Lead Opinion
Opinion for the Court filed by Circuit Judge GRIFFITH.
Concurring opinion filed by Senior Circuit Judge RANDOLPH.
Dissenting opinion filed by Senior Circuit Judge EDWARDS.
Sеction 36B of the Internal Revenue Code, enacted as part of the Patient Protection and Affordable Care Act (ACA or the Act), makes tax credits available as a form of subsidy to individuals who purchase health insurance through marketplaces — known as “American Health Benefit Exchanges,” or “Exchanges” for short — that are “established by the State under section 1311” of the Act. 26 U.S.C. § 36B(c)(2)(A)(i). On its face, this provision authorizes tax credits for insurance purchased on an Exchange established by one of the fifty states or the District of Columbia. See 42 U.S.C. § 18024(d). But the Internal Revenue Service has interpreted section 36B broadly to authorize the subsidy also for insurance purchased on an Exchange established by the federal government under section 1321 of the Act. See 26 C.F.R. § 1.36B-2(a)(i) (hereinafter “IRS Rule”).
Appellants are a group of individuals and employers residing in states that did not establish Exchanges. For reasons we explain more fully below, the IRS’s interpretation of section 36B makes them subject to certain penalties under the ACA that they would rather not face. Believing that the IRS’s interpretation is inconsistent with section 36B, appellants challenge the regulation under the Administrative Procedure Act (APA), alleging that it is not “in accordance with law.” 5 U.S.C. § 706(2)(A).
On cross-motions for summary judgment, the district court rejected that challenge, granting the government’s motion and denying appéllants’. See Halbig v. Sebelius, No. 13 Civ. 623(PLF), — F.Supp.3d -,
' Appellants timely appealed the district court’s orders, and we have jurisdiction under 28 U.S.C. § 1291. Our review of the orders is de novo, and “[o]n an independent review of the record, we will uphold an agency action unless we find it to be ‘arbitrary, capricious, an abuse of discretion, or otherwise not in accordance
I
Congress enacted the Patient Protection and Affordable Care Act in 2010 “to increase the number of Americans covered by health insurance and decrease the cost of health care.” Nat’l Fed’n of Indep. Bus. v. Sebelius (NFIB), — U.S. -,
Under section 36B, Exchanges also serve as the gateway to the refundable tax credits through which the ACA subsidizes health insurance. See 26 U.S.C. § 36B(a). Generally speaking, section 36B authorizes credits for “applicable taxpayer[s],” id., defined as those with household incomes between 100 and 400 percent of the federal poverty line, id. § 36B(c)(l)(A). But section 36B’s formula for calculating the credit works further limits on who may receive the subsidy. According to that formula, the credit is to equal the sum of the “premium assistance amounts” for each “coverage month.” Id. § 36B(b)(Z). The “premium assistance amount” is based on the cost of a “qualified health plan ... enrolled in through an Exchange established by the State under [section] 1311 of the [ACA].” Id. § 36B(b)(2); see also 42 U.S.C. §§ 18021(a)(1), 18031(c)(1) (establishing requirements for “qualified health plans”). Likewise, a “coverage month” is a month for which, “as of the first day of such month the taxpayer ... is covered by a qualified health plan ... that was enrolled in through an Exchange established by the State under section 1311 of the [ACA].” 26
But, in a regulation promulgated on May 23, 2012, the IRS interpreted section 36B to allow credits for insurance purchased on either a state- or federally-established Exchange. Specifically, the regulation provided that a taxpayer may receive a tax credit if he “is enrolled in one or more qualified health plans through an Exchange,” 26 C.F.R. § 1.36B-2(a)(l), which the IRS defined as “an Exchange serving the individual market for qualified individuals ..., regardless of whether the Exchange is established and operated by a State (including a regional Exchange or subsidiary Exchange) or by HHS.” 45 C.F.R. § 155.20 (emphasis added); see 26 C.F.R. § 1.36B-l(k) (incorporating the definition in 45 C.F.R. § 155.20 by reference). In promulgating this broader rule, the IRS acknowledged that “[c]ommentators disagreed on whether the language in section 36B(b)(2)(A) limits the availability of the premium tax credit only to taxpayers who enroll in qualified health plans on State Exchanges,” but asserted without elaboration that “[t]he statutory language of section 36B and other provisions of the [ACA],” as well as “the relevant legislative history,” supported its view. Health Insurance Premium Tax Credit, 77 Fed.Reg. 30,377, 30,378 (May 23, 2012).
This broader interpretation has major ramifications. By making credits more widely available, the IRS Rule gives the individual and employer mandates' — key provisions of the ACA — broader effect than they would have if credits were limited to state-established Exchanges. The individual mandate requires individuals to maintain “minimum essential coverage” and, in general, enforces that requirement with a penalty. See 26 U.S.C. § 5000A(a)-(b). The penalty does not apply, however, to individuals for whom the annual cost of the cheapest available coverage, less any tax credits, would exceed eight percent of their projected household income. See id. § 5000A(e)(l)(A)-(B). By some estimates, credits will determine on which side of the eight-percent threshold millions of individuals fall. See Br. of Economic Scholars in Support of Appellees 18. Thus, by making tax credits available in the 36 states with federal Exchanges, the IRS Rule significantly increases the number of people who must purchase health insurance or face a penalty.
The IRS Rule affects the employer mandate in a similar way. Like the individual mandate, the employer mandate uses the threat of penalties to induce large employers — defined as those with at least 50 employees, see 26 U.S.C. § 4980H(c)(2)(A)— to provide their full-time employees with health insurance. See generally id. § 4980H(a). Specifically, the ACA penalizes any large employer who fails to offer its full-time employees suitable coverage if one or more of those employees “enroll[s] ... in a qualified health plan with respect to which an applicable tax credit ... is allowed or paid with respect to the employee.” Id. § 4980H(a)(2); see also id. § 4980H(b) (linking another penalty on employers to employees’ receipt of tax credits). Thus, even more than with the individual mandate, the employer mandate’s penalties hinge on the availability of credits. If credits were unavailable in states with federal Exchanges, employers there would face no penalties for failing to offer coverage. The IRS Rule has the opposite effect: by allowing credits in such states, it exposes employers there to penalties and thereby gives the employer mandate broader reach.
Before we can turn to the merits of the parties’ dispute, we must first address the government’s argument that all appellants lack standing and that, even if they have standing, the APA does not provide them with a cause of action to challenge the IRS Rule. Because we find that appellant David Klemencic has standing and a cause of action under the APA, we do not reach the issue of our jurisdiction over the remaining appellants’ claims. See Mountain States Legal Found. v. Glickman,
A
The “ ‘irreducible constitutional minimum’ ” a plaintiff must show to establish standing is (1) an injury in fact (2) fairly traceable to the alleged conduct of the defendant (3) that is likely to be redressed by the relief the plaintiff seeks. Sprint Commc’ns Co. v. APCC Servs., Inc.,
The government primarily questions whether Klemencic has suffered an injury in fact. An injury in fact is “a concrete and particularized invasion of a legally protected interest.” Sprint Commc’ns Co.,
B
The APA provides a cause of action to challenge final agency action “for which there is no other adequate remedy in a court.” 5 U.S.C. § 704. The government argues that even if Klemencic has standing to challenge the IRS Rule, he cannot do so under the APA because he has an adequate alternative remedy in the form of a tax-refund suit: Klemencic could violate the individual mandate, pay the penalty, and then sue for a refund, raising the same arguments he makes here. See 28 U.S.C. § 1346(a)(1); see also 26 U.S.C. § 7422(a). Such a remedy is adequate, the government contends, because if Klemencic were successful, the suit would make him financially whole.
