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    King v. Burwell: A Policy Expert’s View, Part 2: The Verdict

    Posted by Katie Hennessy on Jul 2, 2015 3:28:59 PM

    This is the second installment of a 2-part commentary by Jones & Bartlett Learning author and health policy expert, Joel Teitelbaum, on the most recent challenge to the Affordable Care Act (ACA) before the U.S. Supreme Court.

    On June 26th, 2015, the United States Supreme Court released its opinion in the case of King v. Burwell – the Court’s third pronouncement concerning the legality, meaning, and/or operation of the Affordable Care Act (ACA) since 2012 – which concerned “whether the Internal Revenue Service [IRS] may permissibly promulgate regulations to extend tax-credit subsidies to coverage purchased through exchanges established by the federal government under Section 1321” of the ACA. (See my blog on the background of the case here.) While on its face this issue appears dry and technical, it in fact lies at the heart of the operation of the ACA and holds the key to affordable health insurance coverage for millions of low- and moderate-income Americans. In a straightforward but monumentally important 6-3 ruling authored by Chief Justice Roberts, the King Court upheld the ACA’s statutory and regulatory scheme, permitting federal subsidies to flow through both state-run and federally-facilitated insurance exchanges.

    In short, the set-up of the case is as follows.  The ACA directs states to create an insurance exchange, which amounts to an online marketplace where individuals can compare and shop for health insurance policies. In the 34 states that thus far have elected not to create a state-run exchange, the federal government has filled the void, also per the ACA, by creating a “federally facilitated marketplace” in those states. Furthermore, the ACA offers federal tax credits (i.e., a subsidy) to individuals who need financial assistance in order to purchase products through an exchange. In establishing the formula used to determine the awarding of the tax credits, Congress wrote in the ACA that the credits apply to insurance purchased through an exchange “established by the State.”  Put another way, the ACA’s language about the flow of tax credits to those who purchase insurance through an exchange does not specifically mention marketplaces that were established by the federal government. After the ACA was passed and federal agencies began the task of passing thousands of rules implementing the law, the IRS issued a regulation indicating that tax credits were available for purchases under both state-formed and federally-facilitated exchanges.

    The plaintiffs who initiated King v. Burwell contended that the IRS regulation was unlawful. They argued that the statutory language “established by the State” literally means that ACA tax credits are allowed only in the event that the purchase of insurance occurred through an exchange established by a state. In contrast, the Obama Administration contended that when read as a whole, the ACA makes it clear that both state- and federally-run exchanges are meant to be subject to the law’s subsidy language.

    The Supreme Court majority sided with the Obama Administration, opting for a commonsensical, contextual reading of the ACA’s subsidy language, tying the subsidies to the overall purpose of the law. Doing otherwise, according to the Chief Justice, would bring about “the type of calamitous result [insurance market failure] that Congress plainly meant to avoid” in crafting the ACA to begin with.

    In upholding the subsidy scheme, the Court majority relied on an approach that differed somewhat from lower courts that had also ruled that subsidies were available in all exchanges, and with important implications. In an approach that is typical in cases of statutory interpretation, some lower courts ruled that the subsidy language was, at best, ambiguous as to whether all exchanges could provide tax credits, and thus the courts deferred to the IRS (i.e., the federal agency charged with implementing the language) interpretation of the statute. In a critical move, the Supreme Court in contrast ruled that because the availability of tax credits was an issue with “deep economic and political significance” to the country, the meaning of the subsidy language should be interpreted by the Court itself, rather than left to agency discretion. This decision means that the only way the subsidy language can be altered now is through congressional action, rather than by a future president whose administration would re-interpret the language more narrowly. This makes it far more likely that the subsidies will remain available in all states going forward.

    With that settled, the Court proceeded to interpret both the purpose of the ACA and the IRS regulation extending the insurance subsidies to all exchanges, noting that the Court’s duty is to construe statutes as a whole, not “isolated provisions.” Chief Justice Roberts wrote: “Congress passed the Affordable Care Act to improve health insurance markets, not to destroy them. If at all possible, we must interpret the [ACA] in a way that is consistent with the former, and avoids the latter. [The IRS regulation] can fairly be read consistent with what we see as Congress’s plan, and that is the reading we adopt.”

    In addition to saving insurance subsidies for millions of Americans, the decision in King v. Burwell could have other ramifications, as well. Taken in conjunction with NFIB v. Sebelius (the 2012 Supreme Court decision upholding the constitutionality of the ACA), lower courts may read King’s direction to interpret the ACA as a congressional effort to improve insurance markets as a signal to forestall future litigation against the law. Furthermore, in states that have had difficulty setting up or operating their own exchange, the decision may encourage them to rely on the federal exchange apparatus; since there is no longer the threat that insurance subsidies could easily be untethered from federally-facilitated exchanges, the use of such an exchange could become relatively more attractive.

    TetelbaumJoel Teitelbaum, JD, LLM is an Associate Professor and the Vice Chair of Academic Affairs in the Department of Health Policy at the George Washington University School of Public Health and Health Services. He also serves as Managing Director of the School’s Hirsh Health Law and Policy Program. Along with co-author Sara Wilensky, Professor Teitelbaum is the author of Essentials of Health Policy and Law, Second Edition from Jones & Bartlett Learning. (Qualified instructors are invited to request review copies here.) Professors Teitelbaum and Wilensky are also the authors of an eChapter on Health Reform which may be bundled with any Jones & Bartlett Learning text at no additional cost.

    Topics: Health, ACA, Affordable Care Act, health policy, Joel Teitelbaum, Public Health

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