The IRS and its defenders in Halbig v. Sebelius, one of several cases challenging IRS’s interpretation of the Affordable Care Act, have raised questions about whether Congress really meant to deny tax subsidies to taxpayers if their states didn’t set up insurance exchanges. As we shall see, this was one of several mechanisms to “encourage” states to set up exchanges by threatening their residents with the loss of benefits if they didn’t join the party.
The central issue in Halbig, you’ll recall, is whether insurance plan tax subsidies established under 26 U.S.C. § 36B apply only to plans purchased on an exchange “established by the State,” as the statute says, or whether the subsidies also go to plans purchased on a federally-established exchange. The IRS issued a regulation taking the latter point of view, roughly doubling the number of states in which plans will receive subsidies. After the plaintiffs brought suit, the trial court refused to strike down an IRS regulation that relies on the interpretation, so the case is now before a D.C. Circuit appeals panel.
At oral argument in March, the majority seemed to be leaning in favor of the challengers. Judge Edwards, a Carter appointee, by contrast, seemed firmly against the challengers’ position. The challengers’ attorney, Michael Carvin, argued that the text, structure, and legislative history of the ACA supported the plain meaning, while Stuart Delery, the DOJ lawyer defending the regulation, at one point argued that the court should construe the statute in accordance with the purpose stated in its title: to make care affordable.