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SCOTUS Opinion on King v. Burwell

King v. Burwell U.S. Supreme Court No. 14-114: The Opinion

Background

Section 36B of the Internal Revenue Code, which was enacted as part of the Patient Protection and Affordable Care Act (ACA), authorizes federal tax credit subsidies for health insurance coverage that is purchased through an “exchange established by the State under Section 1311” of the ACA. In May 2012, the Internal Revenue Service (IRS) issued regulations that interpreted Code Section 36B to allow credits for insurance purchased on either a State or federally-established exchange. For additional background see Pending Supreme Court Ruling on Tax Credits.

The issue presented to the Supreme Court was whether the IRS may permissibly promulgate regulations to extend tax-credit subsidies to coverage purchased through exchanges established by the federal government under the ACA. In its June 25, 2015 Opinion, by a 6-3 majority, with Chief Justice Roberts delivering the opinion of the Court, the Supreme Court ruled that the tax credits are allowed for insurance purchased on either a State or federally established exchange.

Highlights of the Opinion

The full text of the Opinion is available here. This article offers excerpts of the majority opinion and Justice Scalia’s dissent. Citations have been omitted from the excerpts.

Majority Opinion [delivered by Chief Justice Roberts, joined by Kennedy, Ginsburg, Breyer, Sotomayor and Kagan]:

[from pages 4-5] The Affordable Care Act adopts a version of the three (3) key reforms that made the Massachusetts system successful. First, the Act adopts the guaranteed issue and community rating requirements.

Second, the Act generally requires individuals to maintain health insurance coverage or make a payment to the IRS. Congress recognized that, without an incentive, “many individuals would wait to purchase health insurance until they needed care”. Congress also provided an exemption from the coverage requirement for anyone who has to spend more than eight (8%) percent of his income on health insurance.

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. These three (3) reforms are closely intertwined. As noted, Congress found that the guaranteed issue and community rating requirements would not work without the coverage requirement. And the coverage requirement would not work without the tax credits. The reason is that, without the tax credits, the cost of buying insurance would exceed eight (8%) percent of income for a large number of individuals, which would exempt them from the coverage requirement.

[from page 10] After telling each State to establish an Exchange, Section 18031 provides that all Exchanges “shall make available qualified health plans to qualified individuals”. Section 18032 then defines the term “qualified individual” in part as an individual who “resides in the State that established the Exchange”. And that’s a problem: If we give the phrase “the State that established the Exchange” its most natural meaning, there would be no “qualified individuals” on Federal Exchanges. But the Act clearly contemplates that there will be qualified individuals on every Exchange.

[from pages 12-13] The upshot of all this is that the phrase “an Exchange established by the State under” is properly viewed as ambiguous. The phrase may be limited in its reach to State Exchanges. But it is also possible that the phrase refers to all Exchanges—both State and Federal—at least for purposes of the tax credits. If a State chooses not to follow the directive in Section 18031 that it establish an Exchange, the Act tells the Secretary to establish “such Exchange”. 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.

[from page 15] Here, the statutory scheme compels us 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.

[from page 16] As discussed above, Congress based the Affordable Care Act on three (3) major reforms: first, the guaranteed issue and community rating requirements; second, a requirement that individuals maintain health insurance coverage or make a payment to the IRS; and third, the tax credits for individuals with household incomes between 100 percent and 400 percent of the federal poverty line. In a State that establishes its own Exchange, these three (3) reforms work together to expand insurance coverage. The guaranteed issue and community rating requirements ensure that anyone can buy insurance; the coverage requirement creates an incentive for people to do so before they get sick; and the tax credits—it is hoped—make insurance more affordable. Together, those reforms “minimize adverse selection and broaden the health insurance risk pool to include healthy individuals, which will lower health insurance premiums”. Under petitioners’ reading, however, the Act would operate quite differently in a State with a Federal Exchange. As they see it, one of the Act’s three (3) major reforms—the tax credits—would not apply. And a second major reform—the coverage requirement—would not apply in a meaningful way. As explained earlier, the coverage requirement applies only when the cost of buying health insurance (minus the amount of the tax credits) is less than eight (8%) percent of an individual’s income. So without the tax credits, the coverage requirement would apply to fewer individuals. And it would be a lot fewer.

[from page 20] Petitioners’ arguments about the plain meaning of Section 36B are strong. But while the meaning of the phrase “an Exchange established by the State” may seem plain “when viewed in isolation”, such a reading turns out to be “untenable in light of [the statute] as a whole”. In this instance, the context and structure of the Act compel us to depart from what would otherwise be the most natural reading of the pertinent statutory phrase.

[from page 21] Congress passed the Affordable Care Act to improve health insurance markets, not to destroy them. If at all possible, we must interpret the Act in a way that is consistent with the former, and avoids the latter. Section 36B can fairly be read consistent with what we see as Congress’s plan, and that is the reading we adopt.

Dissent [Justice Scalia, joined by Thomas and Alito]

[from page 1] 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 twenty-one (21) pages of explanation make it no less so.

[from page 2] Words no longer have meaning if an Exchange that is not established by a State is “established by the State”. It is hard to come up with a clearer way to limit tax credits to state Exchanges than to use the words “established by the State”. And it is hard to come up with a reason to include the words “by the State” other than the purpose of limiting credits to state Exchanges.

