On June 25, 2015, the Affordable Care Act (ACA) dodged a potentially fatal legal bullet. In King v. Burwell, the US Supreme Court, in a majority decision written by Chief Justice Roberts, rejected a challenge to an IRS tax credit regulation that threatened to unwind the entire fabric of President Obama’s signature health care law. This is the second time in three years Roberts has saved the ACA from demise.
A major component of Obamacare is the individual mandate, which requires those who are not otherwise covered by a health insurance policy to purchase insurance at their own expense. Low income individuals receive a tax credit to help offset the cost of premiums. In 2012, the Chief Justice penned the decision that held the ACA’s individual mandate was constitutional under Congress’s power to levy taxes. The most recent challenge to the law was not based on the constitution, but rather on the statute itself and the legality of an IRS regulation based on the statute.
To facilitate the individual mandate, the ACA requires the formation of a health care insurance “exchange” or marketplace in each state. Individual state exchanges are required because the insurance industry is, traditionally, an area of state, not federal, concern and each state regulates insurance providers somewhat differently. The ACA encourages states to form their own exchanges, but also provides for federally created exchanges to accommodate individuals in states that do not participate. As noted by Chief Justice Roberts, 36 states have not created health care exchanges and millions of their residents rely on federally created exchanges. The challenged IRS regulation grants tax credits to qualified individuals in all states even though the tax code portion of the statute uses the term “[e]xchanges established by the states” when defining certain relevant provisions.
Statutorily created regulatory agencies, like the IRS, only may act as directed by statute. The petitioners in this case alleged the IRS exceeded its authority by granting tax credits to those who purchased insurance on federal, rather than state, exchanges. Had the petitioners succeeded, the financial stability of the ACA insurance program would have been in jeopardy because millions of healthy individuals would not purchase health insurance because they would not be able to afford the premiums. This would hinder the ability of insurance companies to pay the health care bills of the remaining participants and, eventually, drive insurers out of business.
Although Roberts ultimately ruled the IRS regulation applies the correct interpretation of the law, he drolly acknowledged, “The Affordable Care Act contains more than a few examples of inartful drafting,” and even referenced a political cartoon in which a Senator proclaims to his colleagues, “I admit this new bill is too complicated to understand. We’ll just have to pass it to find out what it means.” In the end, however, the Chief Justice applied a contextual theory of statutory interpretation that emphasizes the language and intent of an entire statute rather than the narrow meaning of isolated words or phrases. Roberts used painstakingly detailed linguistic analysis to support his determination that the contested phrase, “established by the state,” must be construed as applying to all exchanges, but he also relied on the cold-hard fact that to do otherwise would nullify the entire legislation.
The Chief Justice concluded his opinion with a strong statement regarding the judiciary’s role in the balance of power and a defense of his decision “to depart from what would otherwise be the most natural reading of the pertinent statutory phrase.” Roberts first quoted Marbury v. Madison, the landmark case that established judicial review, “In a democracy, the power to make the law rests with those chosen by the people. Our role is more confined—‘to say what the law is.’” He continued, “That is easier in some cases than in others. But in every case we must respect the role of the Legislature, and take care not to undo what it has done. A fair reading of legislation demands a fair understanding of the legislative plan. Congress passed the Affordable Care Act to improve health insurance markets, not to destroy them. If at all possible, we must interpret the Act in a way that is consistent with the former, and avoids the latter.”
Justices Breyer, Ginsburg, Kagan, Kennedy, and Sotomayor joined in the majority opinion. Justice Scalia’s dissent, which was joined by Justices Alito and Thomas, is clear and forceful. “The Court holds that when the Patient Protection and Affordable Care Act says 'Exchange established by the State' it means 'Exchange established by the State or the Federal Government.' That is of course quite absurd, and the Court’s 21 pages of explanation make it no less so.”
Ellen K. Boegel, an associate professor of legal studies at St. John’s University in New York, clerked for the United States Court of Appeals for the Second Circuit.