ACA subsidies live on – King v. Burwell Decision surprisingly does not turn on Chevron analysis but predicted to still have a strong impact on statutory interpretation going forward
By Micah Vorwaller, Class of 2015, for BioLawToday.org.
This article discusses the recent decision by the Supreme Court in King v. Burwell[1] that allowed tax subsidies to apply to both State and Federal Exchanges. Surprisingly, the basis for the decision did not turn on Chevron analysis, as many experts had anticipated. This article is a follow-up to the article ACA Subsidy Challenge – Statutory Interpretation and Agency Deference Under Chevron, for BiolawToday.org, published by the Center for Law and Biomedical Sciences on Jan. 15, 2015, which discussed the anticipated effect that the decision made by the Court could have on the way courts address issues in administrative law.[2]
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The core issue addressed in King v. Burwell was whether the tax credits, otherwise known as subsidies, that the Patient Protection and Affordable Care Act[3] (“ACA”) provides should be applied to both Federal Exchanges and State Exchanges, or solely to State Exchanges.[4] Internal Revenue Service Rule 26 C.F.R. § 1.36 (2014)B[5] interprets the statutory provisions of the ACA to allow all eligible exchange purchasers access to subsidies to help them afford health insurance coverage, regardless of whether they use a federally facilitated or state-run exchange.[6] Only 16 states and the District of Columbia have set up their own exchanges, whereas 34 rely on the federally run exchange.[7] The Petitioners challenged the IRS Rule under the argument that the language of the ACA only provides for subsidies to “an Exchange established by the State under 42 U.S.C. § 18031 (2012)[8]
Resolving this question of access to subsidies—critical for many purchasers through federally facilitated exchanges—involves statutory interpretation of the ACA by the IRS. The established test for determining whether the IRS interpreted a statute correctly when they promulgated a challenged rule is known as Chevron deference.[9] Chevron deference is used to determine what the statute in question means and whether the agency acted within reason when it interpreted the statute and issued their rule.[10]
The Federal District Court dismissed the suit and held that “the Act unambiguously made tax credits available to individuals enrolled through a Federal Exchange.”[11] The Petitioners appealed the decision to the Court of Appeals for the Fourth Circuit, which affirmed the District Court’s decision.[12] In making its decision the Fourth Circuit viewed the Act as ambiguous, and used Chevron deference in deferring to the IRS’s interpretation of the provision.[13] Thus, many anticipated that the Supreme Court’s decision would also follow the Chevron deference analysis, and that the outcome reached would either further solidify the current manner in which the analysis had been used, or the decision could drastically alter how the analysis is actuated.
In a 6 to 3 decision released on June 25, 2015, The Supreme Court of The United States decided the case of King v. Burwell and affirmed the decision of the Fourth Circuit holding that the tax credits under 42 U.S.C. § 36B are available to individuals in States that have a Federal Exchange. [14] However, it came as a surprise to many that the decision did not turn on the Chevron analysis.[15]
The majority specifically acknowledged that “[w]hen analyzing an agency’s interpretation of a statute, we often apply the two-step framework announced in Chevron U.S.A. Inc., 467 U.S. 837.”[16] The Court explained that “[t]his approach 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.”[17] However, in what some experts have described as a “true departure from the typical approach,” the majority said that “this was an ‘extraordinary case’ that required an interpretation of the statute that took the purpose of the ACA as a whole into account.”[18]
The Court determined that “[t]he tax credits are among the Act’s key reforms, involving billions of dollars in spending each year and affecting the price of health insurance for millions of people.”[19] As such, “[w]hether those credits are available on Federal Exchanges is thus a question of deep ‘economic and political significance’ that is central to this statutory scheme.”[20] Thus, the Court concluded, “had Congress wished to assign that question to an agency, it surely would have done so expressly.”[21]
In concluding that Congress did not intend the IRS to have authority to decide the question of availability of the tax credits, the Court effectively reframed the issue in the case from an administrative law issue into a strict statutory interpretation issue, stating specifically that “[i]t is instead the Court’s task to determine the correct reading of 42 U.S.C. § 36B.”[22]
Russ Sullivan, a senior adviser at McGuire Woods Consulting and a former staff director of the Senate Finance Committee, stated “the most surprising thing about the current Obamacare challenge was that the court refused to defer to the IRS interpretation of the law.”[23] Many were surprised by the Court’s decision to not defer—under Chevron analysis—to an agency’s interpretation of a statute that was determined to be ambiguous. However, the decision seems more understandable when it is noted that the decision foreclosed the possibility that, as Chief Justice Roberts noted during oral argument, “deferring to the IRS in King v. Burwell would mean that a subsequent administration could wipe out the subsidies by just changing its interpretation.”[24]
The Court’s decision did not solidify or challenge application of Chevron analysis to administrative law issues. By taking the IRS’s authority to interpret the ACA in regards to the tax subsidies the Court took interpretation of the statute in its own hands rather than leaving it in the hands of a governmental agency. Had the Court deferred to the IRS’s interpretation, the possibility that the next administration would place its own people at the head of the IRS who could then merely change the IRS’s interpretation of the statute would have remained a real threat to the ACA and the millions of people that have been able to obtain affordable access to healthcare only by way of tax subsidies.
The majority’s ultimate decision to affirm the Fourth Circuit and thereby allow the IRS’s Rule to stand—tax credits available to both State and Federal Exchanges—followed from much discussion of statutory interpretation. This analysis provoked an adamant dissent by Justice Scalia, and has already been the catalyst for much expert discussion regarding how and to what extent this decision will impact future cases involving statutory interpretation. The impact of this decision remains to be seen but it seems safe to agree with Thomas William Mayo, professor at the SMU/Dedman School of Law, who stated that for “those of us who teach courses on statutory interpretation, … this case goes into our next syllabus.”[25]
Micah Vorwaller is a recent graduate of the College of Law and former Biolaw Fellow. Micah is an associate at The Ault Firm, P.C., with experience working on and handling the firm’s civil litigation cases, focusing primarily on business litigation and medical malpractice.
