Friday, January 23, 2015

The ACA provision that should kill King, updated

[Update, 1/23: The ACA provision discussed below, which directs the federal as well as state exchanges to report to the Treasury tax credits provided to ACA private plan buyers, is treated in full in the government's respondents' brief against the King plaintiffs. The relevant paragraphs from the brief are posted at bottom.]
July 29 - Ever since a three-judge panel of the D.C. Circuit Court found in Halbig v. Burwell that the ACA only authorizes subsidies to be paid for health insurance bought in state-run exchanges, not in state exchanges set up by the federal government, progressive reporters have been ransacking the record to  prove what they always knew: that the law's creators never intended to exclude federally run exchanges from the subsidy regime.  Today, Greg Sargent and Jonathan Cohn both published compelling circumstantial evidence to that effect.

It seems to me, though, that such circumstantial evidence should be unnecessary. The ACA includes a provision that ought to settle the issue -- on that the majority in Halbig egregiously misread. Health law scholar Timothy Jost highlighted the dispositive provision back in September 2011, two months after the IRS issued a rule spelling out that subsidies would be available through the federal exchange (at which point the brains behind the Halbig suit, Michael Cannon and Jonathan Adler, immediately began arguing in print that the IRS rule contradicted the ACA's text). With reference to the drafting error stipulating only that subsidies be credited through an exchange "established by a state," Jost asserted:
 we do not need to rely on the courts to correct this error. Congress corrected it itself.

Four days after Congress passed the Patient Protection and Affordable Care Act, it enacted the Health Care and Education Reconciliation Act of 2010. Section 1004 of HCERA amended section 36B(f) of the IRC to impose on exchanges established under section 1311(f)(3)—that is, state exchanges—and under section 1321(c)—that is federal exchanges, the obligation to report to the IRS and to the taxpayer information regarding tax credits provided to individuals through the exchange. In this later-adopted legislation amending the earlier-adopted ACA, Congress demonstrated its understanding that federal exchanges would administer premium tax credits.
In a subsequent post, Jost noted, "As a later-adopted statute, HCERA would take precedence over PPACA if there were a contradiction."
Here is the relevant text from what was originally HCERA 1004 (now Subsection (f) of Section 36b of the IRS code as altered by the ACA, suggestively titled "Reconciliation of credit and advance credit"):
    (c) No Excess Payments- Section 36B(f) of the Internal Revenue Code of 1986, as added by section 1401(a) of the Patient Protection and Affordable Care Act, is amended by adding at the end the following new paragraph:
    `(3) INFORMATION REQUIREMENT- Each Exchange (or any person carrying out 1 or more responsibilities of an Exchange under section 1311(f)(3) or 1321(c) of the Patient Protection and Affordable Care Act) shall provide the following information to the Secretary and to the taxpayer with respect to any health plan provided through the Exchange:
    `(A) The level of coverage described in section 1302(d) of the Patient Protection and Affordable Care Act and the period such coverage was in effect.
    `(B) The total premium for the coverage without regard to the credit under this section or cost-sharing reductions under section 1402 of such Act.
    `(C) The aggregate amount of any advance payment of such credit or reductions under section 1412 of such Act.
    `(D) The name, address, and TIN of the primary insured and the name and TIN of each other individual obtaining coverage under the policy.
    `(E) Any information provided to the Exchange, including any change of circumstances, necessary to determine eligibility for, and the amount of, such credit.
    `(F) Information necessary to determine whether a taxpayer has received excess advance payments.'.
The government advanced Jost's argument in its defense. D.C. Circuit Judge Thomas B. Griffith, writing for the 2-1 majority upholding the plaintiffs, rejected it with recourse to a literalism that descends into absurdity:
The government contends that these reporting requirements assume that credits are available on federal Exchanges, and it argues that the requirements would be superfluous, even nonsensical, as applied to federal Exchanges if we were to reject that assumption. Not so. Even if credits are unavailable on federal Exchanges, reporting by those Exchanges still serves the purpose of enforcing the individual mandate — a point the IRS, in fact, acknowledged in promulgating a recent regulation, 26 C.F.R. § 1.6055 - 1(d)(1). That regulation exempts insurers from 26 U.S.C. § 6055, which otherwise would require that, for each policy they issue, insurers report to the IRS such information as “the name, address, and TIN of the primary insured ,” the dates of coverage, and the “amount (if any) or any advance payment. . . or of any premium tax credit under section 36B with respect to such coverage.” 26 U.S.C. § 6055(b)(1) (B). The IRS justified the exemption for insurers on the ground that “Exchanges must report on this coverage under section 36B(f)(3).” Information Reporting of  Minimum Essential Coverage, 79 Fed. Reg. 13,220, 13,221(Mar. 10, 2014); see 26 C.F.R. § 1.6055-1(d)(1). The government’s claim that section 36B(f)(3)’s reporting requirement serves no purpose other than reconciling credits is therefore simply not true (opinion, p. 24).
Judge Harry T. Edwards, in dissent, exposed the sophistry at work here (ascribed to the plaintiffs, whose reasoning Griffith adopted in full):
Appellants’ attempts to minimize the importance of the reporting requirements are specious. They first argue that, even if credits are unavailable on federally-created Exchanges, the reporting provision would nevertheless serve a purpose: to enforce the individual mandate to buy insurance. This amounts to a sleight of hand. The argument ignores the clear purpose – apparent from the statutory text – of subsection (f) and its reporting requirements. The purpose is front and center in the subsection’s title – “Reconciliation of credit and advance credit,” id. § 36B(f) – and is reinforced by the wording and structure of the provision.

