King v. Burwell

PETITIONER: David King, et al.
RESPONDENT: Sylvia Mathews Burwell, Secretary of Health and Human Services, et al.
LOCATION: United States District Court for the Eastern District of Virginia, Richmond Division

DOCKET NO.: 14-114
DECIDED BY: Roberts Court (2010-2016)
LOWER COURT: United States Court of Appeals for the Fourth Circuit

CITATION: 576 US (2015)
GRANTED: Nov 07, 2014
ARGUED: Mar 04, 2015
DECIDED: Jun 25, 2015

ADVOCATES:
Donald B. Verrilli, Jr. - Solicitor General, Department of Justice, for the respondents
Michael A. Carvin - for the petitioners

Facts of the case

In 2010, Congress passed the Affordable Care Act (ACA) to increase the number of Americans covered by health insurance and decrease the cost of health care. The ACA required each state to establish an "exchange" through which people could purchase health care coverage, and if a state elected not to do so, the federal government would establish one through the Secretary of Health and Human Services. The ACA also required people to obtain the minimum essential coverage or pay a tax penalty unless they fell within an unaffordability exemption for low-income individuals. To limit the number of people that would fall into such an exemption, the ACA provided for tax credits that are calculated based on the health plan in which an individual enrolls through the exchange. Although the legislative language of the ACA pertaining to the tax credits only referred to the exchanges established by the states, the Internal Revenue Service (IRS) created a regulation that made the tax credits available to those enrolled in plans through federal as well as state exchanges.

Virginia declined to establish a state-run exchange and has one operated by the federal government. The plaintiffs are a group of Virginia residents who, without the tax credits, would fall under the unaffordability exception and be exempt from having to purchase health insurance. They sued and argued that the IRS regulation exceeded the agency's statutory authority, is arbitrary and capricious, and is contrary to the law in violation of the Administrative Procedure Act. The district court granted the defendants' motion to dismiss, and the U.S. Court of Appeals for the Fourth Circuit affirmed.

Question

Did the Internal Revenue Service permissibly create a regulation that extended the tax credits the Affordable Care Act authorized to federal exchanges as well as those created by the states?

Media for King v. Burwell

Audio Transcription for Opinion Announcement - June 25, 2015 (Part 2) in King v. Burwell
Audio Transcription for Oral Argument - March 04, 2015 in King v. Burwell

Audio Transcription for Opinion Announcement - June 25, 2015 (Part 1) in King v. Burwell

John G. Roberts, Jr.:

I have the opinion of the Court in case number 14-114 King v. Burwell.

The Patient Protection and Affordable Care Act grew out of a long history of failed health insurance reform.

In the 1990s several states sought to expand access to insurance coverage by imposing a pair of regulations on their insurance markets.

A guaranteed issue requirement, which bars insurers from denying coverage to any person because of his health, and a community rating requirement, which bars insurers from charging a person higher premiums for the same reason.

These requirements achieve the goal of expanding access to coverage but they had an unintended consequence.

They encouraged people to wait until they got sick to buy insurance.

Why buy insurance coverage when you are healthy if you can buy the same coverage for the same price when you become ill?

The result was an economic death spiral, premiums rose, the number of people buying insurance declined, that caused premiums to rise further which caused the number of people buying insurance to decline even more and so on, until insurers began to leave the market entirely.

In 2006, however, Massachusetts discovered a way to make the guaranteed issue and community rating requirements work, by requiring individuals to buy insurance and by providing tax credits to some individuals to make insurance more affordable.

In combination of these three reforms -- insurance market regulations, the coverage requirement, and tax credits -- enabled Massachusetts to drastically reduce its uninsured rate.

The Affordable Care Act adopts a version of these three key reforms.

First, the Act adopts the guaranteed issue and community rating requirements.

Second, the Act generally requires individuals to maintain health insurance coverage, or if they failed to do so, to make a payment to the IRS.

And third, the Act seeks to make insurance more affordable for a significant number of people by giving tax credits to individuals with household incomes between 100 and 400 percent of the Federal poverty line.

Now in addition to these three reforms, the act requires the creation of an exchange in each state, basically a marketplace that allows people to compare and purchase insurance plans.

The Act gives each state the opportunity to establish its own exchange, but provides that the Federal Government will establish the exchange if the State does not.

The issue in this case is whether the Act's tax credits are available in states that have a Federal Exchange rather than a State Exchange.

That is an issue because the provision in the Act that makes tax credits available makes them available to individuals who buy insurance through an exchange that is “established by the State under Section 1311 of the Act.”

The individuals who are the petitioners in this case ask this Court to focus on the plain meaning of that phrase; established by the State under Section 1311.

They say that when a State does not set up an exchange it is established by the Federal Government not the State, so tax credits are not available in states with a Federal Exchange.

The Federal Government for its part reminds us that we have to look at statutory terms in context and make sure our interpretation, if possible, is consistent with the law as a whole.

After all, as we put it in a prior precedent, our duty is to construe statutes, not isolated provisions.

Now to resolve this issue we first have to decide whether a Federal Exchange can be said to be established by the State.

At the outset it might seem that a Federal Exchange cannot fulfill this requirement but when read in context the reach of the phrase established by the State is not so clear.

The Act says that the exchange may be created in one of two ways.

First, the Act instructs each State to establish its own exchange.

Second, the Act says that if a State chooses not to establish its own exchange the Federal Government shall establish such exchange within the State.

By using the phrase ‘such exchange' the Act tells the Federal Government to establish the same exchange that the State was supposed to establish.

In other words, State Exchanges and Federal Exchanges are equivalent; they must meet the same requirements, perform the same functions and serve the same purposes.

Although State and Federal Exchanges are established by different sovereigns, the Act does not suggest that they differ in any meaningful way.

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