Legal Case Summary

Thank you, Your Honor. May I please the Court, Michael Carvin, for a pellant. It's a very straightforward case of statutory construction where the plain language dictates the result. In the only two provisions, the ACA defining the insurance purchases that are subject to the subsidy, it clearly states that it's only when you purchase the insurance off of an exchange established by the state under section 1311. That clearly excludes purchases made off an exchange established by HHS under section 1321. And yet the government wants you to interpret the phrase to mean precisely the opposite of what its plain language says. No one attempting to convey the thought that they purchased made off either a federal or state exchange would use the phrase that's embodied in the act and exchange established by the state. They might have used a phrase like off of an exchange or an exchange established under the act, which is what you've seen in other parts of the ACA. So they knew how to say it when they intended to do it. So the government really doesn't dispute that. Their argument is this is a very odd place to impose this limitation. They think they use the phrase hiding an elephant in a mouse hole. But this is exactly where you would expect to see the limitations on what kind of insurance purchases are subject to the subsidies. Because again, these are the only two provisions of the act which define the purchases that are subject to the subsidies. I think the best illustration of this is that the government agrees that only purchases made off of an exchange are subject to the subsidies. If you bought insurance off of an exchange, you would not be eligible for the subsidies under the act. Well, the only reason we know that and the only limitation in the act limiting the subsidies to any exchange is these exact same two provisions under 36 B that were reliant on

. So for the same reason that we know that you have to make an purchase off an exchange in order to be eligible for the premium tax credit, we by parallel reasoning know that it needs to be an exchange established by the state under section 1311. The other reason we know this is if you look at 2035 B which is right in front of 36 B which is the healthcare tax credit under the Trade Adjustment Act. They use precisely the same kind of formulation where they say the subsidies in the definition of coverage month will only be available if the state has taken affirmative steps. So the government's basic theory is that when they impose a condition on getting a premium tax credit or some kind of tax break from the IRS or money from the federal treasury that there will be some big neon sign in the act that says here is a condition that we are now imposing on the states they've got to establish the exchanges. Well we know that's not true because the Medicaid provision which is also in the ACA doesn't say that you will be eligible up to 133% of the poverty level if and only if the state undertakes these steps to expand its Medicaid coverage. So the so-called famous Medicaid deal which was an issue in NFIB was not under some title saying here we are imposing conditions on the state it was all they did was add an additional eligibility criteria an additional requirement and that's precisely parallel to what happens here all they did was add a certain eligibility criteria. And again with the exchange there was no big heading that they had that it had to be under the exchange there was no legislative history explaining under the government's theory limiting subsidies to exchanges at all doesn't make any sense because Congress wanted to make subsidies is widely available as possible. So why would they limited to purchases made on an exchange the obvious answer is because they were trying to induce people insurers and customers to make to get involved in the exchanges. Well there's no legislative history explaining that trueism but but that's the obvious logic of the statute by parallel reasoning the reason they limited it to exchanges established by the states was because they wanted to induce the states which was very important in terms of getting passage. So the state was trying to make a change in the Senate to run these exchanges this was the big debate between the House and the Senate where Senator Nelson and others were insisting that it be a state run exchange system whereas in the House they wanted a federally run exchange system. So in order to provide a proper incentive for the states to do it they said look we're going to give you an incentive that as the district court found everyone assumed every state would take. We all you have to do is run the exchange and if you run the exchange then your citizens get billions hundreds of billions of dollars in free federal money. It's really a better deal than Medicaid because the state doesn't have to lay out a dime and as the district court correctly and expressly found everyone assumed that all the states would take the deal. So you get the best of both worlds you get the subsidies and the state run exchanges. And in the face of this plain language and this obvious policy benefit the government really has nothing to offer in contradiction of what we're saying. How is it that they think that the word state in 36b somehow gets transformed into federal under section 1321 well they point you to 1321 and they say some by some magic

. 1321 turns an HHS exchange into a state exchange but it doesn't do anything of the sort all 1321 tells you is when the HHS exchanges will come into existence. It doesn't quite critically have any of the language that you see elsewhere in the US code and you see in the ACA specifically when it responds to territories. When they wanted to say territory should be treated by state they had a specific provision that says you shall be treated like a state territorial exchanges they don't have any language like that under HHS exchanges. So there's literally no basis for treating HHS exchanges like state exchanges the government says well they're doing it on behalf of the state and that is somehow close enough to be saying that HHS is the state. Well we know that's wrong first of all a campaign on behalf of the state the only way that HHS can even establish the exchange is if the state has said no we don't want it. So they're not doing it on behalf of the state they're doing it instead of the state in lieu of the state they're not acting as the state. And that arises because of something the states did not do under 1311 right correct. So therefore in a sense it is the HHS exchange is established because of that operation negative I guess negatively the 1311 the states didn't do it so why is that not still the language that it is really pursuing to 1311. Well there's two things the state has the option under 1311 if they say no then HHS does it under 1321 and everyone writing the act knew that and then when they turn to say when do you get subsidies they say it's only when the state has exercised the option when the state has established the exchange under section 1311 if the state says no then in only then can HHS establish an exchange. So you've got two kinds of exchanges the drafters of the act knew it they reference that in 36 B itself and then they consciously said when do you get the subsidies when the state has exercised its option and again that's because that would clearly induce the states to exercise the option but in terms of the English language the notion that a provision that is triggered by the state saying no somehow should be treated as if the state had said yes is contrary to the English state. So they said in the English language and contrary to common sense they're not acting as the states agent the state has decided not to run the exchange they wanted an exchange Congress did they said okay HHS will do it and they're not acting on behalf of the state even if you look at the language of section 1321 it says they will establish the exchange within the state they don't say on behalf of or shall be treated as as if the state had done it they just say we need an exchange within the state. And finally we know that when they wanted to equate one exchange with the state exchange they knew how to do it and that was the point I just made when they said treat of the territories established in exchange such exchange it shall be treated like the state exchange they don't have any language like that in 1321 the house version of the bill said if the states take it over for the federal government then you will shall treat the state as the federal. So all the language all of the con says if you're trying to treat something like a state exchange you say it you don't do it through this magical language that the government. So all the other provisions are not in the state exchange. The other provision judge agree that they focus on it says such it says such exchange and they think that that's somehow significant that the secretary established such exchange all that tells the secretary to do is what kind of exchange the secretary needs to establish she can't just establish any old exchange she's got to establish the exchange that's greatly detailed in the act the one that the state would have established if they had known about. But again we know that that doesn't can note that that shall be treated like the state exchange because again the territorial provision says such exchange and shall be treated like it so we know that the word such does not can that it shall be treated the same and of course that's just common sense such just tells you what kind of exchange but the subsidy provision the availability of subsidies doesn't turn on what kind of exchange it is it turns on who established the state

