Ever since the Supreme Court upheld the individual mandate contained in the Patient Protection and Affordable Care Act (ACA) as a constitutional exercise of Congress’ power to tax in NFIB v. Sebelius (2012), opponents of the law have sought other legal avenues to overturn or cripple parts of the law. This has included a common criticism of the Administration’s reinterpretation of many parts of the law despite explicit language contained in the original legal text. In late 2013, David King and three other Virginians filed suit in the United States District Court for the Eastern District of Virginia challenging the IRS’ interpretation of the provision giving means-tested subsidies to insurance plans purchased in the ACA exchanges (ACA § 1401), because it gave subsidies to exchanges that were not created by the states as the law prescribes. Now to be heard by the Supreme Court after conflicting rulings in similar cases at the appellate level, King v. Burwell is the greatest legal threat to the ACA since NFIB because it could cost upwards of 5 million Americans their health insurance and would cripple exchanges in 36 states. The law is in trouble because an extremely strong legal case exists to overturn the IRS interpretation of the subsidies provided in Section 1401, as the ACA specifically provides for subsidies only in exchanges established by a state.
An essential component of the ACA is state-level health care exchanges that offer affordable health care coverage to help the uninsured and others purchase health insurance plans. States are given many incentives to create the exchanges in their states; however, if they do not, the Department of Health and Human Services (HHS) must create the exchange, federally administrated with plans offered through HealthCare.Gov, for the states under 42 U.S.C. § 18041(c). In order to make the plans offered on exchanges affordable, Section 1401 of the law provides for subsidies that would make plans cheaper for Americans with incomes up to 400% of the federal poverty line (around $95,000 for a family of 4). However, 26 U.S.C. § 36B(c)(2)(A)(i) specifically says that subsidies should only be provided for plans offered in “an Exchange established by the State under section 1311” (emphasis added) of the ACA. That implies that exchanges not created by the state (i.e. the 36 federally administered exchanges) may not receive any subsidies under the law. The IRS, however, chose not to interpret the law in this way. Instead, the IRS wrote a rule in 26 CFR 1.36B-1(k) that effectively extended the availability of subsidies to all exchanges, whether federally operated or state-run. The legal question in King v. Burwell, then, is whether the IRS properly interpreted the ACA in providing subsidies to federally administered exchanges.
Lower courts around the country have issued conflicting rulings on this issue. In this specific case, both the U.S. District Court for the Eastern District of Virginia and the U.S. Court of Appeals for the Fourth Circuit agreed with the Administration that the IRS properly interpreted the statute. However, in an almost identical case, Halbig v. Burwell, the U.S. Court of Appeals for the D.C. Circuit ruled against the Administration and ordered the IRS rule to be vacated and the subsidies stopped. In the U.S. District Court for the Eastern District of Oklahoma, the State of Oklahoma won its suit against HHS, Pruitt v. Burwell, when the judge ruled against the Administration again. Both cases were placed on hold pending the Court’s decision in King. These conflicting lower court rulings led the Supreme Court to take up the case, and the diversity of lower court rulings means that both positions have merit.
The Obama Administration defends the IRS’ interpretation because of its view of how the ACA defines what an exchange actually is. In his brief to the Court, Solicitor General Donald Verrilli claims that 42 U.S.C. § 18031(b)(1), the requirement that each State shall “establish an American Health Benefits Exchange,” can be satisfied in two ways. First, the State can establish it. Otherwise, under 42 U.S.C. § 18041(c)(1), the state’s responsibility will be assumed by HHS, which will “establish and operate such Exchange within the State.” The crux of his argument, then, is that since either method satisfies the ACA’s requirement that states establish an exchange, “the text of the Act thus makes clear that an Exchange established by HHS in a State’s stead is, as a matter of law, ‘an Exchange established by the State.’” Essentially, this means that even though a state may not have established an exchange, an HHS-run exchange still, in a legal sense, is the same thing as a state-run exchange. This then means that 26 U.S.C. § 36B(c)(2)(A)(i), the provision with the wording at issue, was meant to include both types of exchanges and not just those “established by the State.” If this is correct, then the IRS’ interpretation of the statute is sound and King’s argument fails.
