King v. Burwell, 576 U.S. 473 (2015)
The Patient Protection and Affordable Care Act (42 U.S.C 18001) includes “guaranteed issue” and “community rating” requirements, which bar insurers from denying coverage or charging higher premiums based on health; requires individuals to maintain health insurance coverage or make a payment to the IRS, unless the cost of buying insurance would exceed eight percent of that individual’s income; and seeks to make insurance more affordable by giving refundable tax credits to individuals with household incomes between 100 per cent and 400 percent of the federal poverty line. The Act requires creation of an “Exchange” in each state— a marketplace to compare and purchase insurance plans; the federal government will establish “such Exchange” if the state does not. The Act provides that tax credits “shall be allowed” for any “applicable taxpayer,” only if the taxpayer has enrolled in an insurance plan through “an Exchange established by the State under [42 U.S.C. 18031],” An IRS regulation interprets that language as making credits available regardless of whether the exchange is established by a state or the federal government. Plaintiffs live in Virginia, which has a federal exchange. They argued Virginia’s Exchange does not qualify as “an Exchange established by the State,” so they should not receive any tax credits. That would make the cost of buying insurance more than eight percent of their income, exempting them from the coverage requirement. The district court dismissed their suit. The Fourth Circuit and Supreme Court affirmed. Tax credits are available to individuals in states that have a federal exchange. Given that the text is ambiguous, the Court looked to the broader structure of the Act and concluded that plaintiffs’ interpretation would destabilize the individual insurance market in any state with a federal exchange. It is implausible that Congress meant the Act to operate in that manner. Congress made the guaranteed issue and community rating requirements applicable in every state, but those requirements only work when combined with the coverage requirement and tax credits.
Under the Affordable Care Act, an exchange to compare and purchase insurance plans shall be deemed established by the state regardless of whether the exchange is established by a state or the federal government. While the language of the ACA is ambiguous, its structure suggests that any other interpretation would hinder its operation by undermining the individual insurance markets in states with a federal exchange.
The Patient Protection and Affordable Care Act (ACA), popularly known as Obamacare, gave rise to IRS regulations that interpreted the ACA's language regarding exchanges for comparing and purchasing health insurance plans that were established by states under Section 1311. These references appeared in nine places throughout the ACA. Furthermore, the ACA added Section 36B to the Internal Revenue Code, which provided that taxpayers could receive a credit against the tax imposed by that subtitle in an amount equal to the premium assistance credit amount of the taxpayer for the relevant year. This tax credit applied to the monthly premiums for one or more qualified health plans offered in the individual market within a state that covered the taxpayer or his or her spouse or any of their dependents, provided that the taxpayer enrolled in coverage by using an exchange established by a state under Section 1311.
Integrating this law in U.S. Treasury regulations, 26 C.F.R. § 1.36B-2(a)(1) provided that a taxpayer who enrolled in one or more qualified health plans through an exchange would receive a premium assistance amount. However, this IRS rule defined "exchange" in a way that covered both exchanges that were operated by a state, including regional or subsidiary exchanges, and those that were operated by the federal government through the U.S. Department of Health and Human Services (HHS), pursuant to its authority under Section 1321 of the ACA.
Only 16 states and the District of Columbia had set up exchanges by 2015. Four parallel challenges to the regulation argued that it exceeded the authority that Congress granted to the IRS by defining "exchange" too broadly to include federal exchanges. They argued that taxpayers who used the federal exchanges were not entitled to a tax credit, which likely would mean that these individuals would lose their health insurance coverage as well. About five or six million people across 34 states would be affected if the plaintiffs prevailed. Even more broadly, the foundation of the law would be threatened because a ruling for the plaintiffs would undermine the individual and employer mandates under the ACA without reducing the burden on insurers to provide coverage for individuals with pre-existing conditions. As a result, proponents of the law warned that individual insurance markets in states with federal exchanges would be severely harmed as insurers raised their premiums. However, the challengers claimed that striking down the IRS interpretation merely would encourage states to create their own exchanges.
