Supreme Court Update: King v. Burwell (14-114)

June 26, 2015 Supreme Court Update

Greetings, Court Fans!

The Supreme Court once again came to the rescue of Obamacare—or as Justice Scalia now calls it, in light of the Court's second intervention, "SCOTUScare". This Update will bring you analysis of this morning's decision in King v. Burwell (14-114), holding 6-3 that, notwithstanding language in the Affordable Care Act ("ACA") suggesting that tax credits are available only to individuals who are enrolled in insurance plans through "an Exchange established by the State," the overall structure and purpose of the Act requires that the tax credits be available to individuals enrolled through Federal Exchanges as well. Since this is a biggie, we'll devote our entire Update to it. However, the "undercard" today was also momentous: In Texas Dep't of Housing and Community Affairs v. The Inclusive Communities Project (13-1371), the Court held that disparate impact claims are available under the Fair Housing Act. We'll bring you the scoop on that decision forthwith, along with whatever the Nine have in store tomorrow morning.

Burwell needs little introduction. The ACA introduced three "closely intertwined" reforms with the purpose of reducing the overall number of uninsured persons in the United States. First, it barred insurers from denying coverage to any person or charging higher premiums because of his health (the "guaranteed issue" requirement) or charging a person higher premiums because of his health (the "community rating" requirement). Second, it required individuals to maintain health insurance coverage or else pay a penalty tax (remember Sebelius?). And third, the Act sought to make insurance more affordable by giving refundable tax credits to individuals with low household. As Chief Justice Roberts noted in his majority opinion, "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 percent of income for a large number of individuals, which would exempt them from the coverage requirement." In addition to these three interlocking reforms, the ACA required the creation of an "Exchange" in each State through which individuals could purchase insurance. Though the Act seems to require that each State "shall" establish such an Exchange, it also provides that the Secretary of Health and Human Services will establish "such Exchange" if the State does not. (Sixteen states and the District of Columbia have established their own exchanges, while thirty-four have opted to use exchanges established by HHS.) With respect to the tax credits, a provision of the Act encoded at §36B of the Internal Revenue Code states that tax credits "shall be allowed" for any "applicable taxpayer," but only if the taxpayer has enrolled in an insurance plan through "an Exchange established by the State under [42 U.S.C. §18031]." A separate IRS regulation interprets the language of § 36B to allow tax credits "whether the Exchange is established and operated by a State . . . or by HHS."

The Petitioners in this case were four individuals living in Virginia (a state operating on the Federal Exchange) who were somehow injured by receiving tax credits that enable them to purchase health insurance. Here's how. They don't want to purchase health insurance and, if it weren't for the tax credit, they would be exempt from the individual mandate because the cost of buying insurance would exceed 8% of their income. "They" (read: a band of clever libertarian attorneys seeking to undermine Obamacare who later tracked down some plaintiffs) seized on § 36B, arguing that the IRS rule permitting tax credits for individuals on the Federal Exchange contravenes the text of the statute itself, which permits credits only to individuals enrolled through "an Exchange established by the State." They challenged the IRS rule in the District Court, which held that the ACA unambiguously makes tax credits available to individuals enrolled through a Federal Exchange. The Fourth Circuit affirmed, concluding that the IRS's interpretation was entitled to Chevron deference. On the same day, a panel of the D.C. Circuit struck down the IRS rule, holding that the ACA "unambiguously restricts" the tax credits to State Exchanges, but that decision was vacated pending en banc review. Despite the fact that there was no circuit split, the Supreme Court granted cert back in November, causing much handwringing among the law's supporters: Why grant cert on a splitless issue only to affirm?

As it turns out, the supporters needn't have worried, as both the Chief Justice and Justice Kennedy joined the Court's liberals to affirm the Fourth Circuit and save the law from entering the so-called "death spiral." (Interestingly, either the Chief or Kennedy was presumably among the four justices needed to grant cert back in November. Was there a flip in the meantime?) The Chief took the pen to save Obamacare once again, with an opinion that may linger in importance as much for what it says about statutory construction as for what it means for the President's signature achievement.

