By Micah Vorwaller for BiolawToday.org.
ACA Subsidy Challenge – Statutory Interpretation and Agency Deference Under Chevron
On November 7, 2014, the Center for Law and Bioscience published Travis Walker’s House of Cards – Statutory Interpretation and the Affordable Care Act[1], which provided a clear analysis of the federal circuit split regarding challenges to the ACA via subsidies.[2] This article is intended to act as an update on recent developments to the issue, as well as expound further upon the perceived challenge to the Chevron doctrine by the current cases challenging the ACA subsidies.
Brief Review/Overview
On July 22, 2014, the U.S. Court of Appeals for the Fourth Circuit in the case of King v. Burwell[3], upheld the validity of an IRS rule,[4] which states that all exchange buyers, regardless of whether they use a federally facilitated or state-run exchange, may be eligible for tax credits, or subsidies, designed to help them afford the coverage.[5] The court upheld the rule because the statutory language on which the plaintiffs based their argument was at best ambiguous and the IRS’s interpretation was reasonable and entitled to deference.[6] Petitioners sought review of the decision by the U.S. Supreme Court.
On the same day as the King opinion was released, the U.S. Court of Appeals for the District of Columbia Circuit issued a contrary opinion, on the same issue, in Halbig v. Burwell.[7] The D.C. Circuit found that the IRS rule was contrary to the plain language of the Affordable Care Act, and that the ACA limits the availability of subsidies to state-run exchange buyers.[8][9] On Sept. 4, that decision was vacated upon a grant of the government’s motion for rehearing en banc, which thereby arguably removed any current circuit split.[10] [11][12] Oral argument was scheduled for Dec. 17.[13]
On September 30, 2014, the U.S. District Court for the Eastern District of Oklahoma decided that the IRS rule at issue was invalid because the rule is “arbitrary, capricious, an abuse of discretion or otherwise not in accordance with [the] law.”[14] The Court vacated the IRS rule, but stayed the vacatur pending any appeal from its order.[15]
Recent Developments
On November 7, 2014, the U.S. Supreme Court granted a petition for a writ of certiorari filed in King v. Burwell.[16]
On November 12, 2014, the U.S. Court of Appeals for the District of Columbia Circuit granted a motion to hold in abeyance the case of Halbig v. Burwell, pending a decision on the issue by the U.S. Supreme Court.[17]
On November 17, 2014, the Federal Government asked the U.S. Court of Appeals for the Tenth Circuit to hold in abeyance the Okla. ex rel. Pruitt v. Burwell case because the U.S. Supreme Court had granted review of King v. Burwell, which presents the same issue.[18]
Major Issue
The major issue presented by these cases is access to subsidies by eligible purchasers using a federally facilitated exchange. Internal Revenue Service Rule 26 C.F.R. § 1.36B, (IRS Rule 1.36B-1(k), 26 C.F.R. § 1.36B-1(k), See also, ACA §§ 1311, 1321) allows 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.
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 courts must decide whether the IRS interpreted the statute correctly when they promulgated the challenged rule. The established test for this type of question is Chevron[19] deference; it 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.
The Chevron analysis begins by establishing whether the agency acted with the force of law; if yes, the analysis proceeds to step one of the analysis, which asks whether the statute is ambiguous on the question at hand and the traditional tools of statutory construction are used for interpreting the statute. If the court determines that the statute is clear and unambiguous on the question at hand, then Congress’s clearly expressed intent governs and a contrary construction by an agency is void. If the court determines that the statute is not clear and unambiguous, then the court must determine whether the agency’s interpretation is reasonable and/or permissible. Under Chevron, unless Congress’s intent is clear, courts should defer to a permissible construction of a statute by the agency administering it. A construction is permissible if it is “sufficiently rational … to preclude a court from substituting its judgment for that of the agency.”[20]
Thus, the question to be answered by the Court is whether the IRS properly interpreted the ACA statute when it promulgated the challenged rule. This question will be resolved using Chevron analysis, which will determine whether the statutory provision that has been interpreted by the IRS is ambiguous—in regards to Congress’s intent when drafting the statute—if the Court finds that the statute is ambiguous, then the Court should defer to the agency’s interpretation.