The APA “embodies the basic presumption of judicial review” of agency action. Abbott Labs. v. Gardner,
In arguing that a tax refund suit provides an adequate alternative remedy, the government emphasizes Klemencic’s ability to recover any assessed overpayment, plus interest. But that backward-looking relief differs in kind from the prospective relief Klemencic could obtain under the APA. See Bowen,
Furthermore, it is not clear that Klem-encic could obtain any prospective relief through a refund action, let alone that which he seeks under his APA claim— namely, a declaration that the IRS Rule is invalid and an injunction barring its implementation. As we explained in Cohen v. United States, the provision authorizing refund suits “does not, at least explicitly, allow for prospective relief.”
Ill
On the merits, this ease requires us to determine whether the ACA permits the IRS to provide tax credits for insuranсe purchased through federal Exchanges. To make this determination, we begin by asking “whether Congress has directly spoken to the precise question at issue,” for if it has, we must give effect to its unambiguously expressed intent. Chevron U.S.A., Inc. v. Natural Res. Def. Council,
Although both appellants and the government argue that the ACA, read in its totality, evinces clear congressional intent, they dispute what that intent actually is. Appellants argue that if taxpayers can receive credits only for plans enrolled in “through an Exchange established by the State under section 1311 of the [ACA],” then the IRS clearly cannot give credits to taxpayers who purchased insurance on an Exchange established by the federal government. After all, the federal government is not a “State,” see 42 U.S.C. § 18024(d) (defining “State” to “mean[ ] each of the 50 States and the District of Columbia”), and its authority to establish Exchanges appears in section 1321 rather than section 1311, see id. § 18041(c)(1). The government counters that appellants
We conclude that appellants have the better of the argument: a federal Exchange is not an “Exchange established by the State,” and section 36B does not authorize the IRS to provide tax credits for insurance purchased on federal Exchanges. We reach this conclusion by the following path: First, we examine section 36B in light of sections 1311 and 1321, which authorize the establishment of state and federal Exchanges, respectively, and conclude that section 36B plainly distinguishes Exchanges established by states from those established by the federal government. We then consider the government’s arguments that this construction generates absurd results but find that it does not render other provisions of the ACA unworkable, let alone so unreasonable as to justify disregarding section 36B’s plain meaning. Finally, turning to the ACA’s purpose and legislative history, we find that the government again comes up short in its efforts to overcome the statutory text. Its appeals to the ACA’s broad aims do not demonstrate that Congress manifestly meant something other than what section 36B says.
A
The crux of this case is whether an Exchange established by the federal government is an “Exchange established by the State under section 1311 of the [ACA].” We therefore begin with the provisions authorizing states and the federal government to establish Exchanges. Section 1311 provides that states “shall” establish Exchanges. 42 U.S.C. § 18031(b)(1). But, as the parties agree, despite its seemingly mandatory language, section 1311 more cajoles than commands. A state is not literally required to establish an Exchange; the ACA merely encourages it to do so. And if a state elects not to (or is unable to), such that it “will not have any required Exchange operational by January 1, 2014,” section 1321 directs the federal government, through the Secretary of Health and Human Services, to “establish and operate such Exchange within the State.” Id. § 18041(c)(1) (emphasis added).
The phrase “such Exchange” has twofold significance. First, the word “such”— meaning “aforementioned,” see Black’s Law Dictionary 1473 (8th ed.2004); Webster’s Third Int’l Dictionary 2283 (1981)— signifies that the Exchange the Secretary must establish is the “required Exchange” that the state failed to establish. In other words, “such” conveys what a federal Exchange is: the equivalent of the Exchange a state would have established had it elected to do so. The meaning of “Exchange” in the ACA reinforces and builds on this sense. The ACA defines an “Exchange” as “an American Health Benefit Exchange established under [section 1311 of the ACA].” 42 U.S.C. § 300gg-91(d)(21). If we import that definition into the text of section 1321, the provision directs the Secretary to “establish ... such American Health Benefit Exchange established under [section 1311 of the ACA] within the State.” This suggests not only that the Secretary is to establish the type of exchange described in section 1311, but also that when she does so, she acts under section 1311, even though her authority
The problem confronting the IRS Rule is that subsidies also turn on a third attribute of Exchanges: who established them. Under section 36B, subsidies are available only for plans “enrolled in through an Exchange established by the State under section 1311 of the [ACA].” 26 U.S.C. § 36B(c)(2)(A)(i) (emphasis added); see also id. § 36B(b)(2)(A). Of the three elements of that provision — (1) an Exchange (2) established by the State (3) under section 1311 — federal Exchanges satisfy only two: they are Exchanges established under section 1311. Nothing in section 1321 deems federally-established Exchanges to be “Exchanged] established by the State.” This omission is particularly significant since Congress knew how to provide that a non-state entity should be treated as if it were a state when it sets up an Exchange. In a nearby section, the ACA provides that a U.S. territory that “elects ... to establish an Exchange ... shall be treated as a State.”
The dissent attempts to supply this missing equivalency by pointing to section 1311(d)(1), which provides: “An Exchange shall be a governmental agency or nonprofit entity that is established by a State.” 42 U.S.C. § 18031(d)(1). According to the dissent, (d)(1) means that an Exchange established under section 1311 is, by definition, established by a state. Therefore, the dissent argues, because federal Exchanges are established under section 1311, they too, by definition, are established by a state.
The premise that (d)(1) is definitional, however, does not survive examination of (d)(l)’s context and the ACA’s structure. The other provisions of section 1311(d) are operational requirements, setting forth what Exchanges must (or, in some cases, may) do.
The dissent’s reading would also require us to overlook the fact that section 1311(d) would be a strange place for Congress to have buried such a legal fiction. Section 1311, after all, concerns Exchanges that are established by states in fact; the legal fiction the dissent urges would matter only to Exchanges established by the federal government. To accept the dissent’s construction would therefore transform (d)(1) into the proverbial elephant in the mouse-hole — the “ancillary provision! ]” that “alter[s] the fundamental details of a regulatory scheme.” Whitman v. Am. Trucking Ass’ns,
The dissent’s construction of (d)(1) also ignores the structural relationship between sections 1311 and 1321. Just as section 1311(b)(1) assumes that states will establish Exchanges in general, see 42 U.S.C. § 18031(b)(1), section 1311(d) assumes that states will carry out the specific requirements Exchanges must meet. But if those assumptions prove wrong, section 1321 assigns the federal government responsibility both to establish the Exchange and to ensure that it satisfies the particulars of section 1311(d). See id. § 18041(c) (directing the Secretary to “establish and operate such Exchange” and to “take such actions as are necessary to implement such other requirements” pertaining to Exchanges). In other words, section 1321 creates a limited scheme of substitution: the requirements assigned to states by 1311(d) are transferred to the federal government if a state fails to establish an Exchange. The specific requirement that (d)(1) assumes each state will fulfill is to establish an Exchange in the form of “a governmen
Instead, sections 1311 and 1321 lead us to interpret section 36B essentially as appellants do. Those provisions, to be sure, establish some degree of equivalence between state and federal Exchanges— enough, indeed, that if section 36B had authorized credits for insurance purchased on an “Exchange established under section 1311,” the IRS Rule would stand. But section 36B actually authorizes credits only for coverage purchased on an “Exchange established by the State under section 1311,” 26 U.S.C. § 36B(c)(2)(A)(i), and the government offers no textual basis — in sections 1311 and 1321 or elsewhere — for concluding that a federally — established Exchange is, in fact or legal fiction, established by a state. Moreover, as we have noted, that absence is especially glaring given that the ACA elsewhere provides that a federal territory that establishes an Exchange “shall be treated as a State,” 42 U.S.C. § 18043(a), clearly demonstrating that Congress knew how to deem a non-state entity to be a “State.” Thus, at least in light of sections 1311 and 1321, the meaning of section 36B appears plain: a federal Exchange is not an “Exchange established by the State.”
