King v. Burwell, 576 U.S. 473 (2015), was a 6–3 decision by the Supreme Court of the United States interpreting provisions of the Affordable Care Act (ACA). The Court's decision upheld, as consistent with the statute, the outlay of premium tax credits to qualifying persons in all states, both those with exchanges established directly by a state, and those otherwise established by the Department of Health and Human Services.
The petitioners had argued that the plain language of the statute provided eligibility for tax credits only to those persons in states with state-operated exchanges. The Court found the plaintiffs' interpretation to be "the most natural reading of the pertinent statutory phrase." Nevertheless, the Court found the statute as a whole to be ambiguous, and that "the pertinent statutory phrase" ought to be interpreted in a manner "that is compatible with the rest of the law." The majority opinion stated: "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. So it stands to reason that Congress meant for those provisions to apply in every State as well.", slip op. at 17-18 (2015).
Background King v. Burwell, Halbig v. Burwell, Pruitt v. Burwell,The "v. Burwell" cases were titled "v. Sebelius" until Kathleen Sebelius was replaced by Sylvia Mathews Burwell as United States Secretary of Health and Human Services on June 9, 2014. and Indiana v. IRS were federal lawsuits challenging U.S. Treasury regulation, 26 C.F.R. § 1.36B-2(a)(1), issued under the Patient Protection and Affordable Care Act (ACA). The challengers argued that the ACA allows for certain subsidies only on state-established exchanges, and that the regulation as implemented by the Internal Revenue Service (IRS), providing for subsidies on state-run exchanges as well as federal exchanges, exceeded the authority Congress granted to it. The Competitive Enterprise Institute coordinated and funded the King and Halbig lawsuits.
Timothy Jost, a health law professor at the Washington and Lee University School of Law, wrote that if the challenges were successful, approximately 5 million Americans who obtained coverage through federal exchanges could have lost their tax credits and, in all likelihood, their health insurance coverage. According to Jost, the individual and employer mandates might also have "disappear[ed] or [been] severely undermined" in states with federal exchanges. Insurers, however, would still have been required to cover all applicants regardless of pre-existing conditions, which could have destabilized the individual insurance markets in states with federal exchanges and could have led to rapid rises in premiums and the possible collapse of one or more of those markets.
The Urban Institute estimated that a decision in favor of King would have resulted in 8.2 million more uninsured people in 34 states. Government figures released June 2, 2015 (for the period ending March 31, 2015) show that approximately 6.4 million Americans were enrolled in a federal exchange and received a supplement at that time, and thus, presumably would have lost the subsidy had the court found for the plaintiff.
On the benefits side, supporters of the plaintiffs argued that stopping unauthorized government spending was important in its own right, that issuing the subsidies was unlawfully subjecting 57 million Americans to taxes from which they were statutorily exempt, and that removing those subsidies "would lend transparency to the PPACA by revealing to millions of Exchange enrollees the full cost of the law's mandates and regulations." The American Action Forum estimated a ruling for the plaintiffs would result in a pay increase of up to $940 per affected worker, 237,000 new jobs, and nearly 1.3 million workers added to the labor force.
As of 2015, sixteen states and the District of Columbia had set up their own exchanges.Thirteen states have a state-based exchange and use their own websites for enrollment. Had the court ruled in favor of King, one issue that would have needed to be resolved was whether the subsidies should be struck down in the three states–Nevada, New Mexico, and Oregon–that have a state-based exchanges but used the federal healthcare.gov website for enrollment. If the subsidies and (in effect) the mandates had been struck down in the other 34 states, many thought that the economic foundation of the ACA would have been undermined, putting the entirety of the legislation at risk. Supporters of the plaintiffs, as well as some politicians, also argued that the effects of striking down the subsidies would have been mitigated by government action (including the possibility of states setting up their own exchanges in response to a ruling in favor of the plaintiffs).
The district court in King, and the district court in Halbig both ruled against the plaintiffs. However, on July 22, 2014, the Fourth Circuit Court of Appeals in King and the D.C. Court of Appeals in Halbig came to opposite conclusions, creating a circuit split. When the D.C. appeals court decided to rehear the case en banc, however, the court vacated its initial ruling, removing the split. On September 9, 2014, in Pruitt v. Burwell, the U.S. District Court for the Eastern District of Oklahoma ruled for the plaintiffs, invalidating the IRS rule. On November 7, 2014, the Supreme Court granted certiorari in the King case. Oral arguments were heard on March 4, 2015, and a decision was handed down on June 25, 2015, with a win for the Obama administration preserving subsidies in states that have not established their own exchange.
