“Such” a mess

Wow. This morning was a doozy for ObamaCare, as two federal appellate courts issued opposite rulings on the validity of the law’s crucial insurance subsidies. Plaintiffs in each of these cases challenge whether the language of the Affordable Care Act gives the IRS authority to give subsidies to all Americans or to only those living in the 14 states that elected to create their own health exchanges. (I have previewed the D.C. Circuit iteration of this lawsuit previously: I, II, and III.)

How did the two courts reach different conclusions? After a quick read through of the two opinions, it looks like the divergence comes down to the meaning of the word “such.” Really.

First, consider the key statutory sections of the law at play:

• Section 1311 of the law directs states to create health exchanges.
• If states fail to do so, the law directs the federal government (through the Department of Health and Human Services) to “establish and operate such Exchange within the State.”
• Section 36B gives subsidies to those who enroll in plans “through an Exchange established by the State under section 1311.”
• But the law also defines the term “Exchange” as “an American Health Benefit Exchange established under [section 1311 of the ACA]” — the section that directs states to create exchanges.

How did the courts reconcile this mess? First, let’s start with the D.C. Circuit case, Halbig v. Burwell. The court there determined that the statute requires three elements to receive subsidies: “(1) an Exchange (2) established by the State (3) under section 1311.” “[F]ederal Exchanges satisfy only two: they are Exchanges established under section 1311. Nothing in section 1321 deems federally-established Exchanges to be ‘Exchange[s] established by the State.'”

It’s the court’s second element that dictates its resultant decision against the government and against broad subsidy availability. Does “such exchange” mean that an HHS-created exchange is (for statutory purposes) an “exchange established by the state”?

The Fourth Circuit Court of Appeals in King v. Burwell determined that it did. “Given that Congress defined ‘Exchange’ as an Exchange established by the state, it makes sense to read § 1321(c)’s directive that HHS establish ‘such Exchange’ to mean that the federal government acts on behalf of the state when it establishes its own Exchange.”

In other words, the Fourth Circuit thinks that the D.C. Circuit parsed the statute too finely. By authorizing HHS to create an exchange under Section 1311, the law lets the federal government fill in for the state. “Such” encompasses more than just a 1311 exchange — it means a 1311 exchange established by a state.

That’s the threshold disagreement here. And it’s a really, really important disagreement, for it determines whether health care reform will function in most of the country. I think the government has the better of the argument for reasons beyond the basic arguments over statutory text, which is frankly a mess to make sense of. But the consequences of that mess, to paraphrase Vice President Biden, are a big f***ing deal.