B
The government argues that we should not adopt the plain meaning of section 36B, however, because doing so would render several other provisions of the ACA absurd. Our obligation to avoid adopting statutory constructions with absurd results is well-established. See Pub. Citizen v. U.S. Dep’t of Justice,
i
The government first argues that we must uphold the IRS Rule to avoid rendering language in 26 U.S.C. § 36B(f) superfluous. Titled “Reconciliation of credit and advance credit,” section 36B(f) requires the IRS to reduce a taxpayer’s end-of-year credit by the amount of any advance payments made by the government to the taxpayer’s insurer to offset the cost of monthly premiums. Id. § 36B(f)(i); see 42 U.S.C. § 18082(c)(2)(A) (authorizing such advance payments). As relevant here, section 36B(f) also requires “each Exchange” — i.e., both state and federal Exchanges — to report certain information to the government. With respect to any health plan it provides, an Exchange must report:
(A) The level of coverage ... 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 [the ACA],
(C) The aggregate amount of any advance payment of such credit or reductions ....
(D) The name, address, and [taxpayer identification number (TIN) ] of the primary insured and the name and TIN of each other individual obtaining coverage under the рolicy.
(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.
26 U.S.C. § 36B(f)(3). 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)(l). 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).
Furthermore, holding that credits are unavailable on federal Exchanges would not convert the specific reporting requirements concerning credits into an “ ‘empty gesture.’ ” Gov’t Br. 28 (quoting Fund for Animals, Inc. v. Kempthorne,
ii
The government next points to the supposedly absurd consequences appellants’ interpretation of section 36B would have for section 1312 of the ACA, which defines the rights of “qualified individuals.” See 42 U.S.C. § 18032. The term “ ‘qualified individual’ means, with respect to an Exchange, an individual who- — (i) is seeking to enroll in a qualified health plan in the individual market offered through the Exchange; and (ii) resides in the State that established the Exchange.” Id. § 18032(f)(1)(A). If this provision is given its plain meaning, then the 36 states with federal Exchanges (that, obviously, the states did not establish) have no qualified individuals. That outcome is absurd, the government argues, because in its view section 1312 restricts access to Exchanges to qualified individuals alone. See 45 C.F.R. § 155.20. The absence of qualified individuals would mean that federal Exchanges have no customers and therefore no purpose. The government urges us to avoid this outcome by construing section 1321 to authorize the federal government to establish Exchanges “on behalf of” states that decline to do so. Gov’t Br. 21 (internal quotation marks omitted).
The government, however, tilts at windmills. It assumes that when section 1312(a) states that “[a] qualified individual may enroll in any qualified health plan available to such individual and for which such individual is eligible,” 42 U.S.C. § 18032(a)(1), it means that only a qualified individual may enroll in such a plan. The obvious flaw in this interpretation is that the word “only” does not appear in the provision. We have repeatedly emphasized that it is “not our role” to “engage in a statutory rewrite” by “inserting] the word ‘only’ here and there.” Adirondack Med. Ctr. v. Sebelius,
Several other provisions in section 1312 imply that not only “qualified individuals” may participate in an Exchange. Take, for example, the provision concerning incarcerated convicts. Section 1312(f)(1)(B) states that “[a]n individual shall not be treated as a qualified individual if, at the time of enrollment, the individual is incarcerated, other than incarceration pending the disposition of charges.” 42 U.S.C. § 18032(f)(1)(B) (emphasis added). By implying that an incarcerated convict may enroll in coverage through an Exchange despite not being a “qualified individual,” this provision suggests that participation in an Exchange does not depend on “qualified individual” status. That proposition gains further strength from section 1312(d)(3), which states, first, that “[nothing in this title shall be construed to restrict the choice of a qualified individual to enroll or not to enroll in a qualified health plan or to participate in an Exchange,” 42 U.S.C. § 18032(d)(3)(A), and, second, that “[n]othing in this title shall be construed to compel an individual to enroll in a qualified health plan or to participate in an Exchange,” id. § 18032(d)(3)(B). The second provision, which speaks of “individuals]” generally, would be wholly unnecessary if only “qualified individuals” were eligible to participate in the Exchanges.
iii
The government also claims that a plain meaning reading of section 36B would have peculiar effects under 42 U.S.C. § 1396a(gg)(i). That provision states that, as a condition of receiving Medicaid funds, a State may not tighten its Medicaid eligibility standards for adults until “the
iv
The government urges us, in effect, to strike from section 36B the phrase “established by the State,” on the ground that giving force to its plain meaning renders other provisions of the Act absurd. But we find that the government has failed to make the extraordinary showing required for such judicial rewriting of an act of Congress. Nothing about the imperative to read section 36B in harmony with the rest of the ACA requires interpreting “established by the State” to mean anything other than what it plainly says.
C
This conclusion places us at a fork in our precedent. One line of cases instructs us to cease our inquiry and give effect to the statute’s unambiguous language. See Coal. for Responsible Regulation, Inc. v. EPA
We begin by clarifying the role the ACA’s legislative history might play in our analysis. Legislative history is a means to an end, to be consulted for evidence of congressional intent. See, e.g., Sierra Club,
Here, the scant legislative history sheds little light on the precise question of the availability of subsidies on federal Exchanges. The government points, for example, to a Congressional Budget Office report from November 2009, before the ACA’s adoption, that calculated the cost of subsidies based on the assumption that they would be available in all states. But that assumption is as consistent with an expectation that all states would cooperate (i.e., establish their own Exchanges) as
The government and its amici are thus left to urge the court to infer meaning from silence, arguing that “during the debates over the ACA, no one suggested, let alone explicitly stated, that a State’s citizens would lose access to the tax credits if the State failed to establish its own Exchange.” Br. of Amici Members of Congress and State Legislatures 8. The historical record, however, belies this claim. The Senate Committee on Health, Education, Labor, and Pensions (HELP) proposed a bill that specifically contemplated penalizing states that refused to participate in establishing “American Health Benefit Gateways,” the equivalent of Exchanges, by denying credits to such states’ residents for four years. See Affordable Health Choices Act, S. 1679, 111th Cong. § 3104(a), (d)(2) (2009). This is not to say that section 36B necessarily incorporated this thinking; we agree that inferences from unenacted legislation are too uncertain to be a helpful guide to the intent behind a specific provision. See Village of Barrington v. Surface Transp. Bd.,
In any case, even if the historical record were silent, that silence is unhelpful to the government. For the court to depart from the ACA’s plain meaning, which favors appellants, “there must be evidence that Congress meant something other than what it literally said,” from which the court can conclude that applying the statute literally would be “ ‘demonstrably at odds with the intentions of [the ACA’s] drafters.’ ” Engine Mfrs. Ass’n,
The government, together with the dissent, also leans heavily on a more abstract form of legislative history — Congress’s broad purpose in passing the ACA — urging the court to view section 36B through the lens of the ACA’s economic theory and ultimate aims. They emphasize that to achieve the goals of “near universal coverage” and “lowering] health insurance premiums,” 42 U.S.C. § 18091(2)(D), (F), the
Moreover, the territories are not the only instance where the ACA did the unimaginable. A separate title of the ACA, known as the Community Living Assistance Services and Supports (CLASS) Act, see ACA, Pub.L. No. 111-148, §§ 8001-8002, 124 Stat. 119, 828-47 (2010), required the Secretary of HHS to establish a long-term care insurance program subject to guaranteed issue and community rating requirements but unaided by an individual mandate or premium subsidies, see
The CLASS Act and the provisions applicable to the territories attest that Congress twice did exactly what the government and the dissent insist it never would: introduce significant adverse selection risk to insurance markets. This is not to say that as Congress did in the CLASS Act and territories, so too must it have done in section 36B; perhaps Congress was willing to tolerate risks in those corners of the insurance market that it never would tolerate at its core. But perhaps not. The point is that we don’t know, and in asking us to ignore the best evidence of Congress’s intent — the text of section 36B — in favor of assumptions about the risks that Congress would or would not tolerate— assumptions doubtlessly influenced by hindsight — the government and dissent in effect urge us to substitute our judgment for Congress’s. We refuse. As the Supreme Court explained just this term, “an agency may not rewrite clear statutory terms to suit its own sense of how the statute should operate.” UARG,
More generally, the ACA’s ultimate aims shed little light on the “precise question at issue,” Chevron,
The fact is that the legislative record provides little indication one way or the other of congressional intent, but the statutory text does. Section 36B plainly makes subsidies available only on Exchanges established by states. And in the absence of any contrary indications, that text is conclusive evidence of Congress’s intent. Cf. Ethyl Corp. v. EPA,
IV
We reach this conclusion, frankly, with reluctance. At least until states that wish to can set up Exchanges, our ruling will likely have significant consequences both for the millions of individuals receiving tax credits through federal Exchanges and for health insurance markets more broadly. But, high as those stakes are, the principle of legislative supremacy that guides us is higher still. Within constitutional limits, Congress is supreme in matters of policy, and the consequence of that supremacy is that our duty when interpreting a statute is to ascertain the meaning of the words of the statute duly enacted through the formal legislative process. This limited role serves democratic interests by ensuring that policy is made by elected, politically accountable representatives, not by appointed, life-tenured judges.
