Yes, The Federal Exchanges Can Offer Premium Tax Credits

Whatever else the Affordable Care Act may accomplish, it has provided endless entertainment for law professors.

The latest ACA kerfuffle involves the discovery by critics of the ACA of an ACA drafting error that would seem to deprive millions of uninsured Americans of tax credits to purchase health insurance and invalidate regulations recently proposed by HHS and the Treasury Department. The mistake is found in section 1401 of the ACA, which creates a new section 36B of the IRC. Two subsections of 36B ((b)(2)(A) and (c)(2)(A)(i)) suggest that premium tax credit eligibility under the ACA depends on the applicant being enrolled in a qualified health plan “through an Exchange established by the State under section 1311.” This would in turn suggest that individuals enrolled in a qualified health plan through a federal exchange established under section 1321(c) would not be eligible for premium tax credits, contrary to the recent proposed regulations.

That this is a drafting error is obvious to anyone who understands the ACA. Section 1311 of the ACA requests the states to establish American Health Benefit Exchanges and sets out the duties of the exchanges. Section 1321 of the ACA, however, provides that if a state elects not to establish and exchange or fails to do so, HHS must “establish and operate” an exchange in such a state and “take such actions as are necessary to implement” the other requirements of title I of the ACA, which includes section 1401. There is no coherent policy reason why Congress would have refused premium tax credits to the citizens of states that ended up with a federal exchange. None of the CBO reports scoring the ACA suggest that premium tax credits would only be available though 1311 state exchanges and not through 1321 federal exchanges. It is, finally, highly unlikely that the House, whose bill included only a federal exchange, would have approved a bill that only provided tax credits through state exchanges but not through the federal exchange.

No one pretends that the ACA is a model of statutory drafting. The bill, for example, contains three section 1563’s. No one intended the current ACA to become the final law. It was the Senate bill, enacted after the House bill, which was to go through conference before the final ACA was enacted. The election of Scott Brown in Massachusetts, and the adamant refusal of the Republicans to allow the legislation to become law without a supermajority in the Senate, doomed efforts to craft a final bill. Of course, major pieces of legislation are often replete with drafting errors. They are commonly followed by technical correction bills, which are often adopted by unanimous consent. If Congress were functioning as a normal deliberative governing body rather than as the legislative equivalent of trench warfare, errors in the ACA would long ago have been fixed.

But now we seem to be stuck with the textualists delight: a statute whose words clearly say what Congress clearly did not mean.

Is there a way out of this quandary? One possibility is to simply recognize that this is a drafting error. The Supreme Court has occasionally recognized that it is appropriate to exercise common sense in recognizing that “a busy Congress is fully capable of enacting a scrivener’s error into law.” Koons Buick, Pontiac, GMC, Inc. v. Nigh, 543 U.S. 50, 65 (2004) (Stevens concurring). But we do not need to rely on the courts to correct this error. Congress corrected it itself.

Four days after Congress passed the Patient Protection and Affordable Care Act, it enacted the Health Care and Education Reconciliation Act of 2010. Section 1004 of HCERA amended section 36B(f) of the IRC to impose on exchanges established under section 1311(f)(3)—that is, state exchanges—and under section 1321(c)—that is federal exchanges, the obligation to report to the IRS and to the taxpayer information regarding tax credits provided to individuals through the exchange. In this later-adopted legislation amending the earlier-adopted ACA, Congress demonstrated its understanding that federal exchanges would administer premium tax credits.

Section 36B(g) gives the Secretary of the Treasury the responsibility of issuing regulations to implement section 36B. This includes the authority to reconcile ambiguities in the statute, such as the inconsistency between subsections (b), (c), and (f) of 36B. In proposed regulations published on August 17, Treasury has proposed to recognize as eligible for premium tax credits any individual who is enrolled in a qualified health plan through an exchange and who meets other eligibility requirements, and adopts the HHS proposed definition of an exchange, which includes a federally-assisted exchange.

Under the Chevron rule, this official construction of an ambiguous statute should be accorded deference by any reviewing court. In fact, however, there will be no judicial review of this determination. It is not possible to conceive of a person who would be injured in fact by this interpretation of the rule such that they could present a case or controversy under Article III. The possibility, expressed by some, that a state official might be able to challenge the IRS rule should be put to rest by Thursday’s Fourth Circuit ruling, reaffirming long established Supreme Court precedent holding that state officials do not have the authority to serve as “roving constitutional watchdog[s].”

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24 replies »

  1. you falsely assume people want the exchange. In Ohio and other states the citizens are voting to outlaw, state law, federal involvemwent in their health insurance.

  2. How ever long it takes to do it right. If that is 2 months fine. If it is 2 years then so be it. Poorly drafted legislation can have sever consiquences. For example, COBRA was slipped into a bill with no discussion or review. While the concept was bearable, it didn’t bankrupt employer sponsored plans, the legislation was so poorly written it was impossible to comply with and innocent employers were bankrupted and put out of business. The only way to know how to comply with COBRA was to get sued and see how the courts ruled.

    When people talk about how liberals are anti business and kill jobs its not always the ideology or intent of the bills, more often its the half witted way they pass them.

    The worse thing that can come out of PPACA is 20 years of lawsuits trying to figure out what they intended or how someone should comply.

  3. “…Tea-baggers…”

    “Yeah, real high-level discourse. Real classy. You must be so proud.”

    “Michele Bach-Wiig…”

    “You continue to misrepresent what she actually said.”

    “Let me end Social Security!”

    “No, let ME end Social Security”

  4. Meanwhile, partial transcript from tonight’s CNN Tea Party “debate”:

    “Let me end Social Security!”

    “No, let ME end Social Security”

    “Oh yeah? I’ll end Social Security AND neglect critical infrastructure.”

