King v. Burwell

King v. Burwell
Supreme Court of the United States
Argued March 4, 2015
Full case name	David King, et al., Petitioners v. Sylvia Burwell, Secretary of Health and Human Services, et al.
Docket nos.	14-114
Argument	Oral argument
Court membership
Chief Justice John G. Roberts Associate Justices Antonin Scalia · Anthony Kennedy Clarence Thomas · Ruth Bader Ginsburg Stephen Breyer · Samuel Alito Sonia Sotomayor · Elena Kagan
Laws applied
Patient Protection and Affordable Care Act

King v. Burwell, Halbig v. Burwell, Pruitt v. Burwell, and Indiana v. IRS are a set of related 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 argue that the text of the ACA only allows for subsidies on state-run 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. All of the "v. Burwell" cases were originally titled "v. Sebelius" until Kathleen Sebelius was replaced by Sylvia Mathews Burwell as United States Secretary of Health and Human Services. The Competitive Enterprise Institute is providing support for the challengers, including financial support for the King plaintiffs' challenge.^[1][2]

Timothy Jost, a health law professor at the Washington and Lee University School of Law, has written that if the challenge is successful, approximately 5 million Americans who obtained coverage through federal exchanges could lose their tax credits and, in all likelihood, their health insurance coverage. According to Jost, the individual mandate, employer mandate, and tax credits for employers to provide health-insurance coverage might also be overturned in states with federal exchanges. However, insurers would likely still be required to cover all applicants regardless of pre-existing conditions, which could destabilize the insurance market in states with federal exchanges and lead to rapid rises in premiums and the possible collapse of the insurance market in those states.^[3] The Urban Institute estimated that a decision in favor of King would result in 8.2 million more uninsured people in 34 states.^[4]

As of 2015, only sixteen states and the District of Columbia have set up their own exchanges.^{[note 1][5]} If the mandates and subsidies are struck down in the other 34 states, many think that the economic foundation of the ACA would be undermined, putting the entirety of the legislation at risk.^[6][7] Supporters of the plaintiffs, as well as some politicians, argue that the effects of striking down the mandates and subsidies would be mitigated by government action (including the possibility of states setting up their own exchanges in response to a ruling in favor of the plaintiffs).^[8]

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. ^[9] When the D.C. appeals court decided to rehear the case en banc, however, the court vacated its initial ruling, removing the split.^[10]

On November 7, 2014, the Supreme Court granted certiorari in the King case.^[11] Oral arguments were heard on March 4, 2015,^[12] and a decision is expected by late June or early July 2015.^[13]

Text of the law and regulation

The ACA legislation includes the language "enrolled in through an Exchange established by the State under 1311" where the IRS regulation implements a more broad definition encompassing both the state exchanges and the federal exchanges set up under section 1321.^[6] The legislation includes the phrase "established by the State under 1311" in nine different locations.^{[14][15][16][17][18]}

Internal Revenue Code section 36B, enacted as part of the ACA, includes the following provision:

In the case of an applicable taxpayer, there shall be allowed as a credit against the tax imposed by this subtitle for any taxable year an amount equal to the premium assistance credit amount of the taxpayer for the taxable year.

(2) (a) the monthly premiums for such month for 1 or more qualified health plans offered in the individual market within a State which cover the taxpayer, the taxpayer's spouse, or any dependent (as defined in section 152) of the taxpayer and which were enrolled in through an Exchange established by the State under 1311 [1] of the Patient Protection and Affordable Care Act, [...]^[19]

The IRS regulation reads as follows:

(a) In general. An applicable taxpayer (within the meaning of paragraph (b) of this section) is allowed a premium assistance amount only for any month that one or more members of the applicable taxpayer's family (the applicable taxpayer or the applicable taxpayer's spouse or dependent)—

(1) Is enrolled in one or more qualified health plans through an Exchange [ . . . ]^[20]

The IRS defined the term "Exchange" as:

[ . . . ] a governmental agency or non-profit entity that meets the applicable standards of this part [part 155 of title 45 of the Code of Federal Regulations] and makes QHPs [qualified health plans] available to qualified individuals and/or qualified employers. Unless otherwise identified, this term includes an Exchange serving the individual market for qualified individuals and a SHOP [Small Business Health Options Program] serving the small group market for qualified employers, regardless of whether the Exchange is established and operated by a State (including a regional Exchange or subsidiary Exchange) or by HHS [the U.S. Department of Health and Human Services].^[21]

Chevron test

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".^[22]

(1) "First, always, is the question whether Congress has directly spoken to the precise question at issue. If the intent of Congress is clear, that is the end of the matter; for the court as well as the agency must give effect to the unambiguously expressed intent of Congress."

"If the Court determines Congress has not directly addressed the precise question at issue, the court does not simply impose its own construction of the statute . . . Rather,

(2) [I]f the statute is silent or ambiguous with respect to the specific question, the issue for the court is whether the agency's answer is based on a permissible construction of the statute." Chevron U.S.A. v. NRDC, 467 U.S. 837, 842–843 (1984).

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: while the plaintiffs argue that only the words of a statute can govern its interpretation, the government argues that courts can look outside the text of a statute to consider policy objectives Congress intended to achieve.^[11]

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."^[23][24] 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."^[25] 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."^[15]

Others have argued that the issue is due to a drafting error during the legislative process.^[6][26][27] 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".^[28]

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."^[29] 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."^[30]

Gruber has characterized his earlier statements as "a mistake".^[31] Sarah Kliff of Vox cited as corroborating evidence of Gruber's comments being mistaken the fact that Gruber did not explicitly mention the denial of subsidies to reporters at the time, and his models assumed that subsidies would be available on both state and federal exchanges.^[32] In a December 2014 Congressional hearing, Gruber characterized his comments as "reflecting uncertainty about the federal exchange".^[33] The King plaintiffs, in their briefs filed in December 2014, referred to Gruber's comments as an indication of Congressional intent supporting their position.^[34]

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”. ^[35]

Legal standing

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.^[36]

In February 2015, The Wall Street Journal and Mother Jones investigated the four plaintiffs. 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.^[36]

Predicted impact

The changes in the status quo resulting from a ruling in favor of the challengers have been discussed.

