4th Circuit Says Nah, D.C. Circuit. ACA Subsidies For All!

By William Peacock, Esq. on July 22, 2014 | Last updated on March 21, 2019

Seriously, when was the last time you saw a circuit split happen in a matter of hours? The law nerd inside of me is quivering right now, I tell you!

The D.C. Circuit read a statute, § 36B, which provides tax credits (subsidies, in essence) to qualifying low-income individuals who purchase plans though an "Exchange established by the State." To them, that text is pretty clear -- state exchanges are eligible for subsidies, while the federal Heathcare.gov exchange is not. It came to the decision "reluctantly," of course, as it notes that if its holding stands, Obamacare will collapse absent legislative intervention. We have more on the D.C. Circuit opinion, and the end of the world as we know it, in our D.C. Circuit coverage.

But wait, there's more: the Fourth Circuit (and a dissenting D.C. Circuit judge) came to a contrary conclusion. How?

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Okay, You Have a Point

"There can be no question that there is a certain sense to the plaintiffs' position," Judge Roger Gregory wrote. "If Congress did in fact intend to make the tax credits available to consumers on both state and federal Exchanges, it would have been easy to write in broader language, as it did in other places in the statute."

And as the plaintiffs point out, not only does the provision at issue only mention "by the State," but other provisions, such as § 1311 and § 1321, mention federal and state exchanges explicitly and separately.

But Seriously, The Whole Statute Says ...

"However, when conducting statutory analysis, 'A reviewing court should not confine itself to examine a particular statutory provision in isolation. Rather, [t]he meaning -- or ambiguity -- of certain words or phrases may only become evident when placed in context.'"

Other statutory provisions make it optional for states to create exchanges, and order the Secretary of Heath and Human Services (HHS) to establish an exchange "on behalf of the state" when the state fails to do so -- in short, the argument is that the Federal exchange is basically subbing for, and equivalent to, a state exchange when the statute as a whole is considered.

"Having thus explained the parties' competing primary arguments, the court is of the opinion that the defendants have the stronger position, although only slightly," Judge Gregory noted.

As the panel notes, there is scant legislative history or evidence to support either the interpretation that the subsidies were meant as a carrot to entice states to set up their own exchanges, or for the government's interpretation that subsidies were intended for all low-income individuals, regardless of the exchange used to purchase a policy.

With strong arguments on both sides, and little to no evidence outside of the statute to clarify things, the Fourth Circuit held that the statute, as written, is ambiguous. And as we all remember from law school, when a statute is ambiguous, much deference is afforded to agencies' interpretation of that statute. (The Chevron step two analysis: whether the agency's interpretation is "a permissible construction of the statute.")

That, of course, is a foregone conclusion: the IRS interpretation broadens the pool of individuals receiving subsidies, and makes insurance affordable to more people -- exactly the purpose of the statute.

Is It Really Ambiguous?

As we noted, the D.C. Circuit ruled that the text was unambiguous: subsidies for state-run exchanges only.

Meanwhile, Senior Judge Andre Davis, of the Fourth Circuit, wrote in his concurrence that the separate statutory provision requiring the federal government to step in when states refuse and operate "such exchange" puts them in the equivalent position of running the state exchange -- he things the statute in unambiguously in favor of the government's interpretation.

All we know is this: if there is any ambiguity, the government will almost certainly prevail in the name of deference. And with a circuit split, and an issue of this magnitude and national importance, a Supreme Court trip is almost certain to follow in the near future.

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