In addition to the King v. Burwell, the other cases were Halbig v. Burwell, Pruitt v. Burwell, and Indiana v. IRS. The Supreme Court decided to review the King case after the Fourth Circuit Court of Appeals and the D.C. Court of Appeals reached clashing results in King and Halbig, respectively. Nevertheless, the D.C. court had vacated the initial ruling in Halbig when it reheard the case en banc, suggesting that it aligned with the Fourth Circuit's decision to uphold the law. By the time that the Supreme Court heard the case, then, there was no longer a real circuit split.
- Michael Carvin (plaintiffs)
- Donald Verrilli, Jr. (U.S. Solicitor General)
- John G. Roberts, Jr. (Author)
- Anthony M. Kennedy
- Ruth Bader Ginsburg
- Stephen G. Breyer
- Sonia Sotomayor
- Elena Kagan
Although the Fourth Circuit had relied on Chevron as the basis for its decision, strict deference to an administrative agency is not appropriate on questions of critical significance that are not expressly delegated by Congress to the agency. The Court has greater power than the agency in this area, since the IRS lacks expertise in crafting health insurance policies. The more applicable precedent is FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120 (2000), which provides that an inquiry into whether a statutory provision consists of plain language requires reading the words in their context within the overall statutory scheme. In this instance, the reference to "an exchange established by the state" is ambiguous. The ACA provides that the Secretary of HHS may establish an exchange in any situation when a state chooses not to establish its own exchange under Section 1311. The use of the phrase "such exchange" to define the federal exchange in Section 1321 suggests that Congress views state and federal exchanges as being essentially the same. Interpreting the law to require that tax credits are available only on state exchanges would create a major distinction between the two types of exchanges. Only the state exchanges would contribute to making insurance more affordable to individuals, which is a central purpose of the ACA. Since the text is ambiguous, the question becomes whether one of the regulation's permissible meanings produces a substantive effect that is compatible with the rest of the law. Here, the relevant precedent is United Sav. Assn. of Tex. v. Timbers of Inwood Forest Associates, 484 U.S. 365 (1988). Following this analysis leads to the conclusion that the interpretation of the challengers would vitiate the ACA because it would not be effective in a state with a federal exchange. Since the tax credits would not apply, the coverage requirement that is central to the ACA also would be essentially meaningless because many people would be exempt from the requirement without the tax credits. As a result, citizens of states with a federal exchange would have no access to two of the law's three main reforms. Moreover, adopting the interpretation of the challengers would destabilize the individual insurance markets in states with federal exchanges, and Congress surely did not intend this result when it crafted the ACA. The guaranteed issue and community rating requirements under the law are specifically applicable to all states, and they would not be effective without the tax credits and coverage requirements. Therefore, it is reasonable to infer that Congress intended those latter two components of the law to apply to all states as well.
- Antonin Scalia (Author)
- Clarence Thomas
- Samuel A. Alito, Jr.
Relying on the plain language of the law, Scalia argued that the phrase "exchange established by the state" was not ambiguous. He felt that there was no interpretational basis on which the majority could infer the inclusion of federal exchanges within the meaning of the phrase.Case Commentary
This decision marked a victory for the Obama administration by upholding the sweeping health care reforms that comprised its main contribution to American society. Roberts' pragmatic approach in moving beyond the language of the statute allowed the law to survive what appeared to be an existential challenge. Many observers were surprised that the Supreme Court did not rely on Chevron deference, which the Fourth Circuit had used to reach the same result. One of the more intriguing subtexts of the decision was Roberts' suggestion that the Court has greater authority in the area of administrative law when significant policy decisions are at stake, perhaps recapturing some of the ground that it yielded in that area over the previous three decades.
NOTE: Where it is feasible, a syllabus (headnote) will be released, as is being done in connection with this case, at the time the opinion is issued.The syllabus constitutes no part of the opinion of the Court but has been prepared by the Reporter of Decisions for the convenience of the reader.See United States v. Detroit Timber & Lumber Co., 200 U. S. 321 .