Thus, although our decision has major consequences, our role is quite limited: deciding whether the IRS Rule is a permissible reading of the ACA. Having concluded it is not, we reverse the district court and remand with instructions to grant summary judgment to appellants and vacate the IRS Rule.
Notes
. Although West Virginia actually passed legislation authorizing the establishment of an Exchange, see W. VA. CODE § 33-16G-1 et seq., it subsequently decided to allow the federal government to establish the Exchange, in partnership with the state, due to cost concerns, see Nat’l Conference of State Legislatures: Health Insurance Exchanges or Marketplaces: State Action — May 2014, http:// www.ncsl.Org/Portals/l/Documents/HeaIth/ Health_Insurance_Exchanges_State_Profiles. pdf#page=49 (last visited June 12, 2014).
. Specifically, the ACA permits territories to be treated as states for the limited purposes of sections 1311, 1312, and 1313. See 42 U.S.C. § 18043(a).
. Although we attach little weight to section titles, the title of section 1321(c) — "Failure to establish Exchange or implement requirements” — reinforces this interpretation. See Gorman v. Nat’l Transp. Safety Bd.,
. The government makes its own elephants-in-mouseholes argument, asserting that the formula for calculating tax credits (located in section 36B(b)) is an odd place to insert a condition that the states must establish their own Exchanges if they wish to secure tax credits for their citizens. The more natural location, the government suggests, would have been section 36B(a), which authorizes the credit in the first place. See 26 U.S.C. § 36B(a). But even under the government's reading of section 36B(b), the statutory formula houses an elephant: namely, the rule that subsidies are only available for plans purchased through Exchanges. Given that this other crucial limitation on the availability of subsidies is found only in section 36B’s formula, the government’s contention that the formula is a mere mousehole is unpersuasive.
Equally unpersuasive is the dissent's suggestion that section 36B cannot mean what it plainly says because Congress did not use an "if/then” formula to signify that credits are available only on state-established Exchanges. The dissent cites no authority for requiring such magic words, and we perceive none. Section 36B(b) also does not employ an "if/1 then” construction for the requirement that credit-eligible coverage be purchased through an Exchange, yet neither the government nor dissent disputes that requirement. It is simply not the case that Congress expresses conditions only through such language. Indeed, in 26 U.S.C. § 35, which establishes a tax credit to offset the cost of health insurance for certain workers displaced by foreign competition, Congress made the availability of the credit turn, in part, on state cooperation without employing "if/then” language, simply through its definition of the phrase "eligible coverage month.” See 26 U.S.C. § 35(e)(2)(A).
. Appellants also suggest that the information collected from federal Exchanges could be useful for the "Study on Affordable Coverage”
. The dissent takes a slightly different tack, emphasizing that the "principal purpose” of the reporting requirement is to reconcile advance and end-of-year payments. Dissenting Op. at 423-24. We agree but fail to see how this helps the government. Reporting by state-established Exchanges still would serve this purpose, while reporting by federally-established Exchanges would serve the secondary purpose implicitly recognized by 26 C.F.R. § 1.6055 — 1(d)(1).
. Under the ACA, qualified health plans may offer four different levels of coverage: bronze, silver, gold, and platinum. The level of coverage reflects the percentage of the insured’s medical costs that the plan’s benefits are designed to cover. See 42 U.S.C. § 18022(d)(1). Lower levels of coverage have higher deductibles and thus higher out-of-pocket costs and, as a general matter, lower premiums. See id.; see also id. § 18032(a)(2) (providing that qualified employers may "select[] any level of coverage under section 18022(d) ... to be made available to employees through an Exchange”).
. The government warns that interpreting section 1312(a) as a non-discrimination provision would allow undocumented aliens to shop on Exchanges. Gov’t Br. at 31. But section 1312 specifically addresses that concern, providing that aliens not "lawfully present in the United States ... may not be covered under a qualified health plan in the individual market that is offered through an Exchange.” 42 U.S.C. § 18032(f)(3).
.We note that section 1312’s heading, "Consumer Choice,” and subsection 1312(a)'s heading, "Choice,” also suggest that the purpose of section 1312(a) is primarily to protect choice among levels of coverage, not restrict access to Exchanges.
. In a footnote, the government identifies another set of provisions that supposedly embodies the assumption that federal Exchanges are Exchanges “established by the State”: 42 U.S.C. § 1397ee(d)(3)(B)-(C). Those provisions instruct states to enroll children in coverage "offered through an Exchange established by the State under section [1311]” in the event of a funding shortfall in a state's Children’s Health Insurance Program. See id. § 1397ee(d)(3)(B). Although we recognize the oddity of requiring some states and not others to take this step, we do not see how it makes the statute nonsensical or otherwise meets the high threshold of absurdity. The statute remains workable, and nothing suggests that in states with federal Exchanges, the federal government could not step in and perform the same service for uninsured children. The government's bare citation to the provisions thus hardly demonstrates absurdity-
. Appellants do not challenge the government’s account of the economic theory behind the ACA, but they contend that the theory must be understood through the lens of political reality. In their telling, section 36B is the product of legislative compromise to secure the support of Nebraska Senator Ben Nelson, the crucial sixtieth vote needed to avoid a filibuster. Nelson opposed House plans for a national, federally-run exchange, fearing that it would set the United States down a path to a single-payer system. See Carrie Budoff Brown, Nelson: National Exchange a Deal-breaker, Politico (Jan. 25, 2010), http://www. politico. com/livepulse/0110/Nelson_National_ exchange_a_dealbreaker.html. To gain Nelson’s support, proponents of the ACA scrapped the national exchange in favor of establishing exchanges on a state-by-state basis. This change, in turn, required Congress to devise means of inducing states to take on the politically and technologically challenging task of establishing exchanges. Congress's solution, appellants maintain, was a package of “carrots” and "sticks” for states. The carrots included federal grants to states for “activities (including planning activities) related to establishing an [Exchange].” 42 U.S.C. § 18031(a)(3). The sticks included the prohibition against tightening Medicaid eligibility requirements imposed on states that do not create their own Exchanges. See id. § 1396a(gg). The most important incentive of all, appellants argue, was the provision at issue here: making premium tax credits available only for individual coverage purchased through state-established Exchanges. According to appellants, the ACA's supporters believed no state would refuse so good an offer — and, appellants add, perhaps no state would have had the IRS not eliminated this incentive by proposing and promulgating the IRS Rule, making subsidies available regardless of which entity established an Exchange, before states had to elect whether to establish Exchanges. See Health Insurance Premium Tax Credit, 77 Fed.Reg. 30,377, 30,378 (May 23, 2012); Health Insurance Premium Tax Credit, 76 Fed.Reg. 50,931, 50,934 (Aug. 17, 2011).
