The question in this case is whether the IRS interpretation of the statute is reasonable, and not whether it is the *only *reasonable interpretation or even whether it is the *correct *interpretation.
The IRS interpretation is that 1321 empowers the feds to "(directly or through agreement with a not-for-profit entity) establish and operate *such *Exchange within the State.” 42 U.S.C. § 18041©(1) . And that “such Exchange” refers to a 1311 Exchange. That’s true in part because “such Exchange” has no other referent, and in part because Exchange is a defined term in the statute meaning an exchange set up under 1311. So I think there’s no serious argument there.
The anti-Obamacare challengers argue that the exchange must be “established by the State” and urge the courts to examine that language in a vacuum. But that’s not generally how statutory interpretation proceeds, much less statutory interpretation in which the question is which interpretations are reasonable rather than which is correct.
In short, the question is whether one reasonable reading of the language of the statute as a whole is that it provides subsidies for federal-run exchanges. The only serious argument to the contrary is the undefined verb “established by the State,” but when you put that up against all the other language that talks about the feds essentially replacing the state in every way if the states fails its obligations, and there being no very good reason for not offering the subsidies in 1311 exchanges established by the feds, I think the Administration is not too concerned.
That said, I think if this manages to persuade 5 Justices, the Clinton Administration will probably just let the red states sweat. Maybe they will be forced to set up exchanges, or at least those states might elect Democrats to fix the law. Sure, it could mess up the whole system if the federal exchanges don’t get subsidies, but they might just let it right for a couple of years first.