. If the state established it you get the subsidy if HHS established it you don't get the subset and again that's because Congress understood if we're going to give these states all of these billions of dollars regardless of whether or not they establish the exchange then the states will have no incentive to build the exchanges that we desperately want them to build a particular reason you didn't bring this is a class action. We didn't think we needed to it's an APA challenge and frankly certifying a class would be very complicated and very atypical under the APA where you typically have one litigant challenge and a regulation and it's of course standard APA law that they shall set aside the regulation so if the regulation is set aside for my clients it'll be set aside for all people and therefore there won't be any subsidies available. That's I'm sure all true except it seems to me that I could easily well maybe not so easily cure the problem for your four clients pretty easily. No and the case goes away no I don't think it's absolutely evaporates if I understand your client standing and you'll help me with this the theory is that they could get the same kind of money. They had a better deal including they could get away with buying no insurance at all or a catastrophic policy if they were not if they were not eligible for a subsidy in Virginia and so it seems to me I don't know it seems like it'd be pretty easy for RIS, HHS. Treasury whoever you're suing here to sit down and say well you know what these four people who object so strongly and are concerned about having to pay money that they wouldn't otherwise have to pay we can fix this for them. It seems like it'd be pretty easy to fix this for them. That's not suggesting any responsible public policy official would ever do such a thing but it does seem that way. Well I think the responsible public policy officials the relevant point or honor they cannot behave lawlessly and if this court agrees that we have standard which we clearly do because it inflicts economic injury the APA instructs that the regulation shall be set aside it will no longer exist and once the regulation no longer a list the IRS rule is my condom in the regulation to say except anybody who object. Because then it's no longer regulation. You didn't call you didn't bring it as a class action because you know for well that's the opt-outs with create traffic problems since we're over Virginia nobody wants what you're after here since we have standing you have to proceed to the merits of our claim and the merits of our claim is that the IRS rule is utterly lawless it's ultra-virus and must be struck down under the APA. They haven't amended the rule they haven't said we're going to create some exceptions for people represented by Mr. Carvin which would be utterly lawless they have said we we think this is a proper interpretation of statute if you agree with us that the reg is completely contrary to the statute that makes it a law is regime therefore there will be no legal basis for them to at least in the for circuit draw funds from the treasury and provide these subsidies in the states covered by the for circuit because it's the best way to do that. As your court is made clear in the ethical college case an agency must follow this courts interpretation of the ultra-virus act and indeed because under the anti-diffiency act withdrawals from the treasury are literally illegal if they tried to do what they would be committing a felony once this court has has resolved hopefully from my perspective in our favor. So I don't think there is this kind of hybrid argument and I think that in the short remaining time I have I don't think the government's argument really has much to do with the statute or what the law was enacted they want this court to act to second guess the policy judgments of Congress and their argument is essentially look it was very important to have these subsidies and you should ignore the limitations that Congress put on the court. And then because Congress would have never wanted these limitations and our point is we've already explained why the Congress very much would would have wanted to condition the subsidies on states running the exchanges because then they get the bus to both worlds state run exchanges and subsidies but I think the complete answer to the government's argument is Medicaid

