Commentary

NYT Shows No One Buys Government’s ‘Term of Art’ Argument in King v. Burwell

The Supreme Court is likely to rule on King v. Burwell by the end of June. The King plaintiffs are four Virginia taxpayers. They claim the Patient Protection and Affordable Care Act (ACA) does not authorize the Internal Revenue Service to issue certain subsidies or impose certain taxes in states like Virginia, whose health-insurance “Exchanges” were established by the federal government rather than the state itself. The challengers argue Congress intentionally authorized those taxes and subsidies only—as the ACA says—”through an Exchange established by the State.” A win for the challengers means: more than 57 million Americans in up to 38 states will be freed from the ACA’s individual and employer mandates, with considerable economic benefits; and perhaps 8 million consumers will see the full cost of their ACA plans. The Obama administration, on behalf of the IRS,argued before the Supreme Court that the statutory phrase “through an Exchange established by the State” is actually “a term of art that includes an Exchange established for the State by HHS.”

Today’s New York Times asks how the phrase “through an Exchange established by the State” got into the ACA’s subsidy-eligibility rules:

The answer, from interviews with more than two dozen Democrats and Republicans involved in writing the law, is that the words were a product of shifting politics and a sloppy merging of different versions. Some described the words as “inadvertent,” “inartful” or “a drafting error.”

A few observations about the Times’ account.

1. Senators and staff involved in the process don’t buy the government’s “term of art” argument.

None of the senators or staffers quoted in the article echoed the government’s argument that the phrase “through an Exchange established by the State” is a “term of art” meant to encompass Exchanges established by the federal government.

This is not too surprising. The government itself didn’t cook up that argument until King reached the Supreme Court. As Jonathan Adler and I explain here, there are reasons to believe the government doesn’t even believe its own “term of art” argument.

While the Times’ sources may have intended to undercut the King challengers’ case, they, like others before them, inadvertently bolstered it.

Indeed, by describing “through an Exchange established by the State” as “inadvertent,” “inartful,” or “a drafting error,” the senators and staff implicitly acknowledge the phrase clearly does not encompass federal Exchanges. 

2. The ACA’s authors rejected “term of art” language.

The Times explains that Majority Leader Harry Reid (D., Nev.) and other Senate Democrats rejected language that would have converted “through an Exchange established by the State” into a term of art.

The ACA was the merged product of two bills, one produced by the Senate’s Finance Committee and the other by the Senate’s Health, Education, Labor, and Pensions (HELP) Committee. The Times explains—as Adler and I explained three years ago—that in merging the two bills, Reid et alia rejected language from the HELP bill that would have created full equivalence between state-established and federally established Exchanges. (Adler and I also showed that Congress rejected a House-passed bill that contained similar equivalence language.)

The fact that the law’s authors rejected such language suggests the non-equivalence that appears in the ACA was intentional.

3. Senators, staff, and reporters still don’t understand the ACA or its legislative history.

The Times article, which is based on the recollections of senators and staff, provides ample evidence that those recollections are unreliable indicators of what Congress actually intended. Here are a few examples.

The Times reports that the HELP bill “clearly allowed subsidies in all states.” On the contrary, as even the government and its allies acknowledge, the HELP bill conditioned Exchange subsidies on states implementing that bill’s employer mandate.

The Times claims the ACA’s federal-Exchange provisions come from the HELP bill. On the contrary, they are a reorganized version of the Finance bill’s federal-Exchange provisions.

The Senate Finance Committee’s former Democratic staff director claims the idea of a federal fallback Exchange did not appear in the Finance bill. On the contrary, federal fallback Exchanges appeared in the chairman’s mark (p. 11) introduced on September 22, 2009, and in every subsequent draft of the Finance bill and the ACA.

When merging the Finance and HELP bills, Reid did not just “[take] the language on tax credits from the Finance Committee.” Under his supervision, drafters added the restrictive language “through an Exchange established by the State” to the ACA’s tax-credit eligibility rules in multiple places. As Adler and I explain in an amicus brief to the Supreme Court, “Restricting tax credits to Exchanges ‘established by the State’ was no accident. This phrasing was added to Section 1401 in multiple places at multiple times in the drafting process … under the supervision of Senate leaders and White House officials… . This requirement survived multiple rounds of revisions throughout the drafting process, including revisions to the cross-references attached to it.”

The Times and its sources speak of conditioning tax credits on state cooperation as if it were some foreign concept. No one acknowledges the chairman’s mark also conditioned tax credits for small businesses on state cooperation: “If a State has not yet adopted the reformed rating rules, qualifying small employers in the state would not be eligible to receive the credit.” Nor do any of the sources acknowledge the HELP bill conditioned Exchange subsidies on state cooperation.

The Times cites the former chief of staff to Senate Finance Committee chairman Max Baucus (D., Mont.) as saying Baucus “would never have agreed to an arrangement that jeopardized tax credits for his constituents.” Yet he proposed exactly that with respect to small businesses in both his chairman’s mark and the Finance bill.

4. Consider the sources.

Aside from the ACA itself and its antecedent bills — all of which Adler and I covered three years ago — the Times article presents no contemporaneous, primary-source material. It includes no contemporaneous written or spoken statements from senators, Senate staff, Senate legislative counsel, House members, or House staff.

Instead, it relies on the unreliable recollections of members of Congress and staff, whose contributions consist mainly of professions of ignorance: I don’t ever recall … It was never part of our conversations … I don’t know how else to explain it … As far as I know, it escaped everyone’s attention … I didn’t ever hear anybody suggest … I didn’t ever hear…

Indeed, they’re not even the right senators and staff. The Republican staffers quoted in the article were not involved in drafting the ACA. The Democratic and non-partisan staff most responsible for the statutory language in question were unavailable. It is not clear that any of this article’s sources actually helped draft the relevant language.

While the Times’ sources may have intended to undercut the King challengers’ case, they, like others before them, inadvertently bolstered it. They acknowledged, perhaps inadvertently, that they did not pay as much attention to the bill as maybe they should have, that they had no choice but to enact a bill they knew was flawed, that the statute’s meaning is plain, and that the government’s “term of art” argument is unbelievable. They demonstrated why courts should rely on the plain meaning of statutes and ignore post hoc statements by members of Congress about what they really intended.

Michael F. Cannon is director of health policy studies at the Cato Institute and coauthor (with Jonathan H. Adler) of Taxation Without Representation: The Illegal IRS Rule to Expand Tax Credits Under the PPACA, Health Matrix: Journal of Law-Medicine 23, No. 1 (2013): 119-195.