How did two courts reach opposite decisions about tax subsidies for people who buy insurance through the federal exchanges created by the Affordable Care Act (ACA)? In Halbig v. Burwell, the U.S. Court of Appeals for the District of Columbia ruled, 2 to 1, that the subsidies are only available to people who enroll in exchanges set up by the states. In King v. Burwell, the U.S. Court of Appeals for the Fourth Circuit (which includes North Carolina) held, 3 to 0, that the subsidies are available to people who enroll in the federal exchange as well as those who enroll in the state exchanges.

Is this all just partisan hooey? Or legal legerdemain? Or too complicated to worry about? Actually, the cases are pretty straightforward. They boil down to this.

  1. Legislators sometimes write ambiguous laws (the way toymakers write assembly instructions).  
  2. A statute is ambiguous when one part of the law contradicts another part.  
  3. When a statute is ambiguous, courts are supposed to save it, if they can, rather than discard what the legislators tried to do.
  4. Sometimes a law is too muddled to save.

How do these points apply to the ACA? The purpose of the statute is to increase the number of insured people in each state. These people need a place to buy insurance, and some states are willing to set up exchanges where they can do this. However, other states do not want to set up exchanges themselves, so in those states people can go to a federal exchange. Either way, if lots of people sign up, the insurance pool gets bigger in each state, so premiums go down. 

Of course, some people cannot afford to buy insurance, so if those people are going to be in the pool and push down the cost, they need to have help paying their premiums. One way to help them is to give them subsidies in the form of tax credits.

Unfortunately, the ACA has a clause which is clear by itself but is also completely inconsistent with the purpose of the law. That clause says the tax subsidies are available to people who buy insurance through exchanges “established by the State.” By themselves, these four words preclude any subsidy for anyone who buys insurance through the federal exchange, in which case fewer people enroll and premiums stay higher.

So, what is the court to do? Give precedence to the four words, and undermine the statute? Or give meaning to the statute as a whole, and bend these four words so that if a state elects to use the federal exchange it is in effect establishing the federal exchange within it?

If you wonder what you would do, consider this (frivolous) example.  Suppose you want to leave the Wilmington beaches and drive to California, and suppose you’ve been given instructions that say, “Leaving Wilmington, turn left onto I-40 and drive west all the way to Barstow.”  Now, suppose that from where you are, the turn onto I-40 is a right, not a left. Will you turn right, drive west, and reach California? Will you turn left, drive 10 miles, and reach the Atlantic? Or will you sit and go nowhere?

The DC Circuit’s majority decided to sit still. To it, the words “established by the State” are clear and unavoidable even though they undercut the rest of the ACA. The Fourth Circuit, along with the dissenting judge on the DC Circuit, decided to “turn right” and go where Congress intended.