Caseflicks

Supreme Court of the United States • 2015

King v. Burwell

135 S. Ct. 2480 | 192 L. Ed. 2d 483 | 2015 U.S. LEXIS 4248 | 576 U.S. 473 | 25 Fla. L. Weekly Fed. S 430 | 83 U.S.L.W. 4541

Full access

Unlock the video and quiz

The written brief is free to read below. Subscribe to watch the video explainer and take the quiz.

Create an account Log in

Takeaway

In short, King v. Burwell held that ACA premium tax credits are available on both State-run and federally facilitated Exchanges because the Act must be read as an integrated scheme designed to make insurance markets function nationwide.

Background

The Affordable Care Act (ACA) paired insurance-market reforms—guaranteed issue and community rating—with an individual coverage requirement and refundable tax credits intended to make insurance affordable. The Act called for an insurance Exchange in each State. A State could establish its own Exchange under 42 U.S.C. § 18031, or, if it did not, the Secretary of Health and Human Services had to establish and operate “such Exchange” within that State under § 18041.

Section 36B of the Internal Revenue Code calculated premium tax credits by reference to insurance purchased through “an Exchange established by the State under section 1311” of the ACA. The IRS issued a regulation making credits available on both State-run and federally facilitated Exchanges. Virginia used a federal Exchange. The four petitioners, who did not want to purchase insurance, argued that they should receive no credits because Virginia had not established its own Exchange; without credits, insurance would cost them more than eight percent of their income and they would be exempt from the coverage requirement.

The Federal District Court dismissed the challenge, holding that the Act unambiguously allowed credits on federal Exchanges. The Fourth Circuit affirmed, but concluded that the statute was ambiguous and deferred to the IRS’s interpretation under Chevron. The Supreme Court granted review after the D.C. Circuit, in a different case, had reached the opposite conclusion.

Issues

Issue #1

Whether the Court should defer under Chevron to the IRS’s interpretation that tax credits are available on federally established Exchanges.

Holding

No. The availability of tax credits on federal Exchanges is a question for the Court to decide, not one Congress implicitly delegated to the IRS.

Reasoning

Chevron ordinarily applies when Congress has left a statutory ambiguity for an agency to resolve. But the tax-credit question involved billions of dollars, affected the cost of insurance for millions of people, and was central to the ACA’s operation. The Court treated it as a question of deep economic and political significance for which an implicit delegation was especially implausible.

Congress would have spoken clearly if it had intended to give the IRS authority to decide whether federal-Exchange participants could receive subsidies. The IRS also lacked special expertise in designing national health-insurance policy. The Court therefore independently determined the best reading of § 36B rather than asking whether the agency’s construction was merely reasonable.

Issue #2

Whether § 36B authorizes premium tax credits for individuals who purchase insurance through Exchanges established by the Federal Government.

Holding

Yes. Read in context and as part of the ACA’s overall statutory scheme, § 36B permits tax credits for insurance purchased on both State and federal Exchanges.

Reasoning

The phrase “an Exchange established by the State under section 1311,” viewed alone, strongly suggests an Exchange established by a State. But statutory language must be read in context and in light of the whole enactment. The Court concluded that the phrase was ambiguous when situated among the ACA’s related provisions.

Section 18041 directs the Secretary, when a State does not establish an Exchange, to establish “such Exchange” within the State. That wording indicates that the federal fallback must be the same kind of Exchange that the State was directed to create: it performs the same functions, meets the same requirements, and serves the same residents.

Other provisions reinforced the ambiguity. The Act defines an Exchange as an American Health Benefit Exchange established under § 18031, yet the federal fallback must still be an “Exchange.” Likewise, provisions governing qualified individuals, Exchange outreach, tax-credit calculators, and reporting duties presuppose that federal Exchanges serve eligible consumers and administer tax credits.

The ACA’s structure decisively supported credits on all Exchanges. Congress designed guaranteed issue, community rating, the coverage requirement, and tax credits to operate together. Denying credits on federal Exchanges would leave millions of people exempt from the coverage requirement, encourage adverse selection, raise premiums, reduce enrollment, and likely trigger the insurance-market “death spirals” Congress expressly sought to prevent.

The Court rejected the claim that Congress deliberately withheld credits to induce States to establish Exchanges. The statute expressly supplied a federal fallback for States that declined to do so, and it was implausible that Congress meant the ACA’s central reforms to fail in those States.

Section 36B’s own structure also favored the broader reading. It generally promises credits to taxpayers within the specified income range, while petitioners’ interpretation would render that promise effectively worthless in federal-Exchange States through nested credit-calculation provisions. The Court found it unlikely that Congress would make the viability of the ACA turn on such an indirect and obscure limitation.

Although the ACA’s drafting was imperfect, the Court did not treat that fact as an independent power to revise the statute. Rather, after considering text, context, and statutory design, it adopted the reading that allowed the Act to function as Congress’s overall plan required: tax credits are available through any Exchange created under the ACA.

Dissents

Justice Scalia

Reasoning

Justice Scalia, joined by Justices Thomas and Alito, maintained that the statutory text was unambiguous: an “Exchange established by the State” means an Exchange established by one of the fifty States or the District of Columbia, not one established by the Federal Government. Because the ACA expressly defines “State” without including the Federal Government, the dissent regarded the majority’s reading as contrary to the words Congress enacted.

In the dissent’s view, context confirmed rather than undermined the ordinary meaning. The ACA repeatedly distinguishes Exchanges created by States under § 18031 from those created by the Secretary under § 18041, assigns them different sources of authority and funding, and makes the federal Exchange a fallback after a State’s failure to establish one. The phrase “such Exchange” means that the federal Exchange has similar functions, not that it was established by the State.

The dissent argued that the majority improperly made the words “by the State” inoperative. Congress used both broader references to an “Exchange” and narrower references to an “Exchange established by the State,” so the difference should be given effect. Other provisions referring to State-established Exchanges, Justice Scalia argued, likewise showed that federal and State Exchanges could not simply be treated as identical.

The provisions cited by the majority did not, in the dissent’s view, require credits on federal Exchanges. A federal Exchange could provide information about the availability of credits, operate a calculator that showed a zero credit, and report that no advance credits were paid. At most, those provisions created imperfections in a large statute; they did not create ambiguity in § 36B’s direct limitation.

Justice Scalia also rejected the majority’s reliance on the ACA’s broader purposes. Even if denying credits on federal Exchanges would destabilize insurance markets, courts may not override clear statutory text to improve a legislative design. Congress could plausibly have restricted subsidies to State Exchanges to encourage States to bear the responsibility of creating them, while using the federal fallback for States that declined.

Finally, the dissent warned that the Court had effectively rewritten the law to preserve the ACA. Whether the statutory design was flawed, poorly drafted, or politically unwise was for Congress to address through amendment. The judiciary’s role, Justice Scalia concluded, was to apply the enacted text rather than revise it to achieve what the Court believed Congress must have intended.