The courts that have analyzed this issue so far have all used the Chevron analysis to reach their respective decisions. However, though all the courts purport to be using the same test, they have arrived at varying outcomes. So far this issue has been reviewed by nine federal judges, of which six judges have found that the statute is ambiguous, and three have found that the statute is unambiguous by its plain text and therefore precludes the subsidies allowed by the IRS rule.[21] The sharp disparity illustrated by the different conclusions reached also seems to serve as a clear illustration that the statute is ambiguous in one way or another.
The Four Cases Challenging IRS Rule 1.36B-1(k), 26 C.F.R. § 1.36B-1(k)[22]:
- King v. Burwell, 759 F.3d 358 (4th Cir. 2014)[23]
- Current status: Writ of certiorari granted by U.S. Supreme Court
- Appellate Court’s decision: The Court specifically decided the question in the second step of the Chevron analysis, and upheld the lower court’s decision that the IRS’s rule was a permissible construction and subject to deference.
- Halbig v. Burwell, 758 F.3d 390 (D.C. Cir. 2014) [24]
- Current status: Rehearing en banc granted, vacating decision, case held in abeyance awaiting U.S. Supreme Court’s decision in King v. Burwell.
- Appellate Court’s decision: Three-judge panel overturned lower court’s decision that Congress intended to make subsidies available to both State and Federally run exchanges. The Court based its decision on a textualist or plain meaning reading of the statute. In his dissent, Judge Edwards’ analysis under Chevron leads to a different conclusion than the majority.
- ex rel. Pruitt v. Burwell, 2014 U.S. Dist. LEXIS 139501 (E.D. Okla. 2014)[25]
- Current status: Appealed to Tenth Circuit Court of Appeals, Motion from Federal government asking for abeyance until U.S. Supreme Court decides King v. Burwell.
- District Court’s decision: The court utilized the Chevron analysis and decided that based on a plain reading of the statutory text involved, the IRS’s rule was invalidated.
- Indiana v. IRS, 2014 U.S. Dist. LEXIS 111068 (S.D. Ind. Aug. 12, 2014)
- Current status: Defendant’s motion to dismiss was denied in part and affirmed in part. Subsequent filings should consider the relevant cases proceeding on the same issues.
- District Court’s decision: This case has not yet reached an argument regarding the statutory interpretation or promulgation of the rule by the IRS.
Conclusion
Chevron deference is correlated with the idea that courts give a lot of deference to an agency’s interpretation of a statute, thereby allowing agencies a substantial amount of leeway. It has become generally understood that if a court reaches the second step of the Chevron analysis, though not always the case, the agency’s interpretation is usually upheld. The first step of Chevron is often the most difficult issue for courts to determine, and the Court has placed an emphasis on resolving ambiguity in step one, making this a big issue. In step one, the courts provide less deference to the agency. Thus, if the accepted generalities of Chevron analysis are followed by the Court in addressing the IRS Rule before them in King, it would seem that the Chevron first step is met because the statute is ambiguous – based on the disparity of interpretations by federal judges – so the Court should then proceed to step-two.
In reaching step-two, the Court should be deferential to an agency’s interpretation, as long as that interpretation is reasonable/permissible. Based solely on the decisions of the federal judges that have already weighed in on the issue, the IRS’s interpretation appears could be construed as reasonable/permissible, because the majority of the judges have stated as much; though the determination is still dependent upon an analysis of the text. If the majority of judges think that the agency’s interpretation is reasonable, then the Court may conclude the same and defer to the agency’s interpretation as well. However, as is very clear by the decisions of these same judges, this type of outcome is not guaranteed even where the same test is being used to reach that conclusion.
