 creates equivalence between state and federal Exchanges in two respects: in terms of what they are and the statutory authority under which they are established.

Halbig Panel Op. at 17 (emphasis added).

But what does it mean to say that the federal government is instructed to establish “such exchange established under section 1311”? As discussed above, section 1311 references only state-established exchanges. So on that basis alone one could read section 1321 as providing that the section 1321 exchanges are the functional equivalent of the section 1311 state-established exchanges.

But section 1321 goes further. It does not merely instruct the federal government to establish a section 1311 exchange; it instructs the federal government to establish “such” Exchange. Any old Exchange is (by statutory definition) a section 1311 exchange. And section 1321 could have referred to “an Exchange” or “an exchange” (without the capitalization and therefore without the definitional section 1311 reference). But through use of the word “such” section 1321 specifically refers back to a prior-referenced Exchange.  What is the prior Exchange being referenced? It is the specific exchange the relevant state was supposed to establish under section 1311—in other words, it refers to the exchange established by the state under section 1311.

This reading of section 1321 does not mean that the federal government is a “State” under the ACA (because it is not; the definitions make that clear). It just means that when the statute in section 1401 (and elsewhere) refers to an Exchange established by the State under section 1311, that definition does not exclude section 1321 exchanges, since those exchanges are defined by section 1321, section 1563, and section 1311 to be the equivalent of an “Exchange established by the State under section 1311.”

The challengers reject this plain-text reading of the statute, arguing: “A ‘federally established state-established Exchange'” is an oxymoron.” Halbig Appellant Br. at 23 (en banc). Maybe, maybe not. But it’s no better or worse than: “An exchange established under 1321 is an exchange established under section 1311.”

It is the statute’s own definition of all exchanges as section 1311 exchanges, along with section 1321’s reference to the specific state’s exchange through use of the word “such,” that results in the somewhat-redundant construction to which challengers object, not an unfair reading by the government.

In my next post, I’ll continue the textual analysis beyond the immediately applicable provisions for a “whole-text” reading of the statute. After all, we are not isolationists….