So where’s the confusion?
Both cases hinge on what Think Progress calls “a glorified typo” in the Affordable Care Act. The ACA indicates that states may set up their own insurance exchanges or rely on the federal government to do it for them. If you read only that bit of the text, the law seems to imply that only “an Exchange established by the State” can offer subsidies to off-set the cost of healthcare. This is what the D.C. court relied on to write their 2-1 opinion.
But, in a unanimous decision, the Fourth Circuit said taking a single line out of context was a terrible idea. More specifically: “A reviewing court should not confine itself to examining a particular statutory provision in isolation” given that the “meaning—or ambiguity—of certain words or phrases may only become evident when placed in context.”
The dissenting judge on the D.C. court, Judge Harry Edwards, offered similar language in his dissent:
“Appellants contend that the phrase “Exchange established by the State” in § 36B unambiguously bars subsidies to individuals who purchase insurance in States in which HHS created the Exchange on the State’s behalf. This argument fails because ‘the words of a statute must be read in their context and with a view to their place in the overall statutory scheme.’ … When the language of § 36B is viewed in context – i.e., in conjunction with other provisions of the ACA – it is quite clear that the statute does not reveal the plain meaning that Appellants would like to find.”
The disagreement is an interesting one, and essentially hinges on who gets to decide what the law means when the law is ambiguous. Traditionally, the Supreme Court has given this power to the executive branch. In 1984, the Supreme Court came up with the “Chevron Two-Step Test” which held that in the event the language of the law is ambiguous, the Supreme Court defers to the executive power’s interpretation so long as that interpretation is not unreasonable.
As Judge Roger Gregory concludes:
We cannot discern whether Congress intended one way or the other to make tax credits available on the HHS-facilitated exchanges. The relevant statutory sections appear to conflict with one another, yielding different possible interpretations. In light of this uncertainty, this is a suitable case in which to apply the principals of deference called for by Chevron.”
So then the Court must decide if the deference is warranted given how the IRS interpreted the law. In other words, is what the IRS decided to do reasonable? Judge Gregory writes:
With only sixteen state-run Exchanges currently in place, the economic framework supporting the Act would crumble if the credits were unavailable on federal Exchanges. Furthermore, without an exception to the individual mandate, millions more Americans unable to purchase insurance without the credits would be forced to pay a penalty that Congress never envisioned imposing on them. The IRS Rule avoids both these unforeseen and undesirable consequences and thereby advances the true purpose and means of the Act.”
Given that, he calls the IRS decision “entirely reasonable” and chooses to defer to their decision based on Chevron. Chevron is a useful law. It leaves the power to interpret and carry out a law to the agency tasked with enforcing the law, which means that people who have specific expertise will be making difficult decisions as opposed to judges in black robes who sit on benches.
The disagreement falls clearly along party lines. The two judges who ruled in favor of the plaintiffs in the D.C. case were appointed by Republicans, while the dissenting judge and all three judges on the Fourth Circuit court were appointed by Democrats.
The contradictory ruling makes it even more likely that the case will be heard by the Supreme Court, and the Obama Administration will still call for “en banc” ruling by the full 11-judge panel from the D.C. court. The D.C. ruling has no immediate effect, as the judges stayed their decision to give the administration time to appeal.