King v. Burwell: Supreme Court Upholds Federal Exchanges
On June 25, 2015, the U.S. Supreme Court rendered a decision in the highly anticipated case of King v. Burwell, which centered around the viability of certain provisions of the Patient Protection and Affordable Care Act (“ACA”). The King decision, rendered three months after arguments were heard, decided an issue the Court described as “a question of deep ‘economic and political significance.’” Specifically, the Court decided whether the ACA intended for tax credits to be available to individuals who purchased their insurance through either a State or Federal Exchange or just through a State Exchange. Ultimately, the Court held both State and Federal Exchanges should offer tax credits to purchasers.
The ACA “requires the creation of an ‘Exchange’ in each State where people can shop for insurance, usually online.” The issue before the Court centered on the one particular phrase in the ACA - “an Exchange established by the State under [the ACA]” - and whether that phrase allows the federal government to operate Exchanges. The Petitioners took the position that the phrase allowed only States to create an Exchange. The IRS took the opposing position that such language allowed tax credits to be available on “anExchange,” “regardless of whether the Exchange is established and operated by a State” or the federal government. The lower courts disagreed over whether that particular phrase in the ACA was ambiguous.
While the Court considered the plain meaning of the phrase, it did so with an eye towards “the words ‘in their context and with a view to their place in the overall statutory scheme.’” Considering the overall context, the Court stated that the phrase was ambiguous. Critically, the Court opined that the Act contained “more than a few examples of inartful drafting,” and “the Act does not reflect the type of care and deliberation that one might expect of such significant legislation.” In finding the ACA meant for tax credits to be available through both State and Federal Exchanges, the Court pointed out that the opposing view was inconsistent with the ACA’s goal and would cause “the type of calamitous result that Congress plainly meant to avoid.”
In rejecting the Petitioner’s argument, the Court concluded that a strict reading would result in States where only one of the three goals of the ACA could be effectuated, thereby undermining the purpose of the ACA. “Petitioner’s arguments about the plain meaning of Section 36B are strong. But . . . the context and structure of the Act compel[ed] [the Court] to depart from what would otherwise be the most natural reading of the pertinent statutory phrase.” Thus, “the statutory scheme compel[ed] [the Court] to reject petitioners’ interpretation because it would destabilize the individual insurance market in any State with a Federal Exchange, and likely create the very ‘death spirals’ that Congress designed the [ACA] to avoid.” The majority opinion concluded with inspirational words regarding respecting the role of the Legislature and protecting the legislation they passed.
The opinion, however, did not come without dissent. Justice Scalia penned a pointed dissent which was joined by Justice Thomas and Justice Alito. Overall, Justice Scalia focused on the plain language of the questioned phrase and criticized the majority for rendering a decision where “[w]ords no longer have meaning.”
Regardless, the bottom line is that the King decision upholds the status quo of the ACA and the insurance markets. The current “Exchanges,” both State and Federal, can continue to operate in the same manner as before. The Court’s opinion eliminates the need for a legislative stop-gap.