Like the government, however, appellants fail to marshal persuasive evidence (apart from the statutory text, that is) in support of their theory. Senator Nelson may have opposed a single, national exchange, but it does not necessarily follow that he opposed making subsidies available on federal fallback Exchanges in uncooperative states. Similarly, the fact that the ACA contained some incentives to states does not necessarily mean that section 36B is one of them. Nor does the fact that Congress has conditioned federal benefits on state cooperation in other contexts shed light on the precise question of whether Congress did so in section 36B. Thus, the most that can be said of appellants’ theory is that it is plausible. But we need not endorse appellants’ historical account to agree with their construction of section 36B. “Where the statutory language is clear and unambiguous, we need neither accept nor reject a particular ‘plausible’ explanation for why Congress
. The dissent attempts to distinguish the market targeted by the CLASS Act from the individual insurance market by pointing out that the CLASS Act contains no individual mandate. In the dissent's view, the omission "of a tool [Congress] knew to be important to preventing adverse selection merely indicates that Congress had a substantially higher tolerance for the risk of adverse selection” in peripheral markets than in the core market. Dissenting Op. at 422. This argument, however, assumes the very conclusion at issue, taking for granted that the mandate in the individual market indeed is as broad as it must be to eliminate all adverse selection risk. But the plain language of section 36B suggests that it is not. If section 36B limits the availability of subsidies and thus curtails the reach of the individual mandate, this is evidence that Congress was tolerant of adverse selection risk in the core markets, although Congress might not have expected the risk to materialize.
We recognize that, from an economic standpoint, such adverse selection risk bodes ill for individual insurance markets. But it made no more sense economically in the CLASS Act. Congress may simply have miscalculated the consequences of omitting a
Dissenting Opinion
dissenting:
This case is about Appellants’ not-so-veiled attempt to gut the Patient Protec
As explained below, there are three critical components to the ACA: nondiscrimination requirements applying to insurers; the “individual mandate” requiring individuals who are not covered by an employer to purchase minimum insurance coverage or to pay a tax penalty; and premium subsidies which ensure that the individual mandate will have a broad enough sweep to attract enough healthy individuals into the individual insurance markets to create stability. These components work in tandem. At the time of the ACA’s enactment, it was well understood that without the subsidies, the individual mandate was not viable as a mechanism for creating a stable insurance market.
Appellants’ proffered construction of the statute would permit States to exempt many people from the individual mandate and thereby thwart a central element of the ACA. As Appellants’ amici candidly acknowledge, if subsidies are unavailable to taxpayers in States with HHS-created Exchanges, “the structure of the ACA will crumble.” Scott Pruitt, Obama Care’s Next Legal Challenge, Wall St. J., Dec. 1, 2013. It is inconceivable that Congress intended to give States the power to cause the ACA to “crumble.”
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.” Nat'l Ass’n of Home Builders v. Defenders of Wildlife,
Because IRS and HHS have been delegated authority to jointly administer the ACA, this case is governed by the familiar framework of Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc.,
Apparently recognizing the weakness of a claim that rests solely on § 36B, divorced from the rest of the ACA, Appellants attempt to fortify their position with the extraordinary argument that Congress tied the availability of subsidies to the existence of State-established Exchanges to encourage States to establish their own Exchanges. This claim is nonsense, made up out of whole cloth. There is no credible evidence in the record that Congress intended to condition subsidies on whether a State, as opposed to HHS, established the Exchange. Nor is there credible evidence that any State even considered the possibility that its taxpayers would be denied subsidies if the State opted to allow HHS to establish an Exchange on its behalf.
The majority opinion ignores the obvious ambiguity in the statute and claims to rest on plain meaning where there is none to be found. In so doing, the majority misapplies the applicable standard of review, refuses to give deference to the IRS’s and HHS’s permissible constructions of the ACA, and issues a judgment that portends disastrous consequences. I therefore dissent.
I. Standard of Review
The first question a reviewing court must ask in a case of this sort is whether the disputed provisions of the statute are clear beyond dispute. “If a court, employing traditional tools of statutory construction, ascertains that Congress had an intention on the precise question at issue, that intention is the law and must be given effect.” Chevron,
[A] reviewing court should not confine itself to examining a particular statutory provision in isolation. Rather, the meaning — or ambiguity — of certain words or phrases may only become evident when placed in context.... It is a fundamental canon of statutory construction that the words of a statute must be read in their context and with a view to their place in the overall statutory scheme.
Nat’l Ass’n of Home Builders,
In other words, “[t]he plainness or ambiguity of statutory language is determined by reference to the language itself, the specific context in which that language is used, and the broader context of the statute as a whole.” Robinson v. Shell Oil Co.,
When a “court determines Congress has not directly addressed the precise question at issue, the court does not simply impose
Appellants argue that Chevron deference is unwarranted because some of the provisions at issue “are codified in a chapter of Title 42 ... the domain of HHS, not the IRS,” and the “IRS has no power to enforce or administer those provisions.” Br. for Appellants at 46. Appellants’ position is mistaken. Chevron applies because IRS and HHS are tasked with administering the provisions of the ACA in coordination. See 42 U.S.C. § 18082(a); Nat’l Ass’n of Home Builders,
Appellants also argue that Chevron deference is precluded by the canon that “tax credits ‘must be expressed in clear and unambiguous terms.’ ” Br. for Appellants at 51 (quoting Yazoo & Miss. Valley R.R. Co. v. Thomas,
Chevron plainly applies to this case. And this court is obliged to defer to the IRS’s and HHS’s “permissible” interpretations of the ACA. Chevron,
II. Analysis
Appellants’ argument focuses almost entirely on 26 U.S.C. § 36B, considered in isolation from the other provisions of the ACA. Repeating the phrase “Exchange established by the State” as a mantra throughout their brief, Appellants contend that this language unambiguously indicates that § 36B(b) conditions refundable tax credits on a State — and not HHS — establishing an Exchange.
Appellants’ argument unravels, however, when the phrase “established by the State” is subject to close scrutiny in view of the surrounding provisions in the ACA. See Brown & Williamson,
Perhaps because they appreciate that no legitimate method of statutory interpretation ascribes to Congress the aim of tearing down the very thing it attempted to construct, Appellants in this litigation have invented a narrative to explain why Congress would want health insurance markets to fail in States that did not elect to create their own Exchanges. Congress, they assert, made the subsidies conditional in order to incentivize the States to create their own exchanges. This argument is disingenuous, and it is wrong. Not only is there no evidence that anyone in Congress thought § 36B operated as a condition, there is also no evidence that any State thought of it as such. And no wonder: The statutory provision presumes the existence of subsidies and was drafted to establish a formula for the payment of tax credits, not to impose a significant and substantial condition on the States.
