This is the last, best chance O-Care opponents have of firing a magic bullet at the law to bring down the whole scheme. (John Roberts deflected the last one, as you might recall.) The basics are simple. Section 1311 of the law authorizes the states to develop their own ObamaCare exchanges. Section 1321 says that, if a state declines, the feds can step in and develop their own exchange for consumers in that state instead. That’s how we ended up with the technological marvel that is The rub comes in Section 1401, which authorizes tax credits, i.e. premium subsidies, for anyone who’s in “an Exchange established by the State under 1311”. Wait a sec — does that mean that only people enrolled in state-run exchanges get subsidies? If people enrolled in the federal exchange get them too, why doesn’t Section 1401 say “an Exchange established by the State under 1311 or the federal government under section 1321“?

There’s a simple explanation, say critics like Jonathan Adler: Congress intentionally limited subsidies to state-run exchanges to give the states an incentive to set up their own exchange. The feds didn’t want to build; they’d prefer that each state deal with this themselves. But since they can’t force states to do the federal government’s bidding, the best they can do is tack on monetary inducements to get them to play ball. That’s where the subsidies come in. If you’re a governor who’s on the fence about whether to build an exchange or not, the prospect of sugar from Uncle Sam for your constituents helps sweeten the pot. Read Adler’s post about this from December 2012 citing a colloquy that Max Baucus, the so-called architect of ObamaCare, had on this subject with John Ensign while the law was still being drafted. That’s the proof that Congress intended to distinguish between state-run exchanges and the federal exchange on subsidies. It’s not a drafting error or the result of Congress, to paraphrase Nancy Pelosi, passing the bill only to find out later what’s in it. The subsidies restriction for states was always supposed to be in there.

Not so, says Judge Paul Friedman, a Clinton appointee. The overall legislative history of O-Care leaves it unclear whether Congress intended this or not, one colloquy between two members notwithstanding. (In fact, he ignores what Baucus said.) When the meaning of the statute is in doubt, the court has to look to other provisions to glean intent and to the overall purpose of the statute. Would Congress really have passed the Affordable Care Act while leaving millions of consumers in dozens of states without access to subsidies to make their new coverage more affordable?

The federal subsidies are critical to the law because they reduce monthly premiums, in some cases drastically, for the vast majority of people buying coverage on new online insurance marketplaces. Starting this year, most Americans must have health insurance or face a fine…

District Court Judge Paul L. Friedman sided with the federal government, saying that the phrase was out of context. “One cannot look at just a few isolated words … but also must at least look at the other statutory provisions to which it refers,” Friedman wrote in his 39-page opinion…

“Congress did not mean to exclude residents of two-thirds of the states from premium tax credits,” said Timothy Jost, a consumer advocate and health law professor at Washington and Lee University. “Judge Friedman had little trouble finding that the statute clearly authorizes premium tax credits to be granted through federal exchanges.”

Here’s the opinion. The key bits start halfway through page 26 and run for 11 pages. On the core question, the difference between a state exchange under Section 1311 and a federal exchange under Section 1321, Friedman says that there’s no meaningful distinction at all. Don’t think of as a “federal exchange”; think of it as a collection of state exchanges that are being run by the feds for the state.


That idea, of the feds acting on behalf of a state rather than setting up their own qualitatively different exchange mechanism, is completely rejected by Adler and his co-author Michael Cannon. “If a state chooses not to dance,” Cannon wrote in November 2012, “Section 1321 doesn’t instruct the federal government to step inside (read: commandeer) the state’s dancing shoes. It directs the federal government put on its own dancing shoes, and to follow all the dance steps listed in Title I. Since the language restricting tax credits to state-created Exchanges appears in—you guessed it—Title I, federal Exchanges are bound by that restriction.”

The rest of Friedman’s opinion is essentially a battle with Adler et al. over inferences that can be fairly drawn from the text of the ObamaCare statute and the legislative history about Congress’s intent. If you take all of Section 1312 as literally as Adler takes the part about state exchanges, argues Friedman, the federal exchange wouldn’t be able to enroll anyone since there’s no specific separate definition of what makes someone a “qualified individual” eligible for federal enrollment — and yet, neither the plaintiffs nor defendants dispute that the feds can enroll people. If you want more tea-leaf-reading about congressional intent along those lines, dive on into Friedman’s opinion. The larger point here, though, I think, is that federal judges will be reluctant to nuke America’s new insurance regime based on what’s arguably a drafting error. To have a district court tell millions of people that they’re SOL when it comes to Uncle Sam keeping his promise to help them pay for their expensive new insurance, you need evidence of congressional intent that’s overwhelming, no matter what the text of the statute itself says. At least, if you’re in front of a Democratic appointee you do.