. Obviously Congress wanted Medicaid to continue the most important social welfare program from the 1960s but they nonetheless said if the states didn't accept this deal no Medicaid dollars would flow to any of those citizens a far more draconian result than then the condition they imposed here with respect to the subsidies but they nonetheless imposed that condition they did it in language that directly parallels what we're doing here and there was no legislative history announcing this. And that's because everyone understood if there's a condition in the statute that applies so they're not asking you to interpret what Congress enacted faithfully pursuant to their language they're asking you to ignore the rule of law and second guess Congress's policy judgments and for obvious reasons we don't think that's a proper role for this court to play unless there are further questions my time is. Thank you Mr. Carly. Good morning and may please the court steward delirium for the defendants from the federal government. I'd like to address both the threshold issues and the merits and if I might though I'd start with where Mr. Carvin ended because the government's argument here is based on text and structure of the Affordable Care Act. Planets put forward a construction of the act that simply makes no sense. Congress said that if a state does not set up its own exchange then the secretary will set up quote such exchange within the state instead. But to plan if congress's express promise of state flexibility is meaningless and the resulting federally run exchanges would be useless. The exchanges could not provide the tax credit subsidies that people need to buy insurance and it would therefore sacrifice the central mechanism of the Affordable Care Act for providing affordable insurance coverage for millions of Americans and would destabilize insurance markets as has been established in the briefs. The plaintiffs also posit a qualified individual definition that would mean that no one could shop on a federally run exchange. So to plan if congress established an alternative federal exchanges that would be a charade but there's more in 36 B itself Congress set up information reporting requirements for federal exchange tax credits although plaintiffs say that there would be none and Medicaid requirements intended to be temporary would remain frozen for states with federal exchanges. Congress supposedly did all of this by operation of subsections buried in a calculation formula and without debate in congress or in the states that were supposedly on the receiving end of this congressional coercion. So it's inconceivable that congress set up the system that plaintiffs conjure looking at the affordable care acts text and structure as a whole as this court must. There's no doubt that federal tax credits are available to lower the cost of insurance on federally run exchanges

. The plaintiffs fundamental error is to focus on particular phrases in isolation but as the district court found when the statutory context is taken into account plaintiffs position is revealed as implausible. At a minimum, the government certainly thinks that we have the the plain meaning of the statute the most natural reading of the statute but in a minimum it's a reasonable interpretation of the statute that's entitled to deference. So to start with the phrase established by the state in the two subsections of the calculation formula by its terms when that phrase in 36 B is read in context with the Affordable Care Act the act treats federally run exchanges under section 1321 as the same thing as the exchanges established by the state not the shelves that plaintiff imagine. 36 B itself includes a cross reference its exchange established by the state under 1311 so just focusing on that phrase it can't possibly be the end of the story congress sent the reader elsewhere section 1311 refers only to exchanges established by state and the act defines any exchange under the affordable care act as an exchange established under 1311. That's an important point exchange is a define term under the statute. So if you look at 1311 it says that each state shall establish an exchange and section 1311 D1 which is on page 5a of the appendix to the opening brief says an exchange shall be a governmental agency or nonprofit entity that is established by a state. Finally the definition applicable to all of title one says the term exchange means an American health benefit exchange established under section 18031 that's 1311 of this title. So 1311 exchanges are by their terms established by states in 1321 then congress provided an option said that if a state either elects not to set up its own exchange or is unable to do so meeting the specified criteria in the time permitted. Then the secretary shall establish such exchange within the state meaning the same thing or the thing just mentioned as we cite in the brief the only way these definitions work is if such exchange refers to the same entity. The statute is saying that the federal exchange stands in the shoes of replaces for purposes of the act the exchange to the state otherwise would have created which I think even plaintiffs agree significantly the plaintiffs identify discover really context in this act when it suits them and not when it doesn't the plaintiffs agree that states are not required to set up an exchange despite the shall establish language of section 1311. And the significant point for purposes of this argument is that that same principle you can only understand the meaning of a particular phrase by looking at the statute as a whole needs to be applied for all purposes not just that one both the Supreme Court and this court have made clear that there is no such thing as the plain meeting of an isolated phrase within a statute. Even at Chevron step one the court must read the whole statute put together and use all the tools of statutory interpretation as the court said in Morgan versus Sibelius we must not be guided by a single sentence or member of a sentence but instead must look to the provisions of the whole law and to its object and policy. And when you look at the whole statute even beyond the language that I've just been talking about it's clear that the statutory text identifies the problem it was intended to solve the purpose of the affordable care act was to make affordable health care available to all Americans and to lower the cost of that insurance specified in the statute itself under section 180912 and the Supreme Court in the NFIB case identified bat as the core bedrock goal. The title of that these provisions are in the statute refers to quality affordable health care for all Americans the name of the act is the affordable care act and the subtitle including the credits is called the affordable coverage choices for all Americans. And finally both House and Senate reports cited in the joint appendix at pages 41 and 155 confirm that the tax credits were the key to ensuring affordable coverage. It's simply not plausible that Congress intended these credits to be federal tax credits to be available only on some but not all of the exchanges and it's not plausible that Congress expected only some of these exchanges to be functioning as detailed

