Would It Be “Absurd” For Congress to Withhold Tax Credits In Noncompliant States?

One oft-repeated response in the comments to my latest post reiterating the argument that the PPACA only provides tax credits for the purchase of qualifying health insurance in state-run exchanges is that this would produce an “absurd” results. This would be “absurd,” some claim, because the consequence of state refusal to create their own exchanges — the loss of tax credits and subsidies for the purchase of insurance — would undermine the goals of the Act. Further, some argue, it would be absurd to facilitate state opposition to the Act in this way. Yet it is indisputable that this is not the first time Congress has done this. Indeed, Congress did the precise same thing in other parts of the PPACA.

The most obvious example of Congress using this “absurd” tactic is the Medicaid expansion. Under the PPACA, as written, states that refused to participate in the Medicaid expansion would forfeit federal funding for the expansion as well as all federal support for the pre-existing Medicaid program. So not only did Congress threaten to withhold new benefits in unconsenting states, it also threatened to further undermine the PPACA’s goals by withdrawing existing Medicaid funding. In other words, if a state sought to undermine the PPACA by refusing to cooperate with the Medicaid expansion, this would trigger a sanction that would reduce health care coverage for needy populations — a result directly contrary to the stated goal of the PPACA. The Supreme Court ultimately concluded this deal was unconstitutional, but there is no question of what the statute sought to do.

Congress decided to pursue the PPACA’s goal of expanding coverage by enlisting states in the cause, and it sought to enlist states in the cause by providing states with incentives, including a threat to withhold funding for benefits to needy populations. Congress did not think any state would refuse this deal, but that’s the deal Congress offered. In the case of tax credits and subsidies for health insurance purchased in exchanges, Congress likewise thought that every state would create its own exchange rather than risk the combination of a federal exchange (what some viewed as a dreaded “federal takeover” at the time) and a loss of the tax credits. Further evidence that accepting this reading would not be “absurd,” as I noted in my prior post, is that prominent PPACA supporters, such as noted health law professor Tim Jost, expressly proposed that Congress pressure states into creating exchanges “by offering tax subsidies for insurance only in states that complied with federal requirements.” Other draft health care reform bills also threatened to withhold tax credits in unconsenting states. This approach may have been foolish or unwise, but that does not make it “absurd” for purposes of statutory interpretation.

The “absurd results” doctrine provides that a statute should not be read to mean something Congress could not have meant. It is not a license to rewrite a statute because Congress made a mistake or adopted a legislative provision based on mistaken assumptions about how others might respond. At the time the PPACA was passed, everyone thought that states would fall in line. PPACA supporters thought that once the law was passed, opposition and obstruction would dissipate. They were wrong, and this does not provide the IRS (or anyone else) to rewrite the statute through administrative fiat. In writing the statute as it did, Congress may have been playing high-stakes poker, but it can’t cancel the game just because some states have decided to call Congress’s bluff.

[Note: I fixed a garbled sentence in the penultimate paragraph.]