Trenchant Analysis or Jiggery-Pokery? U.S. Supreme Court Upholds Affordable Care Act

by Eversheds Sutherland (US) LLP

In a 6-3 decision on June 25, 2015 in King v. Burwell, the U.S. Supreme Court held that tax credits are available under the Patient Protection and Affordable Care Act (Affordable Care Act or PPACA) to all eligible Americans, regardless of whether they purchase health insurance through “exchanges” administered by a state or by the federal government. In the majority opinion authored by Chief Justice John Roberts, the Court found that “Congress passed the Affordable Care Act to improve health insurance markets, not to destroy them” and that the Court must, therefore, interpret the Affordable Care Act in a way that is consistent with that goal. This is one of the Court’s most important decisions of the year, and after National Federation of Independent Business v. Sebelius, 567 U.S. ___ (2012), it marks the second major decision by the Roberts Court upholding key elements of the Affordable Care Act.

King v. Burwell started as a lawsuit in federal district court brought by four Virginia residents who objected to the Affordable Care Act’s requirement that they purchase health insurance. They argued that an Internal Revenue Service (IRS) regulation, which says that tax credits are available under section 36B of the Internal Revenue Code of 1986, as amended, (Code) to those who purchase insurance on either a state or a federal exchange was inconsistent with the literal language of that Code section, as enacted by PPACA. Specifically, Code section 36B provides that the credits are available to those who purchase insurance through an “exchange established by the State.” The district court dismissed the plaintiffs’ suit after finding that Code section 36B unambiguously allowed tax credits for insurance purchased through federal exchanges. On appeal, however, the U.S. Court of Appeals for the Fourth Circuit found that the language in Code section 36B was ambiguous. Nevertheless, the Fourth Circuit affirmed the district court, reasoning that it was required to defer to the IRS’s interpretation of Code section 36B under the so-called Chevron doctrine, which requires courts to give deference to agency interpretations of ambiguous statutes if the agency’s interpretation is reasonable.

In its decision, the Supreme Court affirmed the Fourth Circuit, but did not base its holding on Chevron deference. The Court agreed with the Fourth Circuit’s finding that the language providing for tax credits in Code section 36B was ambiguous because it does not explicitly refer to federal exchanges, while a related provision of PPACA referring to state exchanges directs the federal government to create “such exchanges” if state governments fail to do so. Thus, the Court explained, by directing the federal government to create “such exchanges” (i.e., state exchanges), the Affordable Care Act indicates that state and federal exchanges are the same. As noted above, however, the Court’s analysis departed from the reasoning of the Fourth Circuit by declining to apply Chevron deference to the IRS’s interpretation of Code section 36B. Instead, over Justice Antonin Scalia’s fiery dissent in which he admonished the majority for “interpretive jiggery-pokery,” the Court interpreted the statute on its own terms. Looking to the Affordable Care Act’s purpose and structure, the Court concluded that Code section 36B makes the tax credits equally available to those who purchase insurance on a state exchange and to those who do so on a federal exchange. The Court warned that any other interpretation would “destabilize” the insurance market and lead to the health insurance market “death spirals” that Congress clearly intended to avoid when it designed PPACA.

While the Court’s use of statutory interpretation based on the Affordable Care Act’s purpose and structure was generally unremarkable, the Court’s decision to sidestep the Chevron analysis is interesting. Some may see King v. Burwell as a mere reiteration of the Court’s declaration in Marbury v. Madison which said that it is the Court’s role “to say what the law is.” 1 Cranch 137, 177 (1803). But others will wonder what the next “extraordinary case” with “deep economic and political significance” will be that justifies the Court deciding the proper interpretation of a statute based on its own analysis, rather than weighing whether an executive agency’s interpretation of the law as reflected in the agency’s rulings was rational. Regardless, it seems clear that because the Court decided in King v. Burwell that an “exchange established by the State” includes federal exchanges, its interpretation of Code section 36B cannot, absent a statutory change, be reversed, even under a new administration.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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