. Does the state who establishes an exchange receive any subsidy itself from doing so? Yes, Your Honor and that's a that's a significant point the tax credits are not grants are subsidies to the states those are subsidies to individuals to allow them to pay for insurance states do get a couple of types of incentives to operate their own exchanges. The first are grants to assist in setting up the exchanges and those are reflected in section 1311 a but the the exchanges are also given regulatory authority over certain aspects for example of the plans that are offered on the exchanges and so for states that choose to set up their own exchanges the state gets that regulatory authority where a state either elects to or fails to establish an exchange the secretary has those functions so in addition to money to help set up the exchanges their regulatory incentives that would lead a state to perhaps decide that they want to take on that responsibility themselves the tax credits. And I should say that the grants for example are called state assistance in the statute or assistance to states is there a formula for the grants or how is that. I think that there I believe that there was a process for allocating the grants I'm not sure exactly how the calculation was done but the tax credits appear in a separate section called premium assistance confirming Congress's intent and disproving the plaintiffs theory that these were blocked grants to states they were not they were intended to make insurance affordable for Americans which again was the was the point of the statute. Significantly this account the plaintiffs identify which focuses on supposed motivations to coer states was not reflected in the legislative history at the time it wasn't reflected in debates in the states at the time as you would expect if this were the the significant issue that the plaintiffs suggest and these tax credits are fundamentally different than the Medicaid system in a couple of respects to respond to an already agreement that was made earlier. First of all in NFIB itself the 26 plaintiffs states said that in contrast to the Medicaid expansion this system for the state exchanges provided a quote real choice it was a real choice that the affordable care act offers states to create exchanges or to have the federal government do so that's what the states told the Supreme Court. I'm quoting from their brief at pages 50 page 51 I think it is or 31 and 35 the point appears twice. Second for Medicaid the expansion was essentially mandatory for participants in the program here Congress expressly provided an alternative system which was that the secretary would operate exchanges where where that was not available and third Medicaid actually is a grant program for states the money goes to the states they run the program unlike here as I said I think significantly on the legislative history point the congressional budget office as we cite in the brief and and in the joint appendix said that they were not aware of any discussion at the time in working with all the members that they worked with of exchanges attacks and that's what it's being available only on state exchanges as opposed to federal and a fact sheet in the joint appendix at page 237 from three house committees contemplates that they're available at all for all of them. And finally on legislative history a mentioned senator Nelson who's been talked about here this morning. The sentence that the plaintiffs quote from senator Nelson refers to a single national exchange which is obviously not what Congress enacted the whole point is that this would be a state by state exchange regardless of whether for the federal government is operating or not it's an exchange within the state. The language we're talking about was added in the senate finance committee and didn't change over the course of evolution so there's no evidence at all that the addition of this phrase was a part of a floor deal with senator Nelson or anybody else and significantly I think to come back to the statutory point where I began limiting credits to state exchanges creates irreconcilable conflicts or at least interpretive tension that should lead to ambiguity. So that's a very important thing to do with the opportunity with a host of other provisions in the act in addition to exchanges failing to work without without the tax credits which is a bedrock principle I think as we've established the exchanges with given that people could purchase insurance no matter how sick they are. The exchange system only works and the insurance market only works if you in addition to the minimum coverage provision have the tax subsidies to make the insurance affordable that's quite clear and I think even plaintiffs in the reply brief at page 16 agree with the disastrous consequences that would flow from federal exchanges but beyond that if you look at the reporting requirements in section 36 BF3 it's quite clear that Congress expressly contemplated that these reporting requirements are not that the Congress is not that the Congress is not that the Congress is not that the Congress is not that the Congress is not that the Congress is not that the Congress is not that the Congress is not that the Congress is not that the Congress is not that the Congress is not that the Congress is not that the Congress is not that the Congress is not that the Congress is not that the Congress is not that the Congress is not that the Congress is not that the Congress is not that the Congress is not that the Congress is not that the Congress is not that the Congress is not that the Congress is not that the Congress is not that the Congress is not that the Congress is not that the Congress of the Congress of the Congress of the Congress of the Congress of the Congress of the Congress of the Congress of the Congress of the Congress of the Congress of the Congress of the Congress of the Congress of the Congress of the Congress of the Congress of the Congress of the Congress process of the Congress the Congress of the Congress of the Congress of the Congress of the Congress of the Congress of the Congress of the Congress of the Congress of the Congress of the Congress of the Congress of the Congress of the Congress of the Congress of the Congress of the Congress of the Congress of the Congress of the Congress of the Congress of the Congress of the Congress of the Congress of the Congress of the Congress of the Pay School'semente definition that doesn't impose any qualifications. And it would mean that the maintenance of effort provisions in the Medicaid system would never end for federal exchanges, which again, several states with federal exchanges have relied on the end of the Medicaid maintenance of effort requirements to change their Medicaid plans inconsistently with plaintiffs interpretation. Does the government prefer sort of a playing meaning, structure, and purpose approach, or does it favor a Chevron-deference approach? Or do you have a preference, even? No, you're honor. I think the logical flow of the court's analysis needs to start with Chevron Step 1 as the established framework provides

. And I think if you do that for the reasons that I've said, you reach the conclusion that putting all of the statute together as the court must do, it's quite clear that Congress intended the tax credits to be available as 36 BA says to applicable individuals based on income and without regard to who is operating the exchange. That and the textual analysis that I've talked about should be the starting point. If the court concludes, however, that there's ambiguity, and I would suggest that it is not possible to rule for the plaintiffs given all of this on Chevron Step 1. If this is ambiguity, and so you're at Chevron Step 2, I think the regulation must be upheld as a reasonable interpretation of the statute, given the interlocking provisions such exchange, the defined term, and clearly the overriding goal of the law, which is to provide affordable health care to all individuals. How much of a role do we should consequences of a decision contrary to the government's position play, if any? I see that my time has expired, may I answer? I think it's significant in interpretation, because if you're trying to examine the bet rock of statutory interpretation, at least to start, is what did Congress intend? And where the consequences are illogical, and where the results would be, federal exchange system that would be a charade, that's strong evidence that it's not what Congress intended. Also in interpretation, the court has said, that the court has an obligation to make the statute to read it in a way so that it works together, assuming that that can be done. That's also a relevant factor for the reason that the criminalists inquiry under Chevron Step 2. So I think, certainly tethered to the text of the act, it's significant and something that the court needs to do. Thank you. Thank you, Your Honor. Listen, Joe. May it please the court steer a profile for the Commonwealth of Virginia, under the plaintiff's interpretation of the Affordable Care Act, when Virginia elected in 2012 to forego building its own exchange, it deprived a half million Virginians of significant federal subsidies worth approximately $1 billion a year. Virginia was simply not on clear notice of that consequence. And we've attached to our Amicus brief, the official correspondence between the governor of Virginia, Bob McDonald, and Secretary Sibelius, that reflects Virginia's decision-making as it decided to forego building in exchange. There's nothing in the correspondence that remotely suggests awareness of this consequence. In fact, in the final letter from Governor McDonald, he indicates that Virginia perceived no comparable benefit to having a state exchange, which is highly significant in the Pennhurst analysis

