I went grocery shopping today, and as I looked up at the Star Market sign I realized another reason the government should win King v. Burwell, the ACA subsidies case.
Like supermarkets, health insurers are regional businesses. Most sell in only a handful of states, and have adapted their products and methods to the regulatory and other peculiarities of those states and their corresponding insurance regulators.
My argument is that this regionality helps us to understand the language that the Supreme Court will have to interpret, “an exchange established by a state.” The plaintiffs argue that the term “established by a state” has to be interpreted to rule out exchanges that are currently run by the federal government. That suggestion, as Abbe Gluck and others have pointed out, is hard to reconcile with other provisions of the act, which use very similar language to cover both federally- and state-run exchanges.
But the plaintiffs seem to have struck a chord with some commentators in their claim that reading the clause to cover both kinds of exchanges makes the “by a state” phrase surplusage. Why would Congress have put those words in there, they ask, if the same rules apply to both kinds of exchange? I think regionality could answer that question, but not in a way that necessarily helps the plaintiffs.
Let’s rewind to 2009, when the ACA was being drafted. The “exchanges,” of course, were a key component: each was to be a basket of approved insurance plans from which consumers could shop, and consumers below 400% of the federal poverty level could obtain subsidies to offset some of the plans’ costs. Proponents of “single payer” urged that the Act establish a single nationwide exchange, with the idea being that the federal exchange regulators would have monopsony-like power to negotiate with insurers. The House-passed bill actually did just that.
State regulators and insurers hated that idea. Insurers, again, were largely regional, and believed that their products would be a poor fit for a national basket of customers (and that existing national players, such as Blue Cross, would have a large head-start in adapting). State regulators thought that the federal exchange would undermine their authority. Together, they battled to make sure that any exchange, even one run by the federal government, would have only a regional scope. As a compromise, the final version passed by the Senate (and then accepted by the House) does allow states to enter into agreements to set up multi-state exchanges, but that leaves it up to regulators whether to cede their authority, and so far none have.
The phrase "established by a state" prevents the federal government from operating a national exchange. Section 1321 of the ACA at first glance appears to allow the feds to operate an exchange "within a state" if the state doesn't. But that could be a single exchange common across all states that don't operate their own. But section 1311 defines an exchange as a governmental entity or nonprofit "established by a state," and 1321(c) says that, if the states opts not to act, the feds must "establish and operate such Exchange" (emph. added). That is, the feds can only set up a state exchange, not a national one.
And that, in turn, ruins the interpretive syllogism that the Burwell/King plaintiffs rely on. Again, their position is that “established by a state” would be purely wasted ink if it allowed for subsidies to both state and federal exchanges. Therefore, they say, it must be meant to exclude federally-run exchanges. But, as we’ve just seen, that phrase has another possible meaning. It might not be the most natural reading, but once you know the economic rationale behind it, it’s a reasonable one. And that’s all the government, which is legally entitled to deference to any reasonable interpretation of the statute, needs to win.