Posted by: captainfalcon | November 28, 2012

A Natural Intuition Pump

This debate [follow the links] between Samuel Bagenstos and Michael Cannon is a good intuition-pump-in-the-wild.  It only needs a little background before it can be summarized.  The background is that an important component of the Affordable Care Act is that it provides tax subsidies to people who purchase health insurance.  In this way it incentivizes (and enables) entry into government-created health insurance exchanges, which is essential to creating the insurance risk-pool that makes the health insurance for which the ACA provides affordable.

Central to Cannon’s argument is that the ACA provides for two different kinds of government-created health insurance exchange.  Section 1311 provides a means for states to set up health insurance exchanges.  Section 1321 provides that, in states that do not set up health insurance exchanges, the federal government will do so.  Cannon notices that the only provision in the ACA providing for the tax subsidies that are necessary for the proper functioning of the health insurance exchanges provides tax credits for purchasers in the exchanges “established by the State under section 1311.”  There is no parallel provision providing for tax credits for purchasers in the federal exchanges.  Inference: purchasers in federal exchanges are not entitled to tax credits.  The argument is actually made most forcefully simply by excerpting the relevant provisions:

  • Section 1311(b)(1) “Each State shall not later than January 1, 2014, establish” an exchange.
  • Section 1321(c)(1) “If [a state does not establish an exchange] . . . the Secretary shall . . . establish and operate such Exchange within the State.”
  • Section 1401(a) “In the case of an applicable taxpayer, there shall be allowed as a [tax] credit . . . an amount equal to the premium assistance amount . . . which is the monthly premium[] [or adjusted monthly premium for] qualified health plans . . . which were enrolled in through an Exchange established by the State under [Section] 1311” (emphases added).

In essence, Cannon argues that because Section 1401(a) only provides for tax credits for taxpayers enrolled in exchanges established by the state under Section 1311, taxpayers enrolled in exchanges established by the federal government under Section 1321 are not eligible for tax credits.  The result, of course, is that the federal exchanges will break down because the ACA does not provide a component that is essential to providing their risk pool and enabling universal access.

As far as I’m concerned Cannon’s argument from the text is as good as any argument from the text can be.  Samuel Bagenstos tries to argue that Section 1321(c)(1)’s provision that the federal government shall establish and operate “such Exchange” within the State if the State fails to do so means, as a textual matter, that there is no difference between Section 1311 exchanges and Section 1321 exchanges – the latter just are the former.  But plainly there is a difference between the two; Section 1311 exchanges are created by the States, whereas Section 1321 exchanges are created by the federal government.  The two exchanges have the same phenotypes but different parents.  And this is precisely the difference that Section 1401 endows with significance when it — the only provision to provide tax credits — provides only that tax credits shall be allowed to taxpayers enrolled in exchanges established by states under 1311.

On the other hand, Bagenstos is surely right that Cannon’s interpretation will eviscerate federal health exchanges.  One persuasive piece of evidence is the fact that it is Cannon’s interpretation.  (Cannon, who works at the Cato Institute, is strongly opposed to Obamacare on political grounds.)  Equally persuasive is a rudimentary understanding of how the health exchanges are supposed to work (risk pools) and what end they are supposed to serve (universal health coverage).

Text strongly supports Cannon; purpose strongly supports Bagenstos.  How would you decide the case?  How should we decide the case?  These questions, instances of the debate between purposivism and textualism, are hoary and well trodden, but they are worth visiting in a concrete context where the only intellectually honest position to take is that purpose and text are clearly and diametrically opposed.

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