. Now, we agree with the federal government that the plain language of the act did not put Virginia on notice. I'm a relative newcomer to this stretch to argument, you all probably are too. The thing that really struck me when I was digging into it was the such exchange language in section 1321C1. And because the word exchange is capitalized, and that means it's a defined term. And when you look at the defined term in section 300GG-91D21, which is not in the plainness, in the appellance brief at the end, the defined term is an exchange, is a health benefit exchange established under section 1803, which is 1311. So the defined terms as such exchange means the exchange is created by the state. Now, to a layperson, that sounds kind of weird because it's not, the feds are setting up the exchange. But as the subalias case teaches us, Congress can say what it wants. And as long as it doesn't violate the constitution, what it says goes, and that's why a tax could be a tax for purposes of the Constitution, but not for purposes of the Tax and Junction Act. So Congress clearly said in section 1321 that the such exchange created by the feds was the state exchange. And that seems to me the ballgame. That's the answer on the, that's why that satisfies the plain language argument. Judge Gregor, your decision in health keepers, which we cite, discusses all of the rules of the construction. You don't focus simply on one single provision. You have to look at the statute as a whole, and we agree with the government as to its reading. It would be, but there's a different analysis that I think you bring to bear, because you have to look at this from the state's perspective under Pennhurst when Virginia was deciding under the spending clause statute, whether to forego building its own exchange

. It had to have had clear notice about the consequence. And it clearly did not. It was not clear in the statutory language. It was certainly not clear in the legislative history. And in May of 2012, the IRS enacted the regulation at issue here, which made it plain that citizens would be able to obtain the tax credit, whether it was a federal exchange or not. So, when Virginia consciously forewent building its own exchange, it had no clue that this was going to be the consequence. Mr. Rathall, this is really out of left field. But theoretically, at least could the government, the federal government pass title to the Virginia exchange like this afternoon. I guess what I'm getting at is, who is the state, what is the government, what is the exchange, what really is the exchange? What does it mean for the state to establish or run the exchange? Would it require anything other than a title document executed by the appropriate federal officials? Accepted, delivered and accepted by some state official. I told you it was out of left field. Judge Davis, I think that gets to Mr. Delory's point that one of the things the state gets by actually doing it itself is the ability to impose its own regulatory oversight. So that's one of the upsides for a state to do with the exchange itself. But in Virginia's case, it saw no benefit and a lot of cost and a lot of risk. I mean, look what's happened in Oregon and Maryland

. There was a lot of risk to establishing a state's own exchange. The Virginia avoided. That's right. Now there was no answer to any of our Pennhurst argument or our 10th Amendment argument in the Appalence reply brief. The only thing I can imagine that they would say is, well, there are two other Amicus briefs on the other side by Kansas and Oklahoma. And they're saying, you know, enforce the deal, but what's conspicuously absent from those briefs is any statement about contemporaneous evidence that those states actually considered this at the time they elected to forego building their own exchange. And I would point the court to the footnote 31 on page 24 of the members of Congress, Amicus brief. That's document 44-1, which sites the Georgetown study is showing that these states didn't act on that basis at the time. So we agree with the government and we think the court should affirm the ruling of the district court. Thank you. Thank you, Mr. Carvin. You have some time. Deserves? Thank you, Your Honor. I'd like to begin with the colloquial about Virginia. The disastrous consequences we're talking about, that 36 states won't have subsidies. This is purely a product. Mr. Malfa, I'll make quite clear of the IRS's rule. Virginia would have made a different decision if they'd known that subsidies were not going to be provided to Virginia citizens when they decided not to establish the exchange. And that's because the IRS said, you get the subsidies regardless of whether you establish the exchange. So you eliminated any incentives. We go from a situation where the district court found that assume that all 50 states would take the deal because of this subsidy incentive to a situation where 36 states have said no thank you and two states are about to say no thank you even more. So we've gotten to precisely the situation that Senator Nelson was designed to avoid, which is a federally run healthcare exchange, which was precisely the opposite intent of conditioning subsidies on states running the exchanges. So the stakes are high. And the stakes are very high. The IRS has hijacked the conditional subsidies that are plainly in the statute and said, you get the money regardless of whether or not you do it. And it's precisely because the stakes are so high and hundreds of billions of dollars are at stake that you don't defer to the agency. As this court made clear and of course, in ink and as the Supreme Court, I'm sorry, I'm missing some. All right, I'm sorry. I love your passion, but I'm not sure what it's based on. Well, it's the simple proposition

