Ilya Shapiro

The U.S. Court of Appeals for the D.C. Circuit ruled Tuesday morning in Halbig v. Burwell that the government isn’t Humpty Dumpty and so statutory text doesn’t mean whatever the government says it means. The Affordable Care Act provision at issue, which grants tax credits for people to buy health insurance, only applies to people buying policies through “exchanges established by the State” — which in any sane world can’t apply to exchanges established by the federal government. The fact that the vast majority of states (36) have declined the federal government’s invitation to establish exchanges — the list grows weekly as initially supportive states’ exchanges fail — and that the resulting system thus doesn’t function as some hoped is of no moment.

Here’s the background, in case you haven’t been following this particular Obamacare challenge. To encourage the purchase of health insurance, the Affordable Care Act added a number of deductions, exemptions, and penalties to the federal tax code. As might be expected from a 2,700-page law, these new tax provisions can interact in counterintuitive ways. As first discovered by Michael Cannon and Jonathan Adler, one of the new tax law sections, when combined with state decisionmaking and Interal Revenue Service rulemaking, has given Obamacare yet another legal problem.

The legislation’s §1311 provides a subsidy for anyone who buys insurance from an insurance exchange “established by the State.” The provision was supposed to be an incentive for states to create their own exchanges, but in most states, the federal government ended up establishing its own exchange, as another section of the ACA specifies. But where §1311 only explicitly authorized a tax credit for people who buy insurance from a state exchange, the IRS issued a rule interpreting §1311 as also applying to purchases from federal exchanges.


Ilya Shapiro

Ilya Shapiro is a senior fellow in constitutional studies at the Cato Institute and editor-in-chief of the Cato Supreme Court Review. Follow him on twitter @ishapiro