1) The IRS rule contradicts the law, which authorizes the subsidies only for state-operated exchanges . To encourage the states to set them up, the ACA does not authorize subsidies for the Federal exchange. The Plaintiff explains that, because the Federal Government cannot compel states to take any action, the ACA recognized that the states may fail to set up the exchanges. If that happened, the law required the Federal Government to step in and make an exchange instead.
To convince states to set up exchanges on their own, Congress created a set of incentives and disincentives. The ACA's disincentives included restricting Medicaid funds, and as both an incentive and disincentive created a subsidy program for state exchanges. That only works as an incentive to participate if they apply to state exchanges, otherwise no subsidies.
The state exchanges were necessary because, while the House originally drafted a bill that only created a Federal exchange, the bill could not pass the Senate on account on Nebraska Senator Ben Nelson, who was concerned about a singe-player plan. For Senator Nelson and some others, keeping the Federal government out was important, and therefore creating sufficient incentives to get the states involved, as the Federal government could not require them to do it. Congress did not expect for states to turn down the money and subsidies. The Plaintiff did mention Jonathan Gruber's comments about that stick that subsidy refusal would result in - angry citizens.
Finally, that expectation was cemented by the fact that Congress appropriated no money for a Federal exchange.
2) The IRS changed the rules anyway. The ACA was not widely accepted, contrary to expectations. and many states (most, in fact) refused to set up exchanges. In anticipation of that fact, the IRS created an agency rule that held that the subsidies extended to all exchanges, not just state-created exchanges. A number of people, including members of Congress, noted the inconsistency.
3) This matters in part because the subsidies trigger the mandates attached to law for both individuals and employers, and that grants the plaintiffs a legal injury that gives them grounds to sue.
4) The argument's primary point is that "Established by the State under section 1311" cannot mean "Established by HHS under section 1321". Congress had both kinds of exchanges in mind, and did not grant the subsidies to the HHS exchanges.
There are three provisions that make the intent of Congress clear - Section 1311 requires (to the extent it can) that states establish exchanges, Section 1231 has HHS establish an exchange if states don't, and then grants a subsidy only to state exchanges under Section 1311. This is clearly obvious from the language, as anyone would understand the meaning. If Congress wanted to make subsidies available to all exchanges, they should've said so. If they wanted it for both, why would they specify only for one? That's the exact opposite.
The primary argument from the Government (in the Perspective of the Plaintiff) is that HHS are "established by the state under Section 1311". This doesn't work for several reasons:
First, the authorization of HHS to create exchanges does not mean that all exchanges are the same. In fact, HHS exchanges are clearly excluded.
Second, the word "such" in "Such Exchange" references the type of exchange. But the subsidies depend on who created the Exchange under which Section, not what the Exchange was for.
Third, the act does not authorize HHS to act on behalf of or in place of the State, just within the state. The law also only authorizes HHS to act only when the state refused to set one up, so the idea that HHS is acting on behalf of a state is absurd.
Fourth, if there was any confusion over what "under Section 1311" means, the phrase "established by the State" would make the point even clearer.
Finally, the last argument from the Government is simply on it's own say-so, that HHS exchanges are "established by the State" "as a matter of law" is a baseless claim with no support.
The Government also claimed that the language of the rest of law must be read as well to understand the relevant part of the law. But hurts the Government's case - when the Government wanted to include both types of exchanges, it used wording that did so. The provision that limited the subsidies to state exchanges was the section of the law where the subsidies rules were set.
As for the government's claim of interpretation, executive agencies (or courts) cannot interpret statutes that are clear. Clear statutes do not leave for agencies to create rules that contradict them.
While the subsidies are important, so was conditioning them. The Government conditioned Medicaid subsidies on state exchanges as well, and Medicaid is obviously important too. In fact, the conditioned subsidies were an important tool to achieve nation-wide exchanges and subsidies. The carrot of "bringing home the bacon" and the stick of "ineligible, angry voters" was thought to be enough to convince every state to get on board. But after the IRS rewrote the law, most states walked away.
Finally, the Plaintiff dismisses the Government's argument that it would disrupt the insurance argument because the Government's rule created the problem.
It is irrelevant that there may be no legislative comments prior to the bill's passage related to the section in question. But that just means the Court must turn to the act's text. But there was some commentary beforehand on the issue, in favor of the Plaintiff's position.
Another Government argument, that the law would create "anomalies", cannot override plain language of a text according to Supreme Court precedent. But the anomalies themselves are created only by Government's reading.
Chevron deference, that is the idea the Court's accept reasonable interpretation of vague statutes, doesn't help because Congress would not delegate such a massive decision to the IRS, tax credits and their rules must be plain and not open to interpretation, and Congress did not delegate the meaning of this section to any agency.
Text cannot be manipulated indefinitely within the rule of law. The Court cannot rewrite or revise the law to make it fit better with the purposes of Congress.
The plain text ends any analysis into the law. “If the statute is clear and unambiguous ‘that is
the end of the matter, for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress.’ " by Court precedent.
The IRS Rule contradicts the language. The statute only authorizes subsidies only for people who are enrolled in a "Exchange established by the State under Section 1311." The statute also limited the amount of subsidies by bench-marking against value of specific plans on the aforementioned Exchange.
But the IRS Rule just allows subsidy through any Exchange, regardless of who created it, in direct contradiction of the law, as HHS is not a state.
It also makes Congress's word use less than helpful. The language "established by a state" and "under Section 1311" not only superfluous, but directly misleading - it would mean the opposite of what it says.
As the text is clear, any legal inquiry into it's meaning must end at that point.
The Fourth Circuit, however, ruled that "established by the State", meant "established by the State or HHS". One of the Judges found that Section 1321 functions as a contingency that has HHS stand "in place of the state", or that replacing state exchanges they become state exchanges.
In fact, the judge himself wrote “‘established by the State’ indeed means established by the state—except when it does not.”
But the law was written in a way that excludes HHS exchanges from subsidies. The exclusionary language cannot include both simply by reason that they both exist.
The word "such" is insufficient to overwrite the language of the statute. "Such" talks about the nature of the exchange, but the subsidy is based on who established "such exchange".
In the same manner, the judges suggested that HHS stands in for the state, and therefore is a state for the purposes of the law. But the law only says HHS should establish an exchange "within" the state, which is a geographical restriction, not a legal one.
In fact, the lower court's reading, by their own admission, creates an ambiguity as to whether HHS exchanges are established under Section 1321, as the law says, or Section 1311, which would be what would happen under a "stand-in" reading.
The Government's say-so that "State" means "HHS too" has no basis. In fact, Congress can redefine words, but Congress has to do it, not the courts. Congress could have included HHS in Section 1311, or included the definition of "State" to be "The 50 states and HHS". They didn't. They did define it as "The 50 States and DC". A separate section considers territories as a state for select, defined purpose.
This is the first half of the Plaintiff's brief, available here: http://www.americanbar.org/content/dam/aba/publications/supreme_court_preview/BriefsV4/14-114_pet.authcheckdam.pdf