Consistent with its title, subsection (f) charges the IRS with reconciling the ultimate tax credit to be paid with any advanced payments of the credit, id. § 36B(f)(1), including advance payments that “exceed the credit allowed” for the tax year, id. § 36B(f)(2). The IRS, of course, can accomplish these tasks only if it has adequate information, and the next paragraph, § 36B(f)(3), establishes the reporting requirements that ensure that the IRS has the information it needs to satisfy the term  of the statute. See id. § 36B(f)(3)(C), (E), (F) (requiring disclosure of information concerning advanced payments of tax credits). Obviously, some of the information covered by subsection (f)(3) will also assist in enforcing the individual mandate. But much of the information required to be disclosed by subsection (f)(3) is irrelevant to the purpose hypothesized by Appellants (i.e., to enforcing the mandate). See id. § 36B(f)(3)(F) (mandating the reporting of “[i]nformation necessary to determine whether a taxpayer has received excess advance payments”); id. § 5000A(e)(1)(A) - (B) (in determining whether an individual is exempted from the mandate, the statute takes account of the “amount of the credit allowable,” but not the amount of excess advance payments) (Edwards dissent, 20-21). 

This argument is part and parcel of Edwards' overall critique, which emphasizes repeatedly that Griffith refused to adhere to the standard of review requiring that if a particular provision of a statute is ambiguous, it must be read in the context of the statute as a whole -- as well as the principle established in Chevron U.S.A. v. Natural Resources Defense Council that if a statute is ambiguous, courts will defer to an executive agency's reasonable interpretation of it.

Astonishingly, with respect to HCERA 1004, Griffith refused to read the provision in question in the context of its own stated subject matter -- and read it to require the federal exchange to report subsidies they were not authorized to pay. The opinion is as specious as the suit it upholds.

Update 1/23:  Per the note at top, here is the relevant part of the Federal government's brief (pp 25-26):
2. Section 36B(f) makes clear that tax credits are available to eligible taxpayers through the Exchanges in every State

Section 36B itself confirms that tax credits are available in States with federally-facilitated Exchanges. Subsection (f) of that Section, entitled “Reconciliation of credit and advance credit,” provides for reduction of taxpayers’ year-end tax credits by the amount of advance payments made during the year. To allow Treasury to make that reconciliation, Section 36B(f)(3) requires “each Exchange” to provide specified information to Treasury and to individuals who purchase insurance on the Exchange. All of the required information is used in administering the credits and acompanying subsidies. Among other things, each Exchange must report the “amount of any advance payment” of credits and subsidies; information “necessary to determine eligibility for, and the amount of [the] credit”; and  “[i]nformation necessary to determine whether a taxpayer has received excess advance payments.” 26 U.S.C. 36B(f)(3)(C), (E) and (F); see Treasury, Form 1095-A, (implementing Section 36B(f)(3)).

As petitioners concede (Br. 45), this reporting requirement applies to all Exchanges—indeed, Section 36B(f)(3) contains the Act’s only direct reference to federally-facilitated Exchanges outside of Section 18041(c) itself. 8 But Congress would have had no reason specifically to require federally-facilitated Exchanges to report information for the express purpose of “[r]econciliation of credit and advance credit”if credits were categorically unavailable through those Exchanges. Subsection (f) thus confirms what Subsection (a) indicates—that tax credits are available to individuals through the Exchanges in all States.
A footnote addresses the plaintiff's counterargument, reiterated in D.C. Circuit Judge Griffith's opinion as noted above:
9 Straining to come up with an alternative explanation for these reporting requirements, petitioners speculate (Br. 45-47) that Congress intended the reported information to be used for other purposes, such as enforcing the individual-coverage provision. But there is no need to speculate. Section 36B(f) identifies the purpose  for which the reports were required: to allow Treasury to “[r]econcil[e]” payments of the “credit” and the “advance credit.” That some of the information required for that function can also be put to other uses is immaterial. And enforcement of the individual-coverage provision cannot explain Congress’s inclusion of federally-facilitated Exchanges in Section 36B(f)(3) because another provision separately required insurers to provide the information necessary to enforce the individual-coverage provision, without all of the additional credit-specific information required by Section 36B(f)(3). 26 U.S.C. 6055. 
The government further argues that"if petitioners were correct that a federally-facilitated Exchange is not an Exchange “established by the State,” no individual would be eligible to purchase insurance on federally-facilitated Exchanges and no individual-market plans could be sold there" (p. 27). And so on, to demonstrate ad infinitum that the law is complete nonsense if the exchanges authorized to grant tax credits were deemed not to include the federal exchange.

In which Brian Beutler demonstrates that SCOTUS must force to provide subsidies
Could the ACA exchanges go the way of the Medicaid expansion?

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