. This is purely a product. Mr. Malfa, I'll make quite clear of the IRS's rule. Virginia would have made a different decision if they'd known that subsidies were not going to be provided to Virginia citizens when they decided not to establish the exchange. And that's because the IRS said, you get the subsidies regardless of whether you establish the exchange. So you eliminated any incentives. We go from a situation where the district court found that assume that all 50 states would take the deal because of this subsidy incentive to a situation where 36 states have said no thank you and two states are about to say no thank you even more. So we've gotten to precisely the situation that Senator Nelson was designed to avoid, which is a federally run healthcare exchange, which was precisely the opposite intent of conditioning subsidies on states running the exchanges. So the stakes are high. And the stakes are very high. The IRS has hijacked the conditional subsidies that are plainly in the statute and said, you get the money regardless of whether or not you do it. And it's precisely because the stakes are so high and hundreds of billions of dollars are at stake that you don't defer to the agency. As this court made clear and of course, in ink and as the Supreme Court, I'm sorry, I'm missing some. All right, I'm sorry. I love your passion, but I'm not sure what it's based on. Well, it's the simple proposition. Let's say the city of Richmond said during the winter, we'll give you $100 if you clear the snow in front of your sidewalks. And then a Richmond agency says, you know what, you get the $100. If you don't clear the snow in front of your sidewalk. I think we all know that there's going to be a lot more snow on the sidewalk. And my point is, and what is clear from this was the reason that they said, you get the subsidies on the state exchanges, was to provide an incentive for the state to set up the exchange. That's what they want. But what they want to have to do with your clients. What it has to do with these statutory language, they keep saying it's so illogical that you would limit subsidies. And I agree, it would be illogical to limit subsidies if we were arguing that states east of the Mississippi don't get subsidies. The point I've been trying to convey is, it's eminently sensible to condition subsidies. Why is it? Because then you get the best of both worlds. You not only get the subsidies, you get the states to run the exchanges. What does that have to do with your clients? My clients are... What on earth do your clients care about whether the exchanges run by the state or the fence? Because since the IRS rule has changed the plain statutory language, they are now as residents of Virginia being given subsidies which subject them to the individual mandate

. Let's say the city of Richmond said during the winter, we'll give you $100 if you clear the snow in front of your sidewalks. And then a Richmond agency says, you know what, you get the $100. If you don't clear the snow in front of your sidewalk. I think we all know that there's going to be a lot more snow on the sidewalk. And my point is, and what is clear from this was the reason that they said, you get the subsidies on the state exchanges, was to provide an incentive for the state to set up the exchange. That's what they want. But what they want to have to do with your clients. What it has to do with these statutory language, they keep saying it's so illogical that you would limit subsidies. And I agree, it would be illogical to limit subsidies if we were arguing that states east of the Mississippi don't get subsidies. The point I've been trying to convey is, it's eminently sensible to condition subsidies. Why is it? Because then you get the best of both worlds. You not only get the subsidies, you get the states to run the exchanges. What does that have to do with your clients? My clients are... What on earth do your clients care about whether the exchanges run by the state or the fence? Because since the IRS rule has changed the plain statutory language, they are now as residents of Virginia being given subsidies which subject them to the individual mandate. Absent the subsidies. They would be below the 8% of income threshold which says you don't have to buy insurance. That's where they want to be. They don't want to be forced to buy a product that they don't like. But because the IRS has changed the rule and made subsidies available, then HHS will say, and the IRS will say is, you've got under the individual mandate to buy insurance. So if the IRS had adhered to the plain language of the statute, my clients could go on and live their lives the way they want. So you want us to adopt the interpretation of this reticulated statute and kick millions of people in five states or four states in this circuit off the insurance roads. That's so that the four people you represent here don't have to pay a few dollars extra for insurance. No, that's what this case comes down to. Not at all, Your Honor. I must respectfully disagree. OK, what am I missing? We want you to give Virginia the choice that Virginia says it's entitled to. I guarantee you if the IRS rule isn't struck down and you make it clear that the statute means what it says that Virginia gets to decide, am I not going to run the exchange and cost my citizens hundreds of billions of dollars in federal subsidies? Of course not. They're going to admit it. But your clients are going to end up paying anyway. Not at all

. Absent the subsidies. They would be below the 8% of income threshold which says you don't have to buy insurance. That's where they want to be. They don't want to be forced to buy a product that they don't like. But because the IRS has changed the rule and made subsidies available, then HHS will say, and the IRS will say is, you've got under the individual mandate to buy insurance. So if the IRS had adhered to the plain language of the statute, my clients could go on and live their lives the way they want. So you want us to adopt the interpretation of this reticulated statute and kick millions of people in five states or four states in this circuit off the insurance roads. That's so that the four people you represent here don't have to pay a few dollars extra for insurance. No, that's what this case comes down to. Not at all, Your Honor. I must respectfully disagree. OK, what am I missing? We want you to give Virginia the choice that Virginia says it's entitled to. I guarantee you if the IRS rule isn't struck down and you make it clear that the statute means what it says that Virginia gets to decide, am I not going to run the exchange and cost my citizens hundreds of billions of dollars in federal subsidies? Of course not. They're going to admit it. But your clients are going to end up paying anyway. Not at all. You see, that's what I'm not getting. If I understand your argument, you're saying that I perfect should be the enemy of the good. And if your prediction comes to pass, if my prediction your clients are going to end up paying the exact same amount for the exact same insurance coverage or the penalty because your prediction is, I think I heard you say, that Virginia's going to take over the exchange. But the difference is, Your Honor, that that is left to the Democratic choices of Virginia, which is what the federal statute contemplates. It doesn't contemplate a dictate from HHS and IRS that we will ignore the Democratic. Well, we have the solicitor general here pointing to an agreement and understanding and undertaking by the Commonwealth back in 2012 to say, Hey, we like this deal. We like this deal. So I'm sorry, I'm missing something here. Of course they like the deal. The deal was the one offered to them to IRS. And again, it was, you want to run the exchange? You get the subsidies. You don't want to run the exchange. You get the subsidies. So if subsidies are driving your decision, then obviously there's no advantage to running the exchange. No one is going to undertake that politically thankless, controversial task. We don't have to speculate about any of this, Your Honor

