King v. Burwell

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:

The challengers take the “literal interpretation” approach, although they also have policy reasons for reading the ACA as they do. The Obama administration takes the “broader purpose” approach, contending that Congress would not have set up the insurance program on a basis that is as limited as the challengers contend.[17]

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."[29][30] 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."[31] In an article on 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."[20]

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."[32] 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."[33]

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."[34] 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.[35] In a December 2014 Congressional hearing, Gruber characterized his comments as "reflecting uncertainty about the federal exchange".[36] The King plaintiffs, in their briefs filed in December 2014, referred to Gruber's comments as an indication of Congressional intent supporting their position.[37]

Though the challengers in the Supreme Court case have argued that then-Nebraska Sen. 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 Sen. 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".[38]

Others have argued that the issue is due to a drafting error during the legislative process.[10][39] 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".[40]

Both the Senate Finance Committee and the Health Committee drafted their own versions of the ACA.[41] The Finance Committee bill assumed that if a state refused to participate, HHS would contract with private companies to run “state exchanges”.[42] The Health Committee bill provided for federally run fallback exchanges.[43] 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.[41] The Senate passed the bill and Congressional staff expected to clean up the language at the Conference Committee.[41]

When Health Committee Chairman Ted Kennedy died, however, he was replaced with Republican Scott Brown, who had won a special election by promising to filibuster the ACA.[41] Without 60 Democrats, Majority Leader Harry Reid was deprived of his ability to invoke cloture. House Speaker Nancy Pelosi was then forced to pass the draft Senate version.[41] Later revisions through the reconciliation process were limited to budget related provisions by the Byrd Rule.[41]

Plaintiffs argue that they have standing because, without the subsidies, they would be exempt from the individual mandate because the cost of the cheapest insurance plan exceeded 8% of their income, but, with the subsidies, the subsidized cost was low enough to require plaintiffs to purchase insurance or pay a penalty.[44]

In February 2015, The Wall Street Journal and Mother Jones investigated the four plaintiffs.[45][46] Two of the plaintiffs were Vietnam War veterans, who would be eligible for free care. Another plaintiff provided the court with a motel address, which was used to calculate the cost of insurance, as well as the amount of subsidies; a different address might result in different amounts that may cause her not to have standing. The fourth plaintiff stated that she made $10,000 per year as a substitute teacher, an income low enough to be exempt from the individual mandate, although the Competitive Enterprise Institute suggested that she might have additional income from other work. The investigations also suggested that some plaintiffs may lack standing because the cheapest available subsidized insurance was over 8% of their income, making them exempt from the individual mandate.[44]

King v. Burwell
Court	United States Court of Appeals for the Fourth Circuit
Argued	May 14, 2014
Decided	July 22, 2014
Court membership
Judge(s) sitting	Stephanie Thacker, Roger Gregory, Andre M. Davis
Case opinions
The plaintiffs contend that the IRS’s interpretation is contrary to the language of the statute, which, they assert, authorizes tax credits only for individuals who purchase insurance on state-run Exchanges. For reasons explained below, we find that the applicable statutory language is ambiguous and subject to multiple interpretations. Applying deference to the IRS’s determination, however, we uphold the rule as a permissible exercise of the agency’s discretion.
Keywords
Internal Revenue Service, Affordable Care Act

The Fourth Circuit court unanimously upheld the regulation, saying that the wording in the statute was ambiguous, and that the IRS wording was a reasonable interpretation of the statute:[14]

The plaintiffs-appellants bring this suit challenging the validity of an Internal Revenue Service (“IRS”) final rule implementing the premium tax credit provision of the Patient Protection and Affordable Care Act (the “ACA” or “Act”). The final rule interprets the ACA as authorizing the IRS to grant tax credits to individuals who purchase health insurance on both state-run insurance “Exchanges” and federally facilitated “Exchanges” created and operated by the Department of Health and Human Services (“HHS”). The plaintiffs contend that the IRS’s interpretation is contrary to the language of the statute, which, they assert, authorizes tax credits only for individuals who purchase insurance on state-run Exchanges. For reasons explained below, we find that the applicable statutory language is ambiguous and subject to multiple interpretations. Applying deference to the IRS’s determination, however, we uphold the rule as a permissible exercise of the agency’s discretion. [....]Rejecting all of the plaintiffs' arguments as to why Chevron deference is inappropriate in this case, for the reasons explained above we are satisfied that the IRS Rule is a permissible construction of the statutory language. We must therefore apply Chevron deference and uphold the IRS Rule....[47]

Although the court ruled unanimously for the government, the opinion stated that it "cannot ignore the common-sense appeal of the plaintiffs’ argument; a literal reading of the statute undoubtedly accords more closely with [the plaintiffs’] position," and "the [government has] the stronger position, although only slightly."[48]