Because the courts have reached different decisions by using different circuit specific case law analysis of the Chevron deference test, the Supreme Court’s decision has the potential to significantly impact not only the interpretation/application of the ACA, but also how courts should analyze cases in separate circuits while still using the Chevron deference test. The disparity of analysis and rationales expounded by the various judges in the respective cases leaves the eventual holding of the Supreme Court—and its effect on both the ACA and on Chevron deference—open to conjecture. However, because the Court has emphasized resolving ambiguity in step one, the decision that the Court makes in King could have small—or huge—influence on how Chevron is applied going forward.
Micah is currently a third year law student at the University of Utah S.J. Quinney college of Law. Micah graduated from the University of Utah in 2009 and subsequently worked for ARUP Laboratories until beginning law school. At ARUP Micah performed a variety of functions such as medical test methodology research and the building of a federal, state, and agency licensure database for referral testing laboratories across the nation. His legal interests are in those areas associated with the sciences, medicine, and health. Micah is an avid soccer fan and enjoys both watching and playing as time permits.
[1] Travis Walker, House of Cards – Statutory Interpretation and the Affordable Care Act, Center for Law and Biomedical Sciences, (Nov. 7, 2014), http://law.utah.edu/house-of-cards-statutory-interpretation-and-the-affordable-care-act/#_ednref13
[2] Id.
[3] King v. Burwell, 759 F.3d 358 (4th Cir. 2014)
[4] 26 C.F.R. 1.36B-2(a)(1)
[5] King v. Burwell, 759 F.3d 358 (4th Cir. 2014)
[6] Health Law Reporter (BNA), 23 HLR Issue No. 46 – November 20, 2014. Health System Reform: D.C. Cir. Grants Challengers’ Motion to Delay Rehearing of Case Testing IRS Subsidy Rule, https://www.bloomberglaw.com/search/results/0774dbacc6c4af46dca69dd9ac6962e6/document/XFNG4OQK000000?search32=C9P6UQR5E9FN6PB1E9HMGNRKCLP6QFA8C5M64QB741R2S822ELP7EPBCDGTJMRJFBTKMQS2VE1K74OBJCLPJQC8
[7] Halbig v. Burwell, 758 F.3d 390 (D.C. Cir. 2014)
[8] Id.
[9] See King v. Sebelius, 997 F. Supp. 2d 415, 2014 U.S. Dist. LEXIS 20019 (2014) (Decision from the U.S. District Court for Eastern Virginia which was subsequently overturned and the IRS rule invalidated by a three-judge panel of the D.C. Circuit.)
[10] Mary Anne Pazanowski, Obama Administration, State Seek Judgment In Indiana Health Exchange Subsidy Case, Health Law Reporter (BNA), (Aug. 27, 2014), https://www.bloomberglaw.com/search/results/0774dbacc6c4af46dca69dd9ac6962e6/document/XDIIQ6JO000000?jcsearch=dk%253Abna%2520a0f5c5y3w2#jcite
[11] Michael F. Cannon, Yes, Virginia, There’s Still a Circuit Split Between ‘Halbig’ and ‘King,’ Forbes (Oct. 14, 2014), http://www.forbes.com/sites/michaelcannon/2014/10/14/yes-virginia-theres-still-a-circuit-split-between-halbig-and-king/
[12] Halbig v. Burwell, 2014 U.S. App. LEXIS 17099, 114 A.F.T.R.2d (RIA) 5868 (D.C. Cir. 2014)
[13] Mary Anne Pazanowski, High Court Grants Review in Subsidy Case, Won’t Wait for Federal Appeals Court Split, Health Law Reporter (BNA), (Nov. 7, 2014), https://www.bloomberglaw.com/search/results/0774dbacc6c4af46dca69dd9ac6962e6/document/XBJGKRB0000000?jcsearch=dk%253Abna%2520a0f8v6z4d2#jcite
