Two Hours After A Court Strikes Down Obamacare Subsidies, Another Appeals Court Upholds Them


A little after 10am Tuesday morning, two Republican judges on the United States Court of Appeals for the District of Columbia Circuit ordered much of the Affordable Care Act defunded. Just two hours later, another federal appeals court, the Fourth Circuit, issued a unanimous opinion upholding the same subsidies that were struck down in the DC Circuit’s order.

As we explained this morning, both cases hinge upon a glorified typo in the Affordable Care Act. Obamacare gives states the option to run a health insurance exchange selling coverage to their residents, or they may elect to have the federal government run this exchange. If read in isolation, one line of the Affordable Care Act suggests that only “an Exchange established by the State” can offer subsidies to help people pay for health insurance in the exchange. The DC Circuit’s opinion relied on that line to conclude that federally-run exchange subsidies must be defunded.

Yet, as the Supreme Court has made clear — and as the Fourth Circuit reiterates in its opinion — a federal law should not be interpreted by reading a single line out of context. Rather, “a reviewing court should not confine itself to examining a particular statutory provision in isolation” as the “meaning — or ambiguity — of certain words or phrases may only become evident when placed in context.” A full explanation of why the DC Circuit misread the law and ignored other key provisions of the Affordable Care Act can be read here.

Unlike the DC Circuit’s opinion, the Fourth Circuit is a model of judicial restraint and humility. Although all three judges on the Fourth Circuit panel were nominated by Democratic presidents (Judge Roger Gregory, who authored the opinion, has the unusual distinction of being nominated by both President Clinton and the second President Bush), the majority opinion does not claim, as the DC Circuit did, that this case is a slam-dunk for their political party’s preferred outcome. Indeed, it claims that different provisions of the law seem to conflict with one another, and that the meaning of the statute is ambiguous. Though Judge Gregory’s opinion concludes that the Obama Administration “make[s] the better of the two cases” regarding how the law should be read, he also writes that “we are not convinced that either of the purported statutory conflicts render Congress’s intent clear.”


Under the longstanding Chevron Doctrine, however, it is not the job of judges who are confronted with an ambiguous statute to read their preferred outcome into the law. Rather, the Supreme Court has ordered federal judges to defer to an agency’s reading of a law — in this case, the Internal Revenue Service (IRS) — so long as “the agency’s answer is based on a permissible construction of the statute.” “We ‘will not usurp an agency’s interpretive authority by supplanting its construction with our own,” Gregory writes, “so long as the interpretation is not ‘arbitrary, capricious, or manifestly contrary to the statute.’”

As Gregory’s opinion lays out, the Obama Administration’s reading of the law is entirely consistent with the law’s structure and purpose. “[D]enying tax credits to individuals shopping on federal Exchanges would throw a debilitating wrench into the Act’s internal economic machinery,” the court explains. “It is therefore clear that widely available tax credits are essential to fulfilling the Act’s primary goals and that Congress was aware of their importance when drafting the bill.”

By contrast, the plaintiffs’ argument that much of Obamacare must be defunded cannot be squared with the law’s broader purpose. “With only sixteen state-run Exchanges currently in place,” the court explains, “the economic framework supporting the Act would crumble if the credits were unavailable on federal Exchanges. Furthermore, without an exception to the individual mandate, millions more Americans unable to purchase insurance without the credits would be forced to pay a penalty that Congress never envisioned imposing on them. The IRS Rule avoids both these unforeseen and undesirable consequences and thereby advances the true purpose and means of the Act.” As Judge Gregory concludes, “[c]onfronted with the Act’s ambiguity, the IRS crafted a rule ensuring the credits’ broad availability and furthering the goals of the law. In the face of this permissible construction, we must defer to the IRS Rule.”

In the end, the battle between the Fourth Circuit and the DC Circuit is a battle over who gets to make law. Normally, that power rests with Congress, but when a law is ambiguous, the Supreme Court has long recognized that courts should defer to the Executive Branch. This rule achieves two ends. It ensures that agencies with expertise on a particular area of law get to interpret that law, rather than leaving matters to inexpert judges. And it also ensures that the people who make important policy decisions are ultimately accountable to the American people.

If the electorate does not approve of the Obama Administration’s reading of this law, then the Fourth Circuit’s opinion permits them to vote for a different president who will read the law in a different way. The DC Circuit, however, would steal this decision away from the American people, and place it in the hands of a few unelected officials in black robes.