On November 7, 2014, the Supreme Court granted certiorari in the plaintiff's appeal of the 4th Circuit ruling.[17][49] The decision to grant certiorari was unusual. It was believed that the Supreme Court would not grant certiorari given the lack of a circuit split, instead awaiting further decisions from lower courts before reviewing the issue.[50] University of Michigan Law School Assistant Professor Nicholas Bagley described the decision to grant certiorari as indicating that "four justices apparently think—or at least are inclined to think—that King was wrongly decided".[51]

Alabama, Georgia, Indiana, Nebraska, Oklahoma, South Carolina, and West Virginia joined amicus briefs in support of the challengers.[52][53] California, Connecticut, Delaware, the District of Columbia, Hawaii, Illinois, Iowa, Kentucky, Maine, Maryland, Massachusetts, Mississippi, New Hampshire, New Mexico, New York, North Carolina, North Dakota, Oregon, Pennsylvania, Rhode Island, Vermont, Virginia, and Washington filed an amicus brief in support of the government; they state in one part that, under the Pennhurst doctrine, in cooperative federalism legislation passed by Congress, if Congress wishes to impose any conditions on the States, then it must give "clear notice" of such conditions; otherwise, the conditions are invalid. They argue that the controlling phrase "an Exchange established by the State" is "buried in two sub-sections," which effectively "'hide[s] elephants in mouseholes,'" were it to mean that Congress imposed the condition on the states that they must establish their own exchanges or their residents would not receive federal subsidies; they say that because of this, the phrases "fail the Pennhurst clear-notice test," thereby making the foregoing condition invalid.[54] Numerous individuals and organizations filed amicus briefs in support of both sides.

The American Public Health Association and the deans of 19 schools of public health filed an amicus brief in support of the government. In the brief, the public health officials estimated that eliminating the premium tax credits in states that use the federal exchange would result in 9,800 additional deaths per year. This figure was based on earlier studies of the impact of the Massachusetts health care reform law on death rates in that state. The brief stated that residents of the 34 states that use the Federal exchange tend to be less healthy and have less access to healthcare than residents of the states that created their own exchanges. The brief argues that eliminating the subsidies will increase this disparity.[55][56]

On July 22, 2014, the U.S. Court of Appeals for the D.C. Circuit ruled 2–1 in favor of the plaintiffs.[57]

The Court of Appeals stated:

Because we conclude that the ACA [the Affordable Care Act] unambiguously restricts the [Internal Revenue Code] section 36B subsidy to insurance purchased on Exchanges "established by the State", we reverse the district court and vacate the IRS's regulation [26 C.F.R. § 1.36B-2(a)(1)].[58]

As part of the government's briefs, they argued that none of the plaintiffs had standing to file suit. David Klemencic, one of the plaintiffs, residing in West Virginia was found to have standing under the Administrative Procedure Act (APA). Although West Virginia is geographically in the Fourth Circuit, the APA grants the D.C. Circuit shared jurisdiction over any issue involving a Federal agency based in Washington, D.C.

On September 4, 2014, the U.S. Court of Appeals for the D.C. Circuit granted the U.S. Secretary of Health's petition for rehearing the case en banc. The order also vacates the previous July 22 judgment.[59]

On November 12, the Court of Appeals put further proceedings in Halbig into abeyance pending the Supreme Court's ruling in King.[60]

In a dissent joined by Justices Thomas and Alito, Justice Scalia wrote: "The Court holds that when the Patient Protection and Affordable Care Act says 'Exchange established by the State it means 'Exchange established by the State or the Federal Government.' That is of course quite absurd, and the Court’s 21 pages of explanation make it no less so." He then ridiculed the decision, saying that the Affordable Care Act should be called "SCOTUScare."[73]

Scalia further noted that the rest of the ACA carefully distinguishes between exchanges established by states and those established by the federal government through Health and Human Services. Scalia cited differences between where the document identifies how the different exchanges receive funding, authority, and names. Scalia used this to argue that the context of the law does not allow for the phrase "established by the state" to mean "established by the state and federal government." He reminds the reader that the purpose of looking at the context of phrases is for "understanding the terms of the law, not [to make] an excuse for rewriting them."[73]

Later, Scalia also pointed out that interpreting the phrase "by the State" as "by the state and federal government" not only eliminates all meaning from the first phrase, but causes problems of interpretation elsewhere in the ACA. "The State" is identified distinctly in the ACA with regards to the formula for calculating tax credits, for screening children for tax credit eligibility, for using a "secure electronic interface" for tax credit screening, for other agencies, for directions on operating web sites, and for guidelines around the enrollment of children. Of this, Scalia mentioned that "[i]t is bad enough for a court to cross out 'by the State' once. But seven times?"[73]

The extensive use of the term "by the State" also contrasts against the more extensive use of more general terms. "Clause after clause of the law uses a more general term such as 'Exchange.'" Scalia pointed out that the court should defer to the specific meaning of this term, and that assuming that the "by the State" term is general does not fit appropriate rules of interpretation. Scalia also notes that the ACA knows how to equate unlike terms explicitly, as it declared that "[a] territory that...establishes...an Exchange...shall be treated as a State." The ACA does not have such an equivalency clause for exchanges established by the federal government.[73]