The Obama Administration also defends the IRS’ interpretation as reasonable under the test the Court laid out for review of statutory interpretation in Chevron U.S.A. v. Natural Resources Defense Council (1984). In Chevron, the Court formulated a two-part test for judicial deference to the Government’s interpretation of a statute. First, the Court must consider whether Congress has already addressed the question at issue because “the court as well as the agency must give effect to the unambiguously expressed intent of Congress.” If Congress has not, in the Court’s view, addressed the question at issue precisely, then the Court must consider whether “the agency’s answer is based on a permissible construction of the statute.” It is important to note that the Court, in various cases using Chevron, has always been extremely deferential to the Government’s interpretation. The Administration believes that Congress clearly constructed the meaning of the statute based on the argument above. But even if the first part of Chevron is not satisfied here, Verrilli contends in the Government’s brief that the law’s charge in 26 U.S.C. § 36B(g), that the IRS should “prescribe such regulations as may be necessary to carry out the provisions” relating to premium subsidies in the exchanges, allows and requires it to interpret the statute in this way. The IRS’ interpretation, according to the brief, is also in harmony with the law’s purpose and the context of the section containing the wording at issue, because this interpretation provides subsidies to millions of Americans in order to reduce the number of people who are uninsured. Under this view, therefore, part two of Chevron is satisfied and the Court must give deference to the IRS’ interpretation of 26 U.S.C. § 36B(c)(2)(A)(i).
The IRS interpretation of the statute is flawed because it incorrectly eliminates the law’s distinction between state-run and HHS-run exchanges in a way not supported by the statute. States are required to establish exchanges by 42 U.S.C. § 18031(b)(1). If they do not, 42 U.S.C. §18041(c)(1) allows HHS to step in an establish one “within the state.” But when the law addresses premium subsidies in 26 U.S.C. § 36B(c)(2)(A)(i), it specifically gives subsidies to exchanges “established by the State” (emphasis added) under 42 U.S.C. §18031(b)(1). To anyone with even basic legal knowledge, this clearly seems to say that subsidies should only be given to state-run exchanges. The HHS-run exchanges in ACA § 1401 are not even mentioned, and the language is very specific in saying exchanges established by a state, not just within a state, should get subsidies. If Congress wanted the statute to give subsidies to the HHS-run exchanges, then it only would have had to add a clause making federal and state exchanges the same for the purpose of the law, to change the wording to “established in the States,” or to change the end of the extant clause to “under sections 1311 and 1401” instead of merely mentioning Section 1311. Yet this specificity does not exist in the provisions at issue, whereas it does in other parts of the law. For instance, 42 U.S.C. § 18043(a)(1) says that a U.S territory “shall be treated as a State for purposes of” exchanges. If a similar provision for federally run exchanges were included somewhere in the law’s 900+ pages of text, then the IRS interpretation would be unassailable. This, however, is not the case, and the law as written paints a very different picture than the IRS legal interpretation.
Upholding the IRS interpretation under the Chevron test is tenuous because, at several levels, the IRS rule should fail the test. Since, as described above, the actual language of the statute in question is quite clear that only state exchanges should receive subsidies, the first part of the Chevron test alone should invalidate the IRS rule because Congress’ language clearly did not provide for subsidies for federal exchanges. This is especially true because, as King’s petition puts it, “ambiguity exists for Chevron purposes only if it remains after the court ‘employ[s] traditional tools of statutory construction.’” The Government’s construction of the statute at issue would not stand up to traditional statutory construction since it does not rely on the plain meaning of the text and other parts of the law do not provide context that supports their construction sufficiently. It is hard to imagine any kind of statutory construction allowing “established by the State” to mean all exchanges, even those not established by the state. In response, Verrilli contends that the context of the law supports the IRS interpretation since its reading would make the relevant clause in harmony with the rest of the law. However, King’s lawyers propose an alternative context that would support their construction that both the D.C. and Fourth Circuit acknowledged was plausible. They believe that Congress could have denied premium subsidies to states that do no set up exchanges in order to incentivize them to set them up. In fact, one of the ACA’s architects, MIT Professor Jonathan Gruber, even said in 2012 that “if you’re a state and you don’t set up an exchange, that means your citizens don’t get their tax credits.” If this is considered by the Court to be a possible interpretation of Congress’ intent, then the Government’s entire context and intent argument falls and provides further support for King’s contention.
In considering King v. Burwell, the Supreme Court will deliver a ruling that could affect millions of Americans and cripple the ACA. The nine justices’ ruling will also set important precedents for future cases of statutory interpretation and how the Court views the executive branch’s frequent changing of laws through the administrative rule-making and interpretation process. Amazingly, one or two words drafted by a Congressional staffer now has the potential to derail President Obama’s signature legislative achievement and cause millions to lose health insurance subsidies. Whether that would be a good outcome or not, this article does not specifically address, but history has shown that when the Court chooses to rule according to its whims rather than by upholding our nation’s laws and Constitution, greater hardships often follow. And if the justices respect the law in this case, there is a significant chance that they will strike down the IRS interpretation and deliver another blow to the Affordable Care Act.
Connor Pfeiffer is a freshman from San Antonio, Texas, majoring in the Politics Department. He can be reached at email@example.com.