[14] Oklahoma ex rel. Pruitt v. Burwell, 2014 U.S. Dist. LEXIS 139501, 27, 2014-2 U.S. Tax Cas. (CCH) P50, 459, 114 A.F.T.R.2d (RIA) 6151 (E.D. Okla. 2014)
[15] Mary Anne Pazanowski, Federal District Court in Oklahoma Sides With State in Debate Over ACA Tax Subsidies, Health Law Reporter (BNA), (Oct. 2, 2014), https://www.bloomberglaw.com/search/results/0774dbacc6c4af46dca69dd9ac6962e6/document/XF6UE45K000000?jcsearch=dk%253Abna%2520a0f6t1h3p8#jcite
[16] King v. Burwell, 2014 U.S. LEXIS 7428 (U.S. Nov. 7, 2014)
[17] Health Law Reporter (BNA), 23 HLR Issue No. 46 – November 20, 2014. Health System Reform: D.C. Cir. Grants Challengers’ Motion to Delay Rehearing of Case Testing IRS Subsidy Rule, https://www.bloomberglaw.com/search/results/0774dbacc6c4af46dca69dd9ac6962e6/document/XFNG4OQK000000?search32=C9P6UQR5E9FN6PB1E9HMGNRKCLP6QFA8C5M64QB741R2S822ELP7EPBCDGTJMRJFBTKMQS2VE1K74OBJCLPJQC8
[18] Okla. ex rel. Pruitt v. Burwell, 10th Cir., No. 14-7080, motion filed 11/17/14
[19] See Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984)
[20] Young v. Community Nutrition Institute, 476 U.S. 974, 981 (1986)
[21] In King v. Burwell, sitting for the U.S. Court of Appeals for the Fourth District, Judges Gregory, Thacker, and Davis concurred in the decision affirming the lower courts decision, and found 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.” King v. Burwell, 759 F.3d 358, 363, 2014 BL 201873, 3 (4th Cir. 2014)
In Halbig v. Burwell, sitting for the U.S. Court of Appeals for the D.C. Circuit, Judges Griffith, Edwards and Randolph overturned the lower courts decision. Two Judges agreed that the plain meaning of the statute “unambiguously forecloses the interpretation embodied in the IRS Rule and instead limits the availability of premium tax credits to state-established Exchanges.” Halbig, 758 F.3d 390, 61 (2014). Judge Edwards dissent stated that “the majority opinion effectively ignores the basic tenents of statutory construction, as well as the principles of Chevron deference… [and] defies the will of Congress and the permissible interpretations of the agencies to whom Congress has delegated authority to interpret and enforce the terms of the ACA, I dissent.” Id., at 427.
In Okla. ex rel. Pruitt v. Burwell, Judge White of the U.S. District Court for the Eastern District of Oklahoma held that “the IRS rule is arbitrary, capricious, an abuse of discretion or otherwise not in accordance with the law … in excess of statutory jurisdiction, authority, or limitations, or short of statutory right … or otherwise is an invalid implementation of the ACA…” Pruitt, 2014 U.S. Dist. LEXIS 139501 at 28.
[22] Mary Anne Pazanowski, Obama Administration, State Seek Judgment In Indiana Health Exchange Subsidy Case, Health Law Reporter (BNA), (Aug. 27, 2014), https://www.bloomberglaw.com/search/results/0774dbacc6c4af46dca69dd9ac6962e6/document/XDIIQ6JO000000?jcsearch=dk%253Abna%2520a0f5c5y3w2#jcite
[23] King v. Burwell, 2014 U.S. LEXIS 7428 (U.S. Nov. 7, 2014)
[24] Halbig v. Burwell, 758 F.3d 390, 395 (D.C. Cir. 2014) reh’g en banc granted, judgment vacated, No. 14-5018, 2014 WL 4627181 (D.C. Cir. Sept. 4, 2014)
[25] Okla. ex rel. Pruitt v. Burwell, 10th Cir., No. 14-7080, motion filed 11/17/14