SUPREME COURT OF THE UNITED STATES
KING et al. v. BURWELL, SECRETARY OF HEALTH AND HUMAN SERVICES, et al.
certiorari to the united states court of appeals for the fourth circuit
No. 14–114. Argued March 4, 2015—Decided June 25, 2015
The Patient Protection and Affordable Care Act grew out of a long history of failed health insurance reform. In the 1990s, several States sought to expand access to coverage by imposing a pair of insurance market regulations—a “guaranteed issue” requirement, which bars insurers from denying coverage to any person because of his health, and a “community rating” requirement, which bars insurers from charging a person higher premiums for the same reason. The reforms achieved the goal of expanding access to coverage, but they also encouraged people to wait until they got sick to buy insurance. The result was an economic “death spiral”: premiums rose, the number of people buying insurance declined, and insurers left the market entirely. In 2006, however, Massachusetts discovered a way to make the guaranteed issue and community rating requirements work—by requiring individuals to buy insurance and by providing tax credits to certain individuals to make insurance more affordable. The combination of these three reforms—insurance market regulations, a coverage mandate, and tax credits—enabled Massachusetts to drastically reduce its uninsured rate.
The Affordable Care Act adopts a version of the three key reforms that made the Massachusetts system successful. First, the Act adopts the guaranteed issue and community rating requirements. 42 U. S. C. §§300gg, 300gg–1. Second, the Act generally requires individuals to maintain health insurance coverage or make a payment to the IRS, unless the cost of buying insurance would exceed eight percent of that individual’s income. 26 U. S. C. §5000A. And third, the Act seeks to make insurance more affordable by giving refundable tax credits to individuals with household incomes between 100 percent and 400 percent of the federal poverty line. §36B.
In addition to those three reforms, the Act requires the creation of an “Exchange” in each State—basically, a marketplace that allows people to compare and purchase insurance plans. The Act gives each State the opportunity to establish its own Exchange, but provides that the Federal Government will establish “such Exchange” if the State does not. 42 U. S. C. §§18031, 18041. Relatedly, the Act provides that tax credits “shall be allowed” for any “applicable taxpayer,” 26 U. S. C. §36B(a), but only if the taxpayer has enrolled in an insurance plan through “an Exchange established by the State under [ 42 U. S. C. §18031],” §§36B(b)–(c). An IRS regulation interprets that language as making tax credits available on “an Exchange,” 26 CFR §1.36B–2, “regardless of whether the Exchange is established and operated by a State . . . or by HHS,” 45 CFR §155.20.
Petitioners are four individuals who live in Virginia, which has a Federal Exchange. They do not wish to purchase health insurance. In their view, Virginia’s Exchange does not qualify as “an Exchange established by the State under [ 42 U. S. C. §18031],” so they should not receive any tax credits. That would make the cost of buying insurance more than eight percent of petitioners’ income, exempting them from the Act’s coverage requirement. As a result of the IRS Rule, however, petitioners would receive tax credits. That would make the cost of buying insurance less than eight percent of their income, which would subject them to the Act’s coverage requirement.
Petitioners challenged the IRS Rule in Federal District Court. The District Court dismissed the suit, holding that the Act unambiguously made tax credits available to individuals enrolled through a Federal Exchange. The Court of Appeals for the Fourth Circuit affirmed. The Fourth Circuit viewed the Act as ambiguous, and deferred to the IRS’s interpretation under Chevron U. S. A. Inc. v. Natural Resources Defense Council, Inc., 467 U. S. 837 .
Held: Section 36B’s tax credits are available to individuals in States that have a Federal Exchange. Pp. 7–21.
(a) When analyzing an agency’s interpretation of a statute, this Court often applies the two-step framework announced in Chevron, 467 U. S. 837 . But Chevron does not provide the appropriate framework here. The tax credits are one of the Act’s key reforms and whether they are available on Federal Exchanges is a question of deep “economic and political significance”; had Congress wished to assign that question to an agency, it surely would have done so expressly. And it is especially unlikely that Congress would have delegated this decision to the IRS, which has no expertise in crafting health insurance policy of this sort.
It is instead the Court’s task to determine the correct reading of Section 36B. If the statutory language is plain, the Court must enforce it according to its terms. But oftentimes the meaning—or ambiguity—of certain words or phrases may only become evident when placed in context. So when deciding whether the language is plain, the Court must read the words “in their context and with a view to their place in the overall statutory scheme.” FDA v. Brown & Williamson Tobacco Corp., 529 U. S. 120 . Pp. 7–9.
