The D.C. Circuit Got it Wrong. Congressional Intent on Exchange Subsidies Is Clear, If You Know Where to Look

By Robert I. Field

Why would Congress have limited Affordable Care Act subsidies to residents of only some states – those that establish their own insurance exchanges? The law authorizes credits for the purchase of insurance “through an Exchange established by the State under section 1311.” The D.C. Circuit found that this wording excludes federally established exchanges and that Congress might have intended this to induce states to establish their own exchanges rather than letting the federal government take over.

But the Court acknowledged that there is no evidence of such intent in the legislative history. And such a purpose would conflict with the ACA’s overall goal of extending health insurance access to all Americans.

With no legislative history as a guide, is there another plausible explanation of Congressional intent? Is the best answer to the D.C. Circuit’s opinion that the phrase was a drafting error, as the dissent seems to imply? Why else would it have found its way into the law?

Inartful though it may be, the wording can be seen to serve a different purpose that is consistent with the rest of the ACA. It can be understood not as a way to distinguish exchanges established by a state from those established by the federal government but to distinguish those established publicly from those created privately.

Some insurance exchanges are established by private employers as an alternative to traditional workplace coverage. They permit employees to choose from a range of options in a manner similar to the public ACA exchanges. They existed before the ACA but are expected to proliferate as the ACA builds familiarity with the exchange model. The ACA does not directly regulate them, and, significantly, does not provide subsidies for those who use them. The reference to state-established exchanges removes any ambiguity in this regard.

If the phrase “established by the State” is understood to differentiate between private employer-run exchanges and those established by a state or by the federal government acting on its behalf, then the phrase serves a purpose that fits with the law’s overall design. This interpretation is also consistent with the full definition of an exchange in section 1311 as “…a governmental agency or nonprofit entity that is established by a State.”

It would be nice if the ACA’s legislative history provided more guidance. It would also be nice if its enactment had followed a smoother path that caught all ambiguities in drafting. Nevertheless, if the phrase “an Exchange established by the State” is interpreted to mean one that is established publicly under the ACA’s scheme rather than privately by an employer, the imprecision in wording is resolved in a way that preserves the law’s integrity.

In the absence of guidance in the legislative history, which interpretation should a court choose? Isn’t it the one most consistent with the law’s overall design?

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