Obamacare Tax Credits

Obamacare Dodges Another Bullet

Obamacare Tax CreditsOn June 22, 2015, the U.S. Supreme Court decided King v. Burwell, a case involving the interpretation of the Affordable Care Act (ACA), otherwise known as Obamacare.  (King was some otherwise anonymous individual; Burwell was Secretary of Health, Education and Welfare.)  The Court's decision preserved the availability under the Act of federal tax credits for qualifying low and middle income people buying health insurance on the insurance exchange run by the federal government, rather than on an exchanges run by a state.

The obamacare tax credits amount to insurance premium subsidies.   They may be taken in the form of a refund, which may help in visualizing the result.  If I qualify for the tax credit and you don't, part of the tax you pay goes to me, so you are essentially paying part of my insurance premium.  Furthermore, if you do qualify for the tax credit, but you don't buy your insurance through an exchange, you pay a penalty.

If you are a believer in income equality or feel that in principle everyone should have health insurance (whether your feeling is ethically, religiously, or economically based), you are probably happy about this.  On the other hand, if you are opposed to big government and a big believer in self-reliance, it amounts to loathsome income redistribution by taxation.

Disregarding the legal arguments advanced by each side, it's pretty clear that the Obama administration was in the first camp, while Mr. King and his lawyers, and the folks paying their bills, were in the second.  Because this article is on a legal website, we turn to the legal arguments without saying much about the politics.

The decision turned on applying the rules of statutory interpretation to one phrase in the voluminous statute: "an Exchange established by the State."  The first rule of statutory interpretation is the plain meaning rule; that words in a statute should be taken at their plain meaning.  The second rule is that ambiguous words should be interpreted, and interpreted in their context.

Here is the trick. If you focus on the context instead of the word, you may convince yourself that a word unambiguous when standing alone is ambiguous in its context.  Then you may disregard its plain meaning in favor of what you think the context requires.  If, for whatever reason, you like the result of doing so rather than the plain meaning result, you decide against the plain meaning.  That is what happened, for better or for worse, in King v. Burrell.

The word state is a defined term in the ACA, and therefore it is capitalized throughout.  It is defined as a state of the United States, which excludes the federal government.  In short, by definition the federal government cannot be a state.  Obamacare specifically says that a person gets the tax credit when he buys health insurance through "an Exchange established by the State."  Standing by itself, the plain meaning of State cannot be denied - no state exchange, no tax credit.  A few weeks after the ACA was passed, its principal architect was videotaped saying exactly that.

Federal Insurance Exchange - Obamacare Tax Credits

Federal Insurance ExchangeThe ACA provides for a federal insurance exchange as well as state exchanges, but the conventional wisdom when the Act passed was that all the states would establish exchanges by the deadline set by the Act.  They didn't.  To preserve the Obama administration's goal of universal health insurance, the federal government in response established the present federal insurance exchange and along with the obamacare tax credits.  The problem posed by the definition of "State" was solved by a new IRS regulation providing that the tax credit was available to buyers of health insurance through state exchanges and through the federal exchange.

Then along came Mr. King, arguing that the regulation was invalid because it was contrary to the Act.  Six of the nine members of the Supreme Court, including Chief Justice Roberts, the author of the majority opinion, focused on the context of the word State.  They looked at the ACA in its entirety, concluded that the whole thing would make no sense if people buying health insurance through the federal insurance exchange did not get the obamacare tax credit, found that "State" was ambiguous and included the federal government - despite its definition, and upheld the regulation.

Mr. King lost.  So did the first rule of statutory interpretation.  Personally, I am a big fan of the plain meaning rule and sympathize with the three dissenting Justices.  Instead of holding Congress to a high standard of statutory craftsmanship, the Court underwrote legislative negligence!   We are now one step closer on a slippery slope to the nihilist conviction that text has no meaning.  If it doesn't, there is no such thing as law.  Humpty Dumpty as Chief Justice of our highest tribunal is an invitation to tyranny.

"When I use a word,' Humpty Dumpty said in a rather scornful tone, 'it means just what I choose it to mean - neither more nor less.'

"The question is,' said Alice, 'whether you can make words mean so many different things.'

"The question is,' said Humpty Dumpty, 'which is to be master - that's all."

Lewis Carrol,  Through the Looking Glass"


By:   Stanley D. Prowse


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