(b) When read in context, the phrase “an Exchange established by the State under [ 42 U. S. C. §18031]” is properly viewed as ambiguous. The phrase may be limited in its reach to State Exchanges. But it could also refer to all Exchanges—both State and Federal—for purposes of the tax credits. If a State chooses not to follow the directive in Section 18031 to establish an Exchange, the Act tells the Secretary of Health and Human Services to establish “such Exchange.” §18041. And by using the words “such Exchange,” the Act indicates that State and Federal Exchanges should be the same. But State and Federal Exchanges would differ in a fundamental way if tax credits were available only on State Exchanges—one type of Exchange would help make insurance more affordable by providing billions of dollars to the States’ citizens; the other type of Exchange would not. Several other provisions in the Act—e.g., Section 18031(i)(3)(B)’s requirement that all Exchanges create outreach programs to “distribute fair and impartial information concerning . . . the availability of premium tax credits under section 36B”—would make little sense if tax credits were not available on Federal Exchanges.
The argument that the phrase “established by the State” would be superfluous if Congress meant to extend tax credits to both State and Federal Exchanges is unpersuasive. This Court’s “preference for avoiding surplusage constructions is not absolute.” Lamie v. United States Trustee, 540 U. S. 526 . And rigorous application of that canon does not seem a particularly useful guide to a fair construction of the Affordable Care Act, which contains more than a few examples of inartful drafting. The Court nevertheless must do its best, “bearing in mind the ‘fundamental canon of statutory construction that the words of a statute must be read in their context and with a view to their place in the overall statutory scheme.’ ” Utility Air Regulatory Group v. EPA, 573 U. S. ___, ___. Pp. 9–15.
(c) Given that the text is ambiguous, the Court must look to the broader structure of the Act to determine whether one of Section 36B’s “permissible meanings produces a substantive effect that is compatible with the rest of the law.” United Sav. Assn. of Tex. v. Timbers of Inwood Forest Associates, Ltd., 484 U. S. 365 .
Here, the statutory scheme compels the Court to reject petitioners’ interpretation because it would destabilize the individual insurance market in any State with a Federal Exchange, and likely create the very “death spirals” that Congress designed the Act to avoid. Under petitioners’ reading, the Act would not work in a State with a Federal Exchange. As they see it, one of the Act’s three major reforms—the tax credits—would not apply. And a second major reform—the coverage requirement—would not apply in a meaningful way, because so many individuals would be exempt from the requirement without the tax credits. If petitioners are right, therefore, only one of the Act’s three major reforms would apply in States with a Federal Exchange.The combination of no tax credits and an ineffective coverage requirement could well push a State’s individual insurance market into a death spiral. It is implausible that Congress meant the Act to operate in this manner. Congress made the guaranteed issue and community rating requirements applicable in every State in the Nation, but those requirements only work when combined with the coverage requirement and tax credits. It thus stands to reason that Congress meant for those provisions to apply in every State as well. Pp. 15–19.
(d) The structure of Section 36B itself also suggests that tax credits are not limited to State Exchanges. Together, Section 36B(a), which allows tax credits for any “applicable taxpayer,” and Section 36B(c)(1), which defines that term as someone with a household income between 100 percent and 400 percent of the federal poverty line, appear to make anyone in the specified income range eligible for a tax credit. According to petitioners, however, those provisions are an empty promise in States with a Federal Exchange. In their view, an applicable taxpayer in such a State would be eligible for a tax credit, but the amount of that tax credit would always be zero because of two provisions buried deep within the Tax Code. That argument fails because Congress “does not alter the fundamental details of a regulatory scheme in vague terms or ancillary provisions.” Whitman v. American Trucking Assns., Inc., 531 U. S. 457 . Pp. 19–20.
(e) Petitioners’ plain-meaning arguments are strong, but the Act’s context and structure compel the conclusion that Section 36B allows tax credits for insurance purchased on any Exchange created under the Act. Those credits are necessary for the Federal Exchanges to function like their State Exchange counterparts, and to avoid the type of calamitous result that Congress plainly meant to avoid. Pp. 20–21.
759 F. 3d 358, affirmed.
Roberts, C. J., delivered the opinion of the Court, in which Kennedy, Ginsburg, Breyer, Sotomayor, and Kagan, JJ., joined. Scalia, J., filed a dissenting opinion, in which Thomas and Alito, JJ., joined.