. You see, that's what I'm not getting. If I understand your argument, you're saying that I perfect should be the enemy of the good. And if your prediction comes to pass, if my prediction your clients are going to end up paying the exact same amount for the exact same insurance coverage or the penalty because your prediction is, I think I heard you say, that Virginia's going to take over the exchange. But the difference is, Your Honor, that that is left to the Democratic choices of Virginia, which is what the federal statute contemplates. It doesn't contemplate a dictate from HHS and IRS that we will ignore the Democratic. Well, we have the solicitor general here pointing to an agreement and understanding and undertaking by the Commonwealth back in 2012 to say, Hey, we like this deal. We like this deal. So I'm sorry, I'm missing something here. Of course they like the deal. The deal was the one offered to them to IRS. And again, it was, you want to run the exchange? You get the subsidies. You don't want to run the exchange. You get the subsidies. So if subsidies are driving your decision, then obviously there's no advantage to running the exchange. No one is going to undertake that politically thankless, controversial task. We don't have to speculate about any of this, Your Honor. The Virginia legislature is going through this with the Medicaid deal right now. Governor McCollough wants to expand the Medicaid criteria and the legislature doesn't. But everybody knows what the stakes are. If they decide to change the state's Medicaid criteria, then those people become eligible for the federal subsidies from the Medicaid statute. That is precisely the choice that Congress offered to them under the subsidy deal. And all we are saying is that the state of Virginia, the Commonwealth of Virginia, just like it's deciding whether it's hot to take the Medicaid deal, should have the option of taking the subsidy deal. But the deal they should be offered is that which is in the statute, which like the Medicaid deal conditions the subsidies on the state taking certain action, unlike the deal that they were offered which says you get the subsidies, regardless of whether you take the state actions. And that is what we are trying to accomplish. That is the legal principle here. And that I think is what should take this court's result. Thank you. Thank you very much. Just one question, let's make sure. Are you saying, or do you say that if the states ran their program, I understand your argument that, okay, if they had not been enticed by what you intend is an improper IRS regulatory decision to grant the credit. If they had not been enticed by that, then clearly the states would say, where are they? I'm going to run it because if I don't run it, my citizens won't get the credit, understand it. But can you explain to me, is it, how is it more likely that your clients would be able to not have insurance or only get catastrophic insurance without a penalty? Okay

. The Virginia legislature is going through this with the Medicaid deal right now. Governor McCollough wants to expand the Medicaid criteria and the legislature doesn't. But everybody knows what the stakes are. If they decide to change the state's Medicaid criteria, then those people become eligible for the federal subsidies from the Medicaid statute. That is precisely the choice that Congress offered to them under the subsidy deal. And all we are saying is that the state of Virginia, the Commonwealth of Virginia, just like it's deciding whether it's hot to take the Medicaid deal, should have the option of taking the subsidy deal. But the deal they should be offered is that which is in the statute, which like the Medicaid deal conditions the subsidies on the state taking certain action, unlike the deal that they were offered which says you get the subsidies, regardless of whether you take the state actions. And that is what we are trying to accomplish. That is the legal principle here. And that I think is what should take this court's result. Thank you. Thank you very much. Just one question, let's make sure. Are you saying, or do you say that if the states ran their program, I understand your argument that, okay, if they had not been enticed by what you intend is an improper IRS regulatory decision to grant the credit. If they had not been enticed by that, then clearly the states would say, where are they? I'm going to run it because if I don't run it, my citizens won't get the credit, understand it. But can you explain to me, is it, how is it more likely that your clients would be able to not have insurance or only get catastrophic insurance without a penalty? Okay. In terms of the simple result, in terms of their income, absent the subsidies, they would have to pay more than 8% for the second least expense of bronze plan on the exchange. None of this is disputed. All of this is in the mold's declaration that join appendix 32 and 34. He walks you through this. This is their employee that walks you through this. But because now they're eligible for subsidies, then they now are not subject to the hardship exemption. So they have to go out and buy insurance. So from his leavey, for example, she has to spend $1,800 out of her own pocket now to buy insurance. She got some of it from the subsidies, but not all of it. So she's got a part of the insurance is paid for by the subsidies, part of it is paid for out of her own pocket. Same situation with Mr. Hurst. Because the subsidies put them above the exemption threshold, they are now obliged to buy insurance. And a hundred cents of that, all of that will not be paid by the subsidies. Some of it will be have to be paid by themselves. So absent the IRS rule, they would be free not to buy insurance and now because of the IRS rule, unlawfully making the subsidies available to them, the individual mandate kicks in, they are obliged to buy insurance and therefore they suffer classic pocket book injury