Retroactive application

In the petition for a writ of certiorari, the plaintiffs argued that Supreme Court review was necessary because, if the regulation was struck down, individuals who had received subsidies on federal exchanges would have to repay them. The government argued that it has discretion not to give retroactive effect to decisions modifying tax laws that had been relied upon.^[37]

Mitigation

Several commentators have said that the effects of a decision striking down the regulation would be lessened by mitigation efforts. These efforts include possible establishment of state exchanges, as well as Congressional modification of the ACA.

New state exchanges

Bagley, Jones, and Jost argued that the establishment of state exchanges in response to a ruling in favor of the King plaintiffs is unrealistic. The obstacles the authors described include technical and logistical challenges in setting up exchanges to be available by 2016, limiting the immediate effects of a loss of subsidies from federal exchanges, and possible legal challenges to new state exchanges leading to further uncertainty. In addition, the authors stated that establishing new state exchanges was also politically unlikely, citing Republican opposition to the ACA and the decisions of "nearly two dozen states" not to expand Medicaid.^[8]

King v. Burwell

Fourth Circuit decision

King v. Burwell
Court	United States Court of Appeals for the Fourth Circuit
Argued	May 14, 2014
Decided	July 22, 2014
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.
Court membership
Judge(s) sitting	Stephanie Thacker, Roger Gregory, Andre M. Davis
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:^[9]

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....^[38]

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."^[39]

Supreme Court

On November 7, 2014, the Supreme Court granted certiorari in the plaintiff's appeal of the 4th Circuit ruling.^[11][40] A ruling is expected by late June or early July 2015.^[13] Legal experts predict that Chief Justice John Roberts and Associate Justice Anthony Kennedy will be the swing votes.^[41][42]

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.^[43] 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".^[44]

Amicus briefs

Alabama, Georgia, Indiana, Nebraska, Oklahoma, South Carolina, and West Virginia joined amicus briefs in support of the challengers.^[45][46] 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.^[47] 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.^{[48] [49]}

Halbig v. Burwell

Halbig v. Burwell
No. 14-5018
Court	United States Court of Appeals for the District of Columbia Circuit
Argued	March 25, 2014
Decided	July 22, 2014
Case history
Prior action(s)	Summary judgment for government defendants, 2014 WL 129023 (D.D.C. January 15, 2014)
Subsequent action(s)	Rehearing en banc ordered (D.C. Cir. September 4, 2014).
Case opinions
The IRS does not have the statutory power to grant subsidies to Federally-established insurance marketplaces known as exchanges established under the Affordable Care Act, as the enabling legislation defines exchanges as being established by states themselves. Reversed and remanded with instructions to grant summary judgment to the appellants and to vacate the IRS rule, 2–1. Opinion by Judge Griffith, concurrence by Judge Randolph. Judge Edwards dissents.
Court membership
Judge(s) sitting	Thomas B. Griffith, A. Raymond Randolph, Harry T. Edwards
Keywords
Internal Revenue Service, Affordable Care Act

DC Court of Appeals decision

On July 22, 2014, the U.S. Court of Appeals for the D.C. Circuit ruled 2–1 in favor of the plaintiffs.^[50][51][52]

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)].^[53]

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.^[54]

Court of Appeals rehearing

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.^[55]

On November 12, the Court of Appeals put further proceedings in Halbig into abeyance pending the Supreme Court's ruling in King.^[56]

Pruitt v. Burwell and Indiana v. IRS

On September 9, 2014, in Pruitt v. Burwell, the U.S. District Court for the Eastern District of Oklahoma ruled against the IRS^[57] saying

The court holds that the IRS Rule is arbitrary, capricious, an abuse of discretion or otherwise not in accordance with law, pursuant to 5 U.S.C. §706(2)(A), in excess of statutory jurisdiction, authority, or limitations, or short of statutory right, pursuant to 5 U.S.C. §706(2)(C), or otherwise is an invalid implementation of the ACA, and is hereby vacated.^[58]

The government appealed the decision to the Tenth Circuit,^[59] and in November 2014, the appeal was placed in abeyance pending the Supreme Court's decision in King. Oklahoma requested that the Supreme Court take up the Pruitt case before appellate judgment so that the Pruitt plaintiffs can present their own arguments alongside the King plaintiffs.^[60] The government responded that the Supreme Court should not hear the Oklahoma case, stating that the states could proceed as amici curiae in the King case and that granting the Oklahoma case would raise additional jurisdictional concerns not presented in the King case.^[61] The Supreme Court denied certiorari before judgment on January 26, 2015.^[62]:7

In Indiana v. IRS the state of Indiana and multiple Indiana school districts are suing the IRS claiming that the employer mandate should not apply to schools or local governments. The IRS argued that the plaintiffs did not have standing to sue, but that argument was rejected and Judge William T. Lawrence in the U.S. District Court for the Southern District of Indiana ruled that the case could proceed. Oral arguments occurred in October 2014 but a ruling has not been issued.^[63][64]

See also

• Federalism in the United States
• National Federation of Independent Business v. Sebelius

Notes

References