Roberts first dispensed with the notion that this is a case about deference to agency interpretations of ambiguous statutes. Though the Fourth Circuit had invoked Chevron deference, the Chief (a longtime critic of the doctrine) would have none of it. The Chevron doctrine "is premised on the theory that a statute's ambiguity constitutes an implicit delegation from Congress to the agency to fill in the statutory gaps." But in "extraordinary cases . . . there may be reason to hesitate before concluding that Congress has intended such an implicit delegation." This is such a case, because whether the tax credits are available on Federal Exchanges is a question of "deep economic and political significance" that Congress would not have delegated to an executive agency without having done so expressly. In short, "[t]his is not a case for the IRS. It is instead our task to determine the correct reading of Section 36B." Turning to that task, the Chief concluded that the language "an Exchange established by the State" is ambiguous. It could obviously mean what it says: an Exchange established by the State and therefore not a Federal Exchange. But it could also mean an Exchange established by the State or established by HHS on behalf of the State. This reading is textually plausible because, if a State refuses to establish an Exchange (capital E), the ACA directs the HHS to establish "such Exchange" (also capital E). By using the words "such Exchange," the Act indicates that the State and Federal Exchanges should be the same. Given that the text is ambiguous, the Chief turned to the broader structure of the Act to determine which of these permissible meanings produces a substantive effect that is compatible with the law's purpose. "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 spiral' that Congress designed the Act to avoid." In the end, the Chief concluded that "[a] fair reading of the legislation demands a fair understanding of the legislative plan. 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."

Justice Scalia led the charge for the dissenters (Thomas and Alito) and he was in rare form. "Words no longer have meaning if an Exchange that is not established by a State is ‘established by the State.'" Under every canon of interpretation, Scalia argued, the Government should lose this case. "But normal rules of interpretation seem always to yield to the overriding principle of the present Court: The Affordable Care Act must be saved." While Scalia agreed that "[c]ontext always matters" in statutory construction, he emphasized that the reason context matters is as "a tool for understanding the terms of the law, not an excuse for rewriting them." Scalia dismissed the majority's attempts to textually ground its decision as "[p]ure applesauce" and "interpretive jiggery-pokery." "To mention just the highlights, the Court's interpretation clashes with a statutory definition, renders words inoperative in at least seven separate provisions of the Act, overlooks the contrast between provisions that say ‘Exchange' and those that say ‘Exchange established by the State,' gives the same phrase one meaning for purposes of tax credits but an entirely different meaning for other purposes, and (let us not forget) contradicts the ordinary meaning of the words Congress used." Moreover, though it may be that the insurance market would be destabilized if the tax credits are not available, this shows "only that the statutory scheme contains a flaw; [not that] the statute means the opposite of what it says." In Scalia's view, however, it is entirely plausible that Congress did intend for tax credits to be available only to those enrolled in State exchanges, as one of Congress's purposes was to encourage states to set up exchanges in the first place. But rather than adhere to the plain text of the law, and to allow Congress to fix it if it's broken, the Court "rewrites the law to make tax credits available everywhere. We should start calling this law SCOTUScare."

It's possible Scalia was so hopping mad because he hates Obamacare. More likely though, he saw in the majority opinion a retreat form the more formalistic brand of textualism that he has championed on the Court since the 1980s (with much success, it must be said) in favor of something closer to the pragmatic "purposivism" of an earlier age. In his majority opinion, the Chief Justice has given future litigants a handy non-Warren/Burger era decision to cite for the proposition that sometimes "the legislative plan" is as important as the legislative text. In that regard, the progressive victory in Burwell goes well beyond the extension of yet another lifeline to Obamacare.

There will be plenty of ink spilled on this opinion to be sure, but no more by us! We'll be back ASAP with summaries of Texas Dep't of Housing and Community Affairs v. The Inclusive Communities Project (another progressive win) and the remaining decisions of the term as they come in.