[1] King v. Burwell, 135 S. Ct. 2480 (2015)
[2] ACA Subsidy Challenge – Statutory Interpretation and Agency Deference Under Chevron, by Micah Vorwaller for BiolawToday.org, posted on January 15, 2015. Accessed at: http://law.utah.edu/aca-subsidy-challenge/
[3] 124 Stat. 119
[4] King, 135 S. Ct. at 2485
[5] (IRS Rule 1.36B-1(k), id.B-1(k), See also, ACA 26 C.F.R. pt. 1311, 1321)
[6] King, 135 S. Ct. at 2488
[7] Roberts Rescues Health Care Law Again; U.S. Supreme Court Upholds Premium Tax Credits, Tax Management Weekly State Tax Report (BNA), by Kimberly Robinson, July 03, 2015, 2015 WSTR 17 (Issue No. 27, 07/03/15)
[8] King, 135 S. Ct. at 2482
[9] See Chevron U.S.A. Inc. v. Nat. Res. Def. Council, 467 U.S. 837 (1984)
[10] ACA Subsidy Challenge – Statutory Interpretation and Agency Deference Under Chevron, by Micah Vorwaller for BiolawToday.org, posted on January 15, 2015. Accessed at: http://law.utah.edu/aca-subsidy-challenge/
[11] King, 135 S. Ct. at 2482
[12] King v. Burwell, 135 S.Ct. 2480, 2488 (2015)
[13] King, 135 S. Ct. at 2482; Chevron U.S.A. Inc., 467 U.S. 837.
[14] King, 135 S. Ct. at 2496 (see also Oklahoma Concedes in Subsidy Provision Challenge, Health Care Daily Report (BNA), HCDR Issue No. 135 (2015) – July 15, 2015 Oklahoma has agreed with the federal government that a federal district court decision upholding its challenge to the Affordable Care Act’s subsidy provision should be reversed) (Okla. ex rel. Pruitt v. Burwell, 10th Cir., No. 14-7080, statement filed, 7/10/15).)
[15] See ACA Subsidies Upheld by Supreme Court, Ensuring Help for Federal Exchange Buyers, Health Insurance Report (BNA), by Mary Anne Pazanowski, 21 HIR 20 (Issue No. 26, 07/01/15) (quoting statements from several experts such as, Robert M. Projansky, the head of Proskauer’s Health Care Reform Task Force, Chicago, who stated that “It is “interesting” that the majority avoided a Chevron analysis…”)
[16] King, 135 S. Ct. at 2488-89
[17] King v. Burwell, 135 S.Ct. 2480, 2488-89 (2015) (citing FDA v. Brown & Williamson Tobacco Corp., 529 U. S. 120, 159, 120 S. Ct. 1291, 146 L. Ed. 2d 121 (2000) (internal quotation marks omitted).)
[18] ACA Subsidies Upheld by Supreme Court, Ensuring Help for Federal Exchange Buyers, Health Insurance Report (BNA), by Mary Anne Pazanowski, 21 HIR 20 (Issue No. 26, 07/01/15) (quoting Robert M. Projansky, the head of Proskauer’s Health Care Reform Task Force, Chicago.)
[19] King, 135 S. Ct. at 2489
[20] King v. Burwell, 135 S.Ct. 2480, 2489 (2015) (citing Utility Air Regulatory Group v. EPA, 573 U. S. ___, ___, 134 S. Ct. 2427, 189 L. Ed. 2d 372, 394 (2014) (quoting Brown & Williamson, 529 U. S., at 160, 120 S. Ct. 1291, 146 L. Ed. 2d 121).)
[21] King v. Burwell, 135 S.Ct. 2480, 2489 (2015) (citing Utility Air Regulatory Group v. EPA, 573 U. S. ___, ___, 134 S. Ct. 2427, 189 L. Ed. 2d 372, 394 (2014) (quoting Brown & Williamson, 529 U. S., at 160, 120 S. Ct. 1291, 146 L. Ed. 2d 121).)
[22] King, 135 S. Ct. at 2489
[23] Roberts Rescues Health Care Law Again; U.S. Supreme Court Upholds Premium Tax Credits, Tax Management Weekly State Tax Report (BNA), by Kimberly Robinson, July 03, 2015, 2015 WSTR 17 (Issue No. 27, 07/03/15) (quoting Russ Sullivan, a senior adviser at McGuire Woods Consulting and a former staff director of the Senate Finance Committee.) (See also Obama Revels in Another ACA Victory at Supreme Court, Health Insurance Report (BNA), by Cheryl Bolen, 21 HIR 15 (Issue No. 26, 07/01/15).)
[24] Roberts Rescues Health Care Law Again; U.S. Supreme Court Upholds Premium Tax Credits, Tax Management Weekly State Tax Report (BNA), by Kimberly Robinson, July 03, 2015, 2015 WSTR 17 (Issue No. 27, 07/03/15) (quoting Russ Sullivan, a senior adviser at McGuire Woods Consulting and a former staff director of the Senate Finance Committee.)
[25] ACA Subsidies Upheld by Supreme Court, Ensuring Help for Federal Exchange Buyers, Health Insurance Report (BNA), by Mary Anne Pazanowski, 21 HIR 20 (Issue No. 26, 07/01/15)