It makes little sense to think that Congress would have imposed so substantial a condition in such an oblique and circuitous manner. See Whitman v. Am. Trucking Ass’ns,
In the end, the question for this court is whether § 36B unambiguously operates as a condition limiting the tax subsidies that Congress understood were a necessary part of a functioning insurance market to only those States that created their own exchange. The phrase “Exchange established by the State,” standing alone, suggests the affirmative. But there is powerful evidence to the contrary — both in § 36B and the provisions it references, and in the Act as a whole-that shows Appellants’ argument to be fatally flawed.
It is not the prerogative of this court to interpret the ambiguities uncovered in the ACA. Congress has delegated this authority to the IRS and HHS. And the interpretation given by these agencies is not only permissible but also the better construction of the statute because § 36B is not clearly drafted as a condition, because the Act empowers HHS to establish exchanges on behalf of the States, because parallel provisions indicate that Congress thought that federal subsidies would be provided on HHS-created exchanges, and, most importantly, because Congress established a careful legislative scheme by which individual subsidies were essential to the basic viability of individual insurance markets.
A. Appellants’ “Plain Meaning” Argument Viewed in Context
In arguing that the ACA clearly and unambiguously bars subsidies to individuals who purchase insurance in States in which HHS created the Exchange on the State’s behalf, Appellants rest on a narrow, out-of-context interpretation of § 36B(b) and § 36B(c)(2)(A)(i). Br. for Appellants at 16. Appellants argue that because there is no “Exchange established by the State” in States with HHS-created Exchanges, taxpayers who purchase insurance in these States cannot receive subsidies. This plain meaning argument, which views § 36B in isolation, is simplistic and wrong.
We cannot read § 36B in isolation; we must also consider the specific context of the provision and the “broader context of the statute as a whole.” Robinson, 519
Of course, the ACA is broader than just § 36B and § 18031, and in 42 U.S.C. § 18041 it permits a State to elect to allow HHS to establish the Exchange on behalf of the State. In such circumstances, however, the Act requires HHS to establish and operate “such Exchange.” Id. § 18041(c) (emphasis added). The use of “such” can reasonably be interpreted to deem the HHS-created Exchange to be the equivalent of an Exchange created in the first instance by the State. That is, when HHS creates an exchange under § 18041(c), it does so on behalf of the State, essentially standing in its stead. Put differently, under the ACA, an Exchange within a State is a given. The only question is whether the State opts to create the Exchange on its own or have HHS do it on its behalf. On this view, “established by the State” is term of art that includes any Exchange within a State.
Indeed, the Act says as much when it defines the term “Exchange” as “a governmental agency or nonprofit entity that is established by a State.” 42 U.S.C. § 18031(d)(1). It is clear that § 18031 is the source of the definition of the term “Exchange” under the Act. See 42 U.S.C. § 300gg-91(d)(21) (defining “Exchange” for purpose of Public Health Service Act to mean what it does in § 18031); id. § 18111 (incorporating the definitions in § 300gg-91 for purpose of Title I of the ACA). It is also clear that § 18031 defines every “Exchange” under the Act as “a governmental agency or nonprofit entity that is established by a State.” Id. § 18031(d)(1) (emphasis added). Because § 18041(c) authorizes the federal government to establish “Exchanges,” the phrase “established by the State” in § 18031 must be broad enough to accommodate Exchanges created by the HHS on a State’s behalf. Section 36B expressly incorporates this broad definition of “Exchange” when it uses the phrase an “Exchange established by the State under [§ 18031].” 26 U.S.C. § 36B(b) (emphasis added). Therefore, the phrase “established by the State” in § 36B is reasonably understood to take its meaning from the cognate language in the incorporated definition in § 18031, which embraces Exchanges created by HHS on the State’s behalf. See, e.g., Gustafson v. Alloyd Co., Inc.,
What is more, Appellants’ interpretation of the operative language in § 36B sits
The simple truth is that the phrase “established by the State” in § 36B does not have the plain meaning that Appellants would like. The inquiry does not end with a narrow look at § 36B. That provision must be read in conjunction with § 18031(d)(1) and § 18041(c); and these provisions, read together, defy any claim of plain meaning.
Furthermore, in order to address the question before us, this court is obliged to consider § 36B in “the broader context of the statute as a whole.” Robinson,
B. The Statute Read as a Whole
1. The “Three-Legged Stool” and the Indispensable Role of the Tax Subsidies
Appellants’ interpretation is implausible because it would destroy the fundamental policy structure and goals of the ACA that are apparent when the statute is read as a whole. A key component to achieving the Act’s goal of “near-universal coverage” for all Americans is a series of measures to reform the individual insurance market. 42 U.S.C. § 18091(2)(D). These measures- — nondiscrimination requirements applying to insurers, the individual mandate, and premium subsidies — work in tandem, each one a necessary component to ensure the basic viability of each State’s insurance market. Because premium subsidies are so сritical to an insurance market’s sustainability, Appellants’ interpretation of § 36B would, in the words of Appellants’ amici, cause “the structure of the ACA
This point is essential and worth explaining in detail. The ACA has been described as a “three-legged stool” in view of its three interrelated and interdependent reforms. Br. for Economic Scholars at 7. The first “leg” of the ACA is the “guaranteed issue” and “community rating” provisions, which prohibit insurers from denying coverage based on health status or history, 42 U.S.C. § 300gg-l, and require insurers to offer coverage to all individuals at community-wide rates, id. § 300gg(a). But such nondiscrimination provisions cannot function alone because of the problem of “adverse selection.” When insurers cannot deny coverage or charge sick or high-risk individuals higher premiums, healthy people delay purchasing insurance (knowing they will not be denied coverage if and when they become sick), and insurers’ risk pools thus become skewed toward high-risk individuals (as they are the only ones willing to pay the premiums). The result is that insurers wind up paying more per average on each policy, which leads them to increase the community-wide rate, which, in turn, serves only to exacerbate the “adverse selection” process (as now only those who are really sick will find insurance worthwhile). This is the so-called “death-spiral,” which Congress understood would doom each State’s individual insurance market in the absence of a multifaceted reform program. Nat’l Fed’n of Indep. Bus. v. Sebelius, — U.S. -,
This is where the individual mandate, the second “leg” of the ACA, comes in. Congress recognized:
[I]f there were no requirement, many individuals would wait to purchase health insurance until they needed care. By significantly increasing health insurance coverage, the [individual coverage] requirement, together with the other provisions of this Act, will minimize this adverse selection and broaden the health insurance risk pool to include healthy individuals, which will lower health insurance premiums. The requirement is essential to creating effective health insurance markets in which improved health insurance products that are guaranteed issue and do not exclude coverage of pre-existing conditions can be sold.
42 U.S.C. § 18091(2)(I). Accordingly, the Act requires each individual who is not covered by an employer to purchase minimum coverage or to pay a tax penalty. 26 U.S.C. § 5000A(a)-(b). But recognizing that individuals cannot be made to purchase what they cannot afford, Congress provided that the mandate would not apply if the cost of insurance exceeds eight percent of the taxpayer’s income after subsidies. Id. § 5000A(e)(i).