. In terms of the simple result, in terms of their income, absent the subsidies, they would have to pay more than 8% for the second least expense of bronze plan on the exchange. None of this is disputed. All of this is in the mold's declaration that join appendix 32 and 34. He walks you through this. This is their employee that walks you through this. But because now they're eligible for subsidies, then they now are not subject to the hardship exemption. So they have to go out and buy insurance. So from his leavey, for example, she has to spend $1,800 out of her own pocket now to buy insurance. She got some of it from the subsidies, but not all of it. So she's got a part of the insurance is paid for by the subsidies, part of it is paid for out of her own pocket. Same situation with Mr. Hurst. Because the subsidies put them above the exemption threshold, they are now obliged to buy insurance. And a hundred cents of that, all of that will not be paid by the subsidies. Some of it will be have to be paid by themselves. So absent the IRS rule, they would be free not to buy insurance and now because of the IRS rule, unlawfully making the subsidies available to them, the individual mandate kicks in, they are obliged to buy insurance and therefore they suffer classic pocket book injury. Oh yeah, yeah, I understand. Oh, okay. You made that clear. But I'm talking about the idea that now the state did what you said they would have done if they known the following as you want. The state set up its own exchange and put its also its own regulatory regime on it. Again, that is in response to the notion that limiting, conditioning the subsidies on states establishing the exchanges makes no sense. And I'm saying it makes perfect sense. It provides the states with the same incentives to establish an exchange as it did under the Medicaid deal to expand Medicaid. Now I'm not making any political predictions about how that debate is gonna work itself out. We know for example that right now the state is at loggerheads about the Medicaid deal. The same thing may or may not prove worth of the subsidies. What I am saying is that if they keep coming up here and saying all these millions of people will be deprived of subsidies if our provision prevails. And my point is that's because the IRS rule got us in that shape. There's no reason to think we would have been in that shape. Had Virginia been offered the deal that the statute offers as opposed to the non-deal, the non-incentive deal offered by IRS. And does your

. Oh yeah, yeah, I understand. Oh, okay. You made that clear. But I'm talking about the idea that now the state did what you said they would have done if they known the following as you want. The state set up its own exchange and put its also its own regulatory regime on it. Again, that is in response to the notion that limiting, conditioning the subsidies on states establishing the exchanges makes no sense. And I'm saying it makes perfect sense. It provides the states with the same incentives to establish an exchange as it did under the Medicaid deal to expand Medicaid. Now I'm not making any political predictions about how that debate is gonna work itself out. We know for example that right now the state is at loggerheads about the Medicaid deal. The same thing may or may not prove worth of the subsidies. What I am saying is that if they keep coming up here and saying all these millions of people will be deprived of subsidies if our provision prevails. And my point is that's because the IRS rule got us in that shape. There's no reason to think we would have been in that shape. Had Virginia been offered the deal that the statute offers as opposed to the non-deal, the non-incentive deal offered by IRS. And does your... But I can't tell you how the Virginia legislature how governor McCall of... Does your hypothetical turn in any way on the way the Supreme Court ruled on the Medicaid expansion? Because it's clearly distinguishing. Not... It's clearly distinguishing. The states are gonna lose an awful lot under the original formulation of that Medicaid plan. It is distinguishing. But that's not true about the tax subsidy at all. Not remotely true. I fully agree with you, which is why.

... But I can't tell you how the Virginia legislature how governor McCall of... Does your hypothetical turn in any way on the way the Supreme Court ruled on the Medicaid expansion? Because it's clearly distinguishing. Not... It's clearly distinguishing. The states are gonna lose an awful lot under the original formulation of that Medicaid plan. It is distinguishing. But that's not true about the tax subsidy at all. Not remotely true. I fully agree with you, which is why... Why are you relying... I don't understand why you're relying so heavily on Medicaid when that's a different animal altogether. It would have been much more risky. It was way more risky for Congress to condition Medicaid subsidies on the states at taking the deal. Because as you point out, those subsidies are well in excess of anything that these premium tax credits involved. You would have literally taken off the rolls, the poorest of the poor who have been there since 1965. So the notion that the government comes up here and says, it's unthinkable that Congress would have run the risk that one state would say no is put to the lie by the fact that they took the risk with Medicaid, which has far more importance to American society and is far more important to people's health care. So obviously they would have run the tiny little risk that they would turn down the premium tax credits, plus which as Mr. Delary himself made clear, they weren't giving up everything. In Medicaid, it was a baseball arbitration, all or nothing. States turned it down, no Medicaid dollars. Here, at least you had the fallback as they noticed in NFIB, you'd have an exchange, you'd have an exchange that has all these virtues of Amazon, et cetera. You just wouldn't have the subsidies

. So whereas in Medicaid, Congress was putting all of its chips on black and praying that the states didn't say no because if they had said no, it would have been draconian consequences. Here they were running a very small risk, and they had every reason to expect the states to do it. Because under the Medicaid deal, the states would have had to spend 60 billion of their own dollars by 2021. Here, as Mr. Delary confirmed, not a dime. So this was a much easier deal for the states to take, and it was a much less of a gamble for Congress to risk than it was in Medicaid. All right, thank you. Thank you. We're gonna come down to the council, and then