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King v. Burwell

King v. Burwell - The Challenge to the Affordable Care Act ("Obamacare")

Earlier this week, the Supreme Court of the United States heard oral argument in the case of King v. Burwell (Case No. 14-114) concerning the Affordable Care Act ("ACA" also known by many under the more pejorative "Obamacare").

Press coverage of this case has generally concluded that the central legal issue is a matter of statutory interpretation: Whether a health care exchange established by the federal government in a state that declined to establish its own exchange is eligible to have its enrollees receive premium subsidies. A lot of ink has been spent around interpreting the statute as to whether these federal exchanges allow consumers to be eligible to receive the subsidies or whether only those exchanges established by a state are eligible for tax subsidies.

King v. Burwell - The Challenge to the Affordable Care Act ("Obamacare")

Earlier this week, the Supreme Court of the United States heard oral argument in the case of King v. Burwell (Case No. 14-114) concerning the Affordable Care Act ("ACA" also known by many under the more pejorative "Obamacare").

Press coverage of this case has generally concluded that the central legal issue is a matter of statutory interpretation: Whether a health care exchange established by the federal government in a state that declined to establish its own exchange is eligible to have its enrollees receive premium subsidies. A lot of ink has been spent around interpreting the statute as to whether these federal exchanges allow consumers to be eligible to receive the subsidies or whether only those exchanges established by a state are eligible for tax subsidies.

More specifically, Section 36B of the ACA, that details the formula for calculating tax credits under the Act, defines a "coverage month" as one in which the taxpayer is covered by a plan purchased through an "Exchange established by the State under section 1311." See
26 U.S.C. § 36B(c)(2)(A)(i).

The entire text of that particular section reads:

The term "coverage month" means, with respect to an applicable taxpayer, any month if-
(i) as of the first day of such month the taxpayer, the taxpayer's spouse, or any dependent of the taxpayer is covered by a qualified health plan described in subsection (b)(2)(A) that was enrolled in through an Exchange established by the State under section 1311 of the Patient Protection and Affordable Care Act, and
(ii) the premium for coverage under such plan for such month is paid by the taxpayer (or through advance payment of the credit under subsection (a) under section 1412 of the Patient Protection and Affordable Care Act). (emphasis added)

It is on the basis of this reference that conservative groups and various states have rallied to oppose the ACA under the theory that a state that did not establish its own exchange cannot have its enrollees eligible for the subsidies provided for low and moderate income enrollees and their families.

These challengers, however, miss a crucial distinction between the ACA and a simply statutory interpretation case. For, the issue is not one simply of statutory interpretation. The Supreme Court is actually reviewing something one step removed. The "question presented" to the Supreme Court - the issue that the Supreme Court states that it is determining in this case before it - makes that clear:

Whether the Treasury Department permissibly interprets 26 U.S.C. 36B to make the Affordable Care Act's federal premium tax credits available to eligible taxpayers through the Exchanges in every State.

The Supreme Court itself said it is determining not the statute itself, but whether the Treasury Department's interpretation of the statute is "permissible."

The particular statutory language in question - at section 36B of the ACA - authorizes the Department of Treasury to "prescribe such regulations as may be necessary" to implement
the Act's tax credits. 26 U.S.C. 36B(g); see 26 U.S.C. 7805(a).

The I.R.S. did so. Included in the I.R.S. regulations was an interpretation that those taxpayers who were in states where the federal government ran the exchange eligible for the tax subsidies for premiums under the ACA.

The I.R.S. promulgated regulations - after a period of notice and comment - and concluded that tax credits are available on the federal run exchanges, which are run on behalf of a state, on the same terms as those exchanges run directly by the states themselves. See 26 C.F.R. 1.36B-1(k), 1.36B-2(a); see 77 Fed. Reg. 30,378 (2012).

This interpretation of the statute was also adopted by the Department of Health and Human Services as to other provisions of the ACA containing the same or similar phrasing.

In order to find that the tax subsidies do not apply to the federally run exchanges, at least five justices of the Supreme Court will not only have to conclude - as a matter of statutory interpretation - that the ACA's language should be read to limit subsidies to only exchanges run directly by a state, they will also have to fault the I.R.S.'s interpretation of the statute.

Because an administrative agency (in this case, the Department of Treasury) has been charged within the ACA with interpreting the law and producing regulations to implement the law, that administrative agency's interpretation of the statute is normally entitled to "deference."

Judicial deference to administrative agency determinations is a fundamental concept of administrative law and was enshrined in the case of Chevron U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837 (1984).

In Chevron, when an administrative agency has interpreted a statute pursuant to its regulatory authority, a reviewing court is to conduct a two-step analysis. First, the court looks to the statute to determine whether the statute's meaning is "plain." As the Supreme Court stated in Chevron, " If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress." Id. at 842-843

Where, however, the meaning of the statute is not clear, the Supreme Court does not get to interpret the statute itself. Id. at 843. The Court, again in Chevron, stated " If, however, the court determines Congress has not directly addressed the precise question at issue, the court does not simply impose its own construction on the statute, as would be necessary in the absence of an administrative interpretation. Rather, if the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency's answer is based on a permissible construction of the statute."

When the Supreme Court reviews a statute that is ambiguous and where, as in this case, an administrative agency has interpreted the statute in its rulemaking capacity, the Supreme Court is to defer to that agency's interpretation of that statute under most circumstances. Again, as the Supreme Court stated in Chevron, "If Congress has explicitly left a gap for the agency to fill, there is an express delegation of authority to the agency to elucidate a specific provision of the statute by regulation. Such legislative regulations are given controlling weight unless they are arbitrary, capricious, or manifestly contrary to the statute." Id. at 843-844.

To put the ACA case in a different light, to rule in favor of the plaintiffs challenging the ACA, the Supreme Court must either find that the "plain meaning" of the statute requires that only state administered exchanges are entitled to subsidies for those enrolling with low or moderate incomes or it must find the I.R.S.'s interpretation of the statute was "arbitrary, capricious, or manifestly contrary to the statute."

Rules of statutory construction require that the Supreme Court review the statute as a whole. As several amicus briefs make clear, the statute as a whole cannot be interpreted solely based upon the few words quoted above to mean that only state run exchanges are eligible for subsidies. It is also the case that various briefs have argued that the challenger's interpretation of the statute is inconsistent with numerous other portions of the statute that presumes that federally run exchanges on behalf of a state would be eligible for subsidies.

It is also the case that while people may disagree with the I.R.S.'s interpretation of the statute, it is not "arbitrary, capricious, or manifestly contrary to the statute."

The Fourth Circuit Court of Appeal opinion in Burrell that is now being reviewed by the Supreme Court squarely based its decision on deferring to the I.R.S. interpretation of the statute. See (4th Cir. 2014) 759 F.3d 358. The court stated, "Rejecting all of the plaintiffs' arguments as to why Chevron deference is inappropriate in this case, for the reasons explained above we are satisfied that the IRS Rule is a permissible construction of the statutory language. We must therefore apply Chevron deference and uphold the IRS Rule." Id. at 376.

Put bluntly, the dynamics of the Burrell case mean that if the Supreme Court were to find for the plaintiffs and rule that the federally run exchanges on behalf of individual states are not entitled to subsidies, the Could would have to violate not only various norms of statutory construction, but also of long-standing deference to an administrative agency's interpretation