The third “leg” of the ACA is the subsidies. The subsidies ensure that the individual mandate will have a broad enough sweep to attract enough healthy individuals into the individual insurance markets to create stability, i.e., to prevent an adverse-selection death spiral. Without the subsidies, the individual mandate is simply not viable as a mechanism for creating a stable insurance market: the lowest level of coverage for typical subsidy-eligible participants will cost 23% of income, meaning that these individuals will be exempt from the mandate. Id.; Br. for Economic Scholars at 17-18. Congress was informed of the importance of the subsidies to the overall legislative scheme. See Roundtable Discussion on Expanding Health Care Coverage: Hearing Before the
If nothing else, it is clear that premium subsidies are an essential component of the regulatory framework established by the ACA. If, as Appellants contend, a State could block subsidies by electing not to establish an Exchange, this would exempt a large number of taxpayers from the individual mandate, cause the risk pool to skew toward higher risk people, and effectively cut the heart out of the ACA. This is one of the points that was made in the joint opinion by Justice Scalia, Justice Kennedy, Justice Thomas, and Justice Ali-to in National Federation of Independent Business v. Sebelius:
Without the federal subsidies, individuals would lose the main incentive to purchase insurance inside the exchanges, and some insurers may be unwilling to offer insurance inside of exchanges. With fewer buyers and even fewer sellers, the exchanges would not operate as Congress intended and may not operate at all.
Section 36B cannot be interpreted divorced from the ACA’s unmistakable regulatory scheme in which premium subsidies are an indispensable component of creating viable and stable individual insurance markets. Due regard for the carefully crafted legislative scheme casts § 36B in a clearer light. “Congress ... does not alter the fundamental details of a regulatory scheme in vague terms or ancillary provisions — it does not, one might say, hide elephants in mouseholes.” Am. Trucking Ass’ns,
A comparison with the ACA’s Medicaid expansion condition offers a striking case in point. This condition demonstrates that Congress knew how to speak clearly аnd provide notice to States when it intended to condition funding on State behavior. The Medicaid provision lays out an express conditional statement in the form of “if, then “If the Secretary, after reasonable notice and opportunity for hearing,” determines that the State is not in compliance with the Medicaid-expansion requirements, the Secretary “shall notify such State agency that further payments will not be made to the State.” 42 U.S.C. § 1396c (emphasis added). This provision stands in stark contrast to § 36B. The formula for calculating subsidies does not say, for example, “If a State does not create an Exchange, its taxpayers shall be ineligible for premium credit subsidies,” or “If coverage is purchased on an Exchange established by HHS, premium credit subsidies will not be available.” Furthermore, § 1396c ensures that States receive notice before Medicaid funding is withheld. In contrast, there is no similar notice to States that their taxpayers will be denied subsidies if the State elects to have HHS create an Exchange on its behalf.
The majority thinks it unremarkable that Congress would condemn insurance markets in States with federally-created ■ Exchanges to an adverse-selection death spiral. It reaches this conclusion by observing that, in peripheral statutory provisions, Congress has twice created insurance markets that suffered from the defect of having guaranteed issue requirements without the other measures (such as a mandate or subsidies) necessary to ensure the soundness of the market. Congress did this, the majority notes, in the provisions covering the Northern Mariana Islands and other federal territories, see 26 U.S.C. § 5000A(f)(4); 42 U.S.C. § 201(f), and in the Community Living Assistance Services and Supports (CLASS) Act, Pub.L. No. 111-148, §§ 8001-8002, 124 Stat. 119, 828-47 (2010).
This argument entirely misses the point. These peripheral statutory provisions say nothing about the core provisions of the ACA at issue here, as both the majority and the Appellants recognize. In both provisions, Congress purposely decided not to impose an individual mandate. That is a crucial difference. The Government and supporting amici’s position in this case relies on Congress’ express recognition that the individual mandate, “together with the other provisions of this Act, will minimize ... adverse selection,” and that, as such, the mandate “is essential to creating effective health insurance markеts” with guaranteed-issue requirements. 42 U.S.C. § 18091(2)(I) (emphasis added). This recognition, together with Congress’ linking the mandate to the subsidies available to taxpayers, 26 U.S.C. § 5000A(e)(l)(B)(ii), demonstrates that Congress appreciated that subsidies would be an integral part of ensuring that the individual mandate reached broadly enough to secure the viability of the insurance market. By not imposing individual mandates in the peripheral markets identified by the majority (i.e., in the territories and the CLASS Act), Congress displayed a willingness to tolerate the risk that these markets would succumb to adverse selection. Congress displayed no such willingness here; in the markets covered by the core provisions of the ACA, Congress imposed an individual mandate linked to subsidies as an “essential” tool to ensure market viability. 42 U.S.C. § 18091(2)(I).
Appellants suggest that because Congress enacted peripheral statutory provisions covering territories and in the
Appellants’ arguments to the contrary are perplexing, to say the least. Congress’ omissions of an individual mandate — which it recognized as an “essential” tool to prevent adverse selection, 42 U.S.C. § 18091(2)(I) — from the peripheral statutory provisions cited by the majority are not evidence that Congress had some monolithic statute-wide tolerance of the risk that insurance markets might succumb to adverse selection. To the contrary, Congress’ intentional omissions in these peripheral insurance markets of a tool it knew to be important to preventing adverse selection merely indicates that Congress had a substantially higher tolerance for the risk of adverse selection in such markets vis-a-vis the core markets where it did impose the individual mandate. The CLASS Act and the provisions covering the territories thus do not rebut the Government’s structural argument. Indeed, if anything, the subsequent history concerning the territories and the CLASS Act serve only to highlight that Congress was correct in its judgment that an individual mandate — accompanied by subsidies to ensure its scope was sufficiently large — was necessary to stave off adverse selection in insurance markets. As Appellants note, without an individual mandate, the CLASS Act was “unworkable,” which led Congress to repeal it. Reply Br. for Appellants at 15.
The Government and supporting ami-ci ’s structural argument in this case cannot be dismissed as idle meanderings into legislative history. It is apparent from the statutory text of the ACA that Congress understood (1) the importance of a broadly applicable individual mandate that works “together with the other provisions” to ensure the viability of an insurance market against the threat of adverse selection, 42 U.S.C. § 18091(2)(I), and (2) the necessity of taxpayer subsidies to broaden the scope of the individual mandate, see 26 U.S.C. § 5000A(e)(i )(B)(ii). In giving short shrift to the clear statutory scheme adopted by Congress when it enacted the core provisions of the ACA, the majority has ignored congressional intent and improperly rejected the reasonable interpretations of HHS and IRS. In sum, the majority has drawn the wrong lesson from the CLASS Act and the provisions covering federal territories, which demonstrate just the opposite of the conclusion reached by the majority.
2. The Advance Payment Reporting Requirements of § 36B(f)(3)
One of the subsections in § 36B — which is the section upon which Appellants stake their case — makes it clear that Congress intended that taxpayers on HHS-created Exchanges would be eligible for subsidies. Subsection (f), entitled “Reconciliation of credit and advance credit,” tasks the IRS with reducing the amount of a taxpayer’s end-of-year premium tax credit under § 36B by the sum of any advance payments of the credit. 26 U.S.C. § 36B(f).
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)(Z), 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 terms 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 “[ijnformation necessary to determine whether a taxpayer has received excess advance payments”); id. § 5000A(e)(l)(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).