    “Well, I’ll bring back pre-existing conditions AND establish a new program I call Mass Insecurity!”

    “Oh yeah? I’ll end Social Security AND Medicare AND neglect critical infrastructure, including the ER curbs where the uninsured can go to die!”

    ‎”Oh, YEAH? Well, I’LL end Social Security AND Medicare AND neglect critical infrastructure, deport all non-white residents, ring the country with concertina wire, bring back pre-existing conditions, coverage recission, subprime credit default swaps, completely deregulate Wall St., AND force all innocent 12 year old girls to have group sex with Warren Jeffs!”

    Michele Bach-Wiig…


  5. “You are in over your head with me.”

    I’m sorry, god, I guess now we know what G stands for.

    At least I am not “Dumb Here”.

    Plus, get a life, is that screen screwed onto your hand!? You must be behind this annoying Notifying policy at this site I never click and still get emailed about a response. At least Mr Holt can depend on you, sir!

  6. At least I do not carry myself as holier than thou and promote things that screw the country. Oh, is that lost in the point of this post in the first place!?

    Not by the author of the post. The idiots and selfish bastards behind PPACA.

    Hmmm, when Congress passes legislation that interferes and destroys the basic fabric of your jobs you defenders and apologists have, we’ll be sure to read praise and solemn gratitude for the actions from those affected.

    Wow, it is truly incredible how many people echo that comment from the last Star Wars movie: so this is how independence and autonomy of health care interventions end, to thunderous applause.

    The time to be nice is over. Just ask either side of the aisles in Congress these days. What does nice get you? A fake smile and a finger. Not telling you are number 1. Keep pontificating away at threads like this, I’m sure your country will get better and people will have the best, most efficacious health care in any land. Oops, I think I hear the alarm clock about to go off!

  7. You continue to misrepresent what she actually said.

    I am not a Democrat. Not a Pelosi fan.

    You are in over your head with me, but you are compelled to keep taking the bait. It’s amusing

    He Who LOUDLY Announced He Was “Done Here.”

  8. Like the attitudes in DC and by their pundits is any better?

    She doesn’t give a rat’s ass about anybody else but herself and her inner circle of cronies. And this deserves neutral criticism for someone who is going to screw the country? Why do you defend this idiocy and carelessness? Oh yeah, because your repeated defenses support her.

    My statement was rude. So are her alleged attempts at representation.

    I’d say it makes it even for me.

    Again, I’ll say it to remind readers, she basically said pass the legislation and then find out what’s in it later. And like clockwork you follow my comment with another retort that is defending her. You must be so proud.

  9. actually, in law as practiced a presumption is a powerful thing– very often the difference between a win and a loss. Likewise, the assumptions of the drafters are also important as they go to legislative intent. It is the regular business of courts to determine what the legislature meant.

  10. So, let’s say that a particularly unsympathetic Supreme Court rules that there can be no charitable interpretation and Federally-run exchanges cannot participate in the subsidies. What then? It gives ever more reason for states to set up their own exchanges, until the Republicans lose control of both houses of congress or become less intransigent, or until the ACA is repealed.

    If legislators and the governor of a state (say, Florida) know that a Federal exchange won’t get subsidies and continue to refuse to set up their own exchange anyway, good luck to them in the next election.

  11. Pass it and then we’ll find out what’s in it.

    Gee, for some who claimed to have read the bill and say it has no real problems, guess ya didn’t read it too closely, eh?

    I mean, if you defend what Nancy Piss-low-she said, guilty by defense.

    Jeez, the defenders and apologists have no soul, do they!?!?!?!?!

  12. The truth is, with an undertaking as large (voluminous) as this bill, there were bound to be some textual disconnects. It would also appear as though the Health Care and Education Reconciliation Act of 2010 goes some way in rectifying this particular disconnect.

    And as commenter John Shields noted when this post first published, the text (as well as the CBO) ultimately presumes the existence of these tax credits.

    To interpret these provisions elsewise is to come to an absurd result. John Shields:

    Yes, the CBO scored the premium tax credits assuming they would occur in all 50 states.


    And no, there is no conceivable reason for a federal exchange to report

    “Any information provided to the Exchange, including any change of circumstances, necessary to determine eligibility for, and the amount of, such credit”

    ““The aggregate amount of any advance payment of such credit or reductions under section 1412 of such Act”

    “Information necessary to determine whether a taxpayer has received excess advance payments”

    if no one on the federal exchange is eligible for credits or advance payments in the first place.

  13. “It is not possible to conceive of a person who would be injured in fact by this interpretation of the rule such that they could present a case or controversy under Article III.”

    The Taxpayors forced to fund it. Employers who compete with it for members. Anyone at all concerned about holding Congress Accountable for doing their job.

    Maybe, just maybe, Congress shouldn’t rush through bills the public doesn’t want passed. If they had taken an orderly process through writing and passing the bill this would not have happened. They knew if they took the time to do it right though it would not pass. You were quick to blame the Republicans but don’t want to hold the democrats responsible for any of their actions.

  14. Just left off? Just an honest mistake? The mistake is the ObamaCare Program, In Total, that is the real mistake. Is it a fine? Is it a Tax? The Supreme Court will decide and the outcome will be it is a Socialist experiment gone bad, like everything Obama has tried to do. Bad ideas done poorly!

  15. “No one pretends that the ACA is a model of statutory drafting.”

    Anymore, with effortless cut & paste, and the bulk of bills written by numerous staffers (usually with the “help” of lobbyists), it’s a wonder that any legislation has any internal consistency.

    ‘long established Supreme Court precedent holding that state officials do not have the authority to serve as “roving constitutional watchdog[s]”.’

    Love that line.

    The TeaBaggers have appropriated that role now, lol.