[from page 3] The Court interprets §36B to award tax credits on both federal and state Exchanges. It accepts that the “most natural sense” of the phrase “Exchange established by the State” is an Exchange established by a State. (Understatement, thy name is an opinion on the Affordable Care Act!) Yet the opinion continues, with no semblance of shame, that “it is also possible that the phrase refers to all Exchanges—both State and Federal”. (Impossible possibility, thy name is an opinion on the Affordable Care Act!) The Court claims that “the context and structure of the Act compel [it] to depart from what would otherwise be the most natural reading of the pertinent statutory phrase”.

[from page 8] The Court’s next bit of interpretive jiggery-pokery involves other parts of the Act that purportedly presuppose the availability of tax credits on both federal and state Exchanges.

[from pages 12-13] For its next defense of the indefensible, the Court turns to the Affordable Care Act’s design and purposes. As relevant here, the Act makes three (3) major reforms. The guaranteed-issue and community-rating requirements prohibit insurers from considering a customer’s health when deciding whether to sell insurance and how much to charge; its famous individual mandate requires everyone to maintain insurance coverage or to pay what the Act calls a “penalty”, and what we have nonetheless called a tax, and its tax credits help make insurance more affordable. The Court reasons that Congress intended these three (3) reforms to “work together to expand insurance coverage”; and because the first two (2) apply in every State, so must the third.

[from page 14] The Court protests that without the tax credits, the number of people covered by the individual mandate shrinks, and without a broadly applicable individual mandate the guaranteed-issue and community-rating requirements “would destabilize the individual insurance market”. If true, these projections would show only that the statutory scheme contains a flaw; they would not show that the statute means the opposite of what it says. Moreover, it is a flaw that appeared as well in other parts of the Act. A different title established a long-term-care insurance program with guaranteed-issue and community-rating requirements, but without an individual mandate or subsidies. This program never came into effect “only because Congress, in response to actuarial analyses predicting that the [program] would be fiscally unsustainable, repealed the provision in 2013.”

[from pages 15-16] Compounding its errors, the Court forgets that it is no more appropriate to consider one of a statute’s purposes in isolation than it is to consider one of its words that way. No law pursues just one purpose at all costs, and no statutory scheme encompasses just one element. Most relevant here, the Affordable Care Act displays a congressional preference for state participation in the establishment of Exchanges: Each State gets the first opportunity to set up its Exchange; States that take up the opportunity receive federal funding for “activities…related to establishing” an Exchange; and the Secretary may establish an Exchange in a State only as a fallback. But setting up and running an Exchange involve significant burdens—meeting strict deadlines, implementing requirements related to the offering of insurance plans, setting up outreach programs, and ensuring that the Exchange is self-sustaining by 2015. A State would have much less reason to take on these burdens if its citizens could receive tax credits no matter who establishes its Exchange. (Now that the Internal Revenue Service has interpreted §36B to authorize tax credits everywhere, by the way, thirty-four (34) States have failed to set up their own Exchanges.) So even if making credits available on all Exchanges advances the goal of improving healthcare markets, it frustrates the goal of encouraging state involvement in the implementation of the Act. This is what justifies going out of our way to read “established by the State” to mean “established by the State or not established by the State?”

[from page 17] It is entirely plausible that tax credits were restricted to state Exchanges deliberately—for example, in order to encourage States to establish their own Exchanges. We therefore have no authority to dismiss the terms of the law as a drafting fumble. Let us not forget that the term “Exchange established by the State” appears twice in §36B and five (5) more times in other parts of the Act that mention tax credits. What are the odds, do you think, that the same slip of the pen occurred in seven (7) separate places? No provision of the Act—none at all—contradicts the limitation of tax credits to state Exchanges.

[from pages 18-19] Trying to make its judge-empowering approach seem respectful of congressional authority, the Court asserts that its decision merely ensures that the Affordable Care Act operates the way Congress “meant [it] to operate”. First of all, what makes the Court so sure that Congress “meant” tax credits to be available everywhere? Our only evidence of what Congress meant comes from the terms of the law, and those terms show beyond all question that tax credits are available only on state Exchanges. More importantly, the Court forgets that ours is a government of laws and not of men. That means we are governed by the terms of our laws, not by the unenacted will of our lawmakers. “If Congress enacted into law something different from what it intended, then it should amend the statute to conform to its intent”. In the meantime, this Court “has no roving license. . . to disregard clear language simply on the view that….Congress ‘must have intended’ something broader”.

[from page 21] Having transformed two (2) major parts of the law, the Court today has turned its attention to a third. The Act that Congress passed makes tax credits available only on an “Exchange established by the State”. This Court, however, concludes that this limitation would prevent the rest of the Act from working as well as hoped. So it rewrites the law to make tax credits available everywhere. We should start calling this law SCOTUScare.

[continued] Perhaps the Patient Protection and Affordable Care Act will attain the enduring status of the Social Security Act or the Taft-Hartley Act; perhaps not. But this Court’s two (2) decisions on the Act will surely be remembered through the years. The somersaults of statutory interpretation they have performed (“penalty” means tax, “further [Medicaid] payments to the State” means only incremental Medicaid payments to the State, “established by the State” means not established by the State) will be cited by litigants endlessly, to the confusion of honest jurisprudence. And the cases will publish forever the discouraging truth that the Supreme Court of the United States favors some laws over others, and is prepared to do whatever it takes to uphold and assist its favorites.

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