Text of the law and regulation The ACA legislation includes the language "enrolled in through an Exchange established by the State under 1311". As implemented by the IRS, ACA regulations use a more broad definition encompassing both the state exchanges and the federal exchanges set up under section 1321. The legislation includes the phrase "established by the State under 1311" in nine different locations.
Internal Revenue Code section 36B, enacted as part of the ACA, includes the following provision:
The IRS regulation reads:
The IRS defined the term "Exchange" as:
Chevron test and the Major Questions Doctrine In Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc. the Supreme Court ruled that the U.S Congress may delegate regulatory authority to an agency, and that the agency's regulations carry the weight of the law, if the regulations pass the two-part "Chevron test".
The Fourth Circuit's opinion had ruled that the statutory language was ambiguous and applied the Chevron doctrine, meaning that the IRS's regulatory ruling was given deference.
However, in the Supreme Court's majority ruling, this Court remarked that "had Congress wished to assign that question to an agency, it surely would have done so expressly." For the first time, the Court invoked the major questions doctrine in step zero of the Chevron test. This doctrine states that agencies are presumed not to have delegated authority for actions with exceptional economic and political consequence unless the statute is clear. After the court found that the agency lacked the delegated authority, it refused to apply the Chevron test altogether.
Arguments
Legislative intent Plaintiffs argue that Congress intentionally restricted payment of subsidies to state exchanges to induce states into setting up exchanges so their citizens could receive subsidies.
The government argues that the law intends for federal exchanges to be treated identically to state exchanges (and therefore qualifying individuals are entitled to subsidies whether or not their state has set up an exchange), or, in the alternative, if the law were ambiguous, that the regulation at issue was a permissible interpretation of the law.
Lyle Denniston wrote that the parties' positions offer differing views on how to interpret legislation:
In a 2009 paper published in The Journal of Law, Medicine & Ethics, Timothy Jost argued that one way to avoid a commandeering issue with the ACA would be "by offering tax subsidies for insurance only in states that complied with federal requirements". Jost later published an op-ed in the Washington Post arguing that allowing subsidies for Federal exchanges is "the only way of reading the statute that makes sense". In an article in Forbes, Jost pointed out that his original law journal article proposed "several alternatives through which Congress could encourage the states to establish exchanges, one of which was to limit the availability of tax credits to states that operate exchanges. The first alternative [proposed] was that Congress ask the states to establish exchanges, but create a federal fallback exchange in the event they failed to do so."
On January 18, 2012, Jonathan Gruber, a Massachusetts Institute of Technology economist who was a consultant on the ACA, said, "What's important to remember politically about this is if you're a state and you don't set up an exchange, that means your citizens don't get their tax credits." On January 10, 2012, Gruber said, "if your governor doesn't set up an exchange, you're losing hundreds of millions of dollars of tax credits to be delivered to your citizens."
Gruber has characterized his earlier statements as "a mistake", and said that he "might have been thinking that if the federal backstop wasn't ready by 2014, and states hadn't set up their own exchange, there was a risk that citizens couldn't get the tax credits right away." Sarah Kliff of Vox cited as evidence of Gruber's comments being mistaken the fact that despite speaking "regularly to dozens of reporters during this period", he "never mentioned this idea to any of them", and that his models always assumed that subsidies would be available on both state and federal exchanges. In a December 2014 Congressional hearing, Gruber characterized his comments as "reflecting uncertainty about the federal exchange". The King plaintiffs, in their briefs filed in December 2014, referred to Gruber's comments as an indication of Congressional intent supporting their position.
Though the challengers in the Supreme Court case have argued that then-US Senator for Nebraska Ben Nelson, who by insisting that states take the lead in establishing the exchanges, meant that Congress had intended that tax credits go only to qualified recipients in states that had established their own insurance exchanges, Nelson has denied this interpretation in an amicus brief filed with the court, January 28, 2015. In a letter to Senator Bob Casey who sought Nelson's view, the former senator wrote, "I always believed that tax credits should be available in all 50 states regardless of who built the exchange, and the final law also reflects that belief as well".
Drafting error Others have argued that the issue is due to a drafting error during the legislative process. Yale Law School Professor Abbe Gluck said that the unusual maneuver of having the ACA become law through reconciliation required a preliminary version of the bill to become law without the "usual legislative clean-up process".
Both the Senate Finance Committee and the Health Committee drafted their own versions of the ACA. The Finance Committee bill assumed that if a state refused to participate, HHS would contract with private companies to run "state exchanges". 111th Congress § 2225(b) (2009). The Health Committee bill provided for federally run fallback exchanges. 111th Congress (2009). When the two bills were combined the Finance Committee bill was used as the primary template but the Health Committee bill's language was used when addressing possible holdout states. The Senate passed the bill and Congressional staff expected to clean up the language at the Conference Committee.