In a letter submitted to the court before oral argument, Appellants cited an IRS regulation, 26 C.F.R. § 1.6055-1(d)(1), that addresses information reporting requirements. “In order to reduce the compliance burden on” insurers, the IRS decided not to require insurers “to report under section 6055 for coverage under individual market qualified health plans purchased through an Exchange because 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). Appellants seem to think that this regulation somehow vindicates their view of § 36B(f)(3), but their
Appellants also argue that the reporting provisions in subsection § 36B(f) are already over-inclusive because they apply to plans serving taxpayers who, by reason of their income, are ineligible for subsidies. The implication suggested by Appellants— and accepted too easily by the majority — is that the reporting requirements in § 36B(f)(3) already suffer from over-inclusiveness (since such taxpayers will have neither credits nor advance payments) and that there is thus little reason to be concerned about the additional over-inclusiveness generated by Appellants’ interpretation of § 36B. Framing the issue in this manner obscures a fundamental difference. Interpreting § 36B to foreclose credits on federally-created Exсhanges would not merely increase the “over-inclusiveness” of § 36B(f)(3)’s reporting requirements; it would render certain of the reporting requirements pointless as to every single taxpayer on an HHS-created Exchange. This is a nonsensical interpretation because Congress enacted the § 36B(f)(3) reporting requirements to apply to HHS-created Exchanges. Id. § 36B(f)(3) (citing 42 U.S.C. § 18041(c)). The provision is powerful evidence that Congress intended that tax credits be available on federally-created Exchanges.
3. Other Provisions
There are two other provisions of the ACA that strongly support the Government’s claim that the statute, read as a whole, permits taxpayers who purchase insurance in non-electing States to receive subsidies. First, the statute defines a “qualified individual” as a person who “resides in the State that established the Exchange.” 42 U.S.C. § 18032(f)(£ )(A)(ii). There is no separate definition of “qualified individual” for States with HHS-created Exchanges. If an HHS-created Exchange does not count as established by the State it is in, there would be no individuals “qualified” to purchase coverage in the 34 States with HHS-created Exchanges. This would make little sense.
Second, in a subparagraph entitled “Assurance of exchange coverage for targeted low-income children unable to be provided child health assistance as a result of funding shortfalls,” the ACA requires States to “ensure” that low-income children who are not covered under the State’s child health plan are enrolled in a health plan that is offered through “an Exchange established by the State under [§ 18031].” 42 U.S.C. § 1397ee(d)(3)(B). Here again, the statute simply presumes that the existence of such State-established exchanges. The statute’s objective of “assuring] exchange coverage for targeted low-income children ” would be largely lost if States with HHS-created Exchanges are excluded. There is nothing in the statute to indicate that Congress meant to exclude benefits for low-income children in the 34 States in which HHS has established an Exchange on behalf of the State.
In view of the foregoing, Appellants’ reliance on Bay Mills is entirely misplaced. In citing that case, Appellants simply cherry pick language which appears favorable
C. Appellants’ Extraordinary Subsidies-As-Incentive Argument
The foregoing examination of the statute shows that when the terms of § 36B are read “with a view to their place in the overall statutory scheme,” Nat’l Ass’n of Home Builders,
The record indicates that, when the ACA was enacted, no State even considered the possibility that its taxpayers would be denied subsidies if the State opted to allow HHS to establish an Exchange on its behalf. Not one. Indeed no State even suggested that a lack of subsidies factored into its decision whether to create its own Exchange. Br. of Members of Congress and State Legislatures at 24-25 & n.30 (citing authorities). “States were motivated by a mix of policy considerations, such as flexibility and control, and ‘strategic’ calculations by ACA opponents, not the availability of tax credits.” Id. at 24-25 n. 30 (citing authorities). The fact that all States recognized and protested the Medicaid expansion condition, while no State raised any concern over the purported subsidy-condition shows that Appellants’ argument is at best fanciful. See Br. for the Appellees at 42 (“[T]he twenty-six plaintiff states in [Nat’l Fed’n of Indep. Bus.,
The legislative history also indicates that Congress assumed subsidies would be available on HHS-created Exchanges. First, earlier proposals for the legislation and an earlier version of the House Bill provided that the federal government would establish and operate Exchanges. Halbig v. Sebelius, — F.Supp.3d -, -,
In addition, the three House Committees with jurisdiction over the ACA legislation issued a fact sheet explaining that States would have a choice whether to create their own Exchanges or have one run by the federal government, and “the Exchanges” would make health insurance more affordable. The fact sheet recognized income level as the only criteria for subsidy-eligibility. Br. for Members of Congress and State Legislatures at 11-12. The Joint Committee on Taxation also reported that the subsidies would be available to those who purchase insurance through “an exchange.” Id. at 12. And Congressional Budget Office estimates assumed that subsidies would be available nationwide. Letter from Douglas W. El-mendorf, Director, CBO, to Rep. Darrell E. Issa, Chairman, House Committee on Oversight and Government Reform (Dec. 6, 2012) (“To the best of our recollection, the possibility that those subsidies would only be available in states that created their own exchanges did not arise during the discussions CBO staff had with a wide range of Congressional staff'when the legislation was being considered.” (emphasis added)).
The truth is that there is nothing in the record indicating that, aside from wanting to afford States flexibility, Congress preferred State-run to HHS-run Exchanges. Appellants have not explained why Congress would want to encourage States to operate Exchanges rather than the federal government doing so, nor is there any indication that Congress had this goal. “[T]he purpose of the tax credits was not to encourage States to set up their own Exchanges. Indeed, making the tax credits conditional on state establishment of the Exchanges would have empowered hostile state officials to undermine the core purpose of the ACA, a result that [the] architects of the ACA wanted to avoid, not encourage.” Br. for Members of Congress and State Legislatures at 22.
Furthermore, Appellants assume without any basis that denying taxpayers premium subsidies would put political pressure on States to create Exchanges. This assumption runs counter to Appellants’ own theory of harm: After all, Appellants object to the subsidies because they impose additional financial obligations on individuals and employers by triggering the individual mandate and assessable payments for employers. These obligations would not attach if the subsidies were not available in the State. Because the subsidies trigger additional costs for individuals and employers, it is not obvious that they would be popular among taxpayers or cause taxpayers to pressure their States to create Exchanges.
The single piece of evidence that Appellants cite to support their claim that Congress intended to restrict subsidies to State-run Exchanges is an article by a law professor. Br. for Appellants at 40 (citing Timothy S. Jost, Health Insurance Exchanges: Legal Issues, O’Neill Inst., Georgetown Univ. Legal Ctr., no. 23 (Apr. 7, 2009)). There is no evidence, however, that anyone in Congress read, cited, or relied on this article.
III. Conclusion
The Supreme Court has made it clear that “[t]he plainness or ambiguity of statu
The IRS’s and HHS’s constructions of the statute are perfectly consistent with the statute’s text, structure, and purpose, while Appellants’ interpretation would “crumble” the Act’s structure. Therefore, we certainly cannot hold that that the agencies’ regulations are “manifestly contrary to the statute.” This court owes deference to the agencies’ interpretations of the ACA. Unfortunately, by imposing the Appellants’ myopic construction on the administering agencies without any regard for the overall statutory scheme, the majority opinion effectively ignores the basic tenets of statutory construction, as well as the principles of Chevron deference. Because the proposed judgment of the majority defies the will of Congress and the permissible interpretations of the agencies to whom Congress has delegated the authority to interpret and enforce the terms of the ACA, I dissent.
Concurrence Opinion
concurring:
A Supreme Court tax decision, and a tax decision of this court, flatly reject the position the government takes in this case.
As Judge Griffith’s majority opinion— which I fully join — demonstrates, an Exchange established by the federal government cannot possibly be “an Exchange established by the State.” To hold otherwise would be to engage in distortion, not interpretation. Only further legislation could accomplish the expansion the government seeks.
In the meantime, Justice Brandéis’ opinion for the Supreme Court in Iselin v. United States is controlling: “What the government asks is not a construction of a statute, but, in effect, an enlargement of it by the court, so that what was omitted, presumably by inadvertence, may be included within its scope. To supply omissions transcends the judicial function.”