Timothy Jost Discusses an ACA Provision that Should Kill the King Suit

In the vast web of the ACA, there is only one provision that directly identifies the federal exchange as a creditor of subsidies. That provision is cited in the government's brief but did not come up in oral argument last week. It is one that should put to rest the claim -- acknowledged as a possibly winning argument by Justice Kennedy  -- that the ACA unambiguously authorizes the crediting of subsidies through the state exchanges alone.

I spoke on March 6 to Timothy Stolzfus Jost, a law professor at Washington and Lee University, about this provision, which he first highlighted in September 2011, immediately after one of the King masterminds, Jonathan Adler, published the nucleus of the King case. The exchange was prompted by an  IRS rule, proposed in August 2011 and finalized in May 2012, that authorized the federal exchanges to award premium subsidies.

In that 2011 piece, Jost acknowledged a "drafting error" in the ACA provision that neglected to include the FFEs while laying out the process of calculating individuals' subsidies. But, Jost wrote,

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."

Last November Jost co-authored  a law review article chronicling dozens of core ACA provisions that would be rendered nonsensical by barring the federal exchange from the crediting of subsidies. Again, though, 36b(f) is the only ACA provision that directly names the federal exchange in the subsidy context, and so should quell the narrowest literal reading of the language crediting subsidies only to "an exchange established by a state."

My conversation with Jost about this key provision follows.

Andrew Sprung: The provision you first highlighted more than three years ago, requiring the FFEs to report detailed subsidy data, seems a natural one to cite in response to claims that the ACA unambiguously authorizes credits to flow only through state exchanges. Why didn't it come up in oral argument?

Timothy Jost: When you're up there in front of the Court  you don't have much chance to get a word in edgewise. They ask the questions and you respond, and every now and then things quiet down for a moment and you can say something. There was a point where Solicitor General Verrilli was able to discuss anomalies in the statute that resulted from the plaintiff's interpretation, but there are so many of them that he did not pick this one.

But I think it's an important one because there's a general principle of statutory construction that if you have two provisions in a statute, and of them is from an original statute and one is from an amendment to the statute, the presumption is that the more recent law takes precedence over law that was amended. Here, the fact that Congress clearly recognized when it passed HCERA that federal exchanges were exactly the same as state exchanges is important. 

And it's particularly important because the House proposed a national exchange, and the Senate proposed state exchanges with a federal fallback, It's inconceivable that the House would have ever agreed to pass the Senate version if it would have understood it as prohibiting the federally facilitated exchanges from granting premium tax credits. This section shows that obviously the House didn't believe that to be the case. The House understood that the premium tax credits would be available through the federally facilitated exchanges as well as through the state-operated exchanges. 

Andrew Sprung: If House members had noted any ambiguity or any failure to credit subsidies through the federal exchanges, could they have spelled the point out more explicitly?

Timothy Jost: For sure they could. In the reconciliation act, under the Byrd rule, they could change any provision that pertains to revenue or expenditures, and this section clearly does.. Had they believed that there was unclarity here they certainly could have fixed it.  They didn't. The House Energy and Commerce Committee  put out a  report on the statute as it was being adopted in March of 2010 in which they said that premium tax credits are going to be available in every state.

Sprung: How would you respond to the argument in the plaintiffs' brief that 36B(f) doesn't settle the matter because the reporting required of the exchanges -- all exchanges -- has other purposes in addition to reconciling tax credits with recipients' later income statements? That is, Treasury needs the reporting information from all plans, with or without subsidies -- for example, to determine whether each taxpayer has fulfilled the "individual mandate" to purchase adequate health insurance.

Jost: The information can be used for that purpose, but the title of the section  has to do with reconciliation. If you read the section, the primary focus is on  the premium tax credit reconciliation process, and that is what they were primarily concerned with. Obviously the information could be used for all kinds of purposes, but that's they were collecting the information for reconciliation.  

Sprung: Justice Kennedy first raised the issue of coercion, giving a lift to ACA supporters, but then he qualified that by allowing that the statute may simply, unambiguously say what the plaintiffs claim it does. Would 36B(f) at least get you to ambiguity?

Jost: Obviously. Yes. I'm just looking at it now. The title of the section is "Reconciliation of credit and advance credit." That's what the information is for, and if you look at the information that's going to be reported -- the level of coverage, the period of such coverage, the total premium without regard to the credit, the aggregate amount of the credit, any information provided to the exchange regarding change of circumstances [which would alter the credit amount]... the plaintiffs' idea is that the FFE is supposed to put down 0,0,0 and to do this several million times, because these forms (the 1095a) go not only to the IRS but also to all the taxpayers. 

The thought that Congress really intended this  -- and again, this is one of dozens of places in the statute where the federal exchange would have to end up reporting 0,0,0, --  it just boggles. This and many other sections should satisfy Justice Kennedy's search for ambiguity if not for lack of ambiguity on the part of the government. 

Sprung: If the Court does find the statute ambiguous, Justice Kennedy floated one more argument of the plaintiffs': that it's not for the IRS to resolve such high-stakes ambiguity

Jost: That point just doesn't make any sense, and that's addressed in the government's brief. The IRS makes all kinds of big decisions all the time. Many decisions the IRS makes involve billions of dollars. The plaintiffs have this bogus argument that tax law is somehow special, you don't defer to the IRS -- but that's not what the Supreme Court's cases have said, as the government's brief documents. [Note: Nicholas Bagley was co-author of an amicus brief rebutting this part of the plaintiffs' argument. Bagley summarizes that brief here.]

Sprung: But just trying to probe Kennedy's mind: would the fact that these reporting requirements are there further scotch that argument?

Jost: Yes. Again, the reporting requirements support the government's argument that the federally facilitated marketplace is in fact the state established exchange and that that's what Congress intended, that's what the text says. 

There are at least three ways the Supreme Court can get to the government's case. One is just read the text -- it's not, taken as a whole, ambiguous in authorizing the FFEs to provide tax credits. The second is the Chevron rule [stipulating that if a statute is ambiguous, the courts should defer to the agency charged with implementing it], and the third is the constitutional avoidance principle. I think this section makes it clear that Congress does say that the federally facilitated exchange is the state-established exchange, but it in any event it raises ambiguity which allows you to get there through the other two routes. 

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Here is the relevant text from what was originally HCERA 1004 (now Section 36B(f) of the IRS code as altered by the ACA,  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.'.

Update, 3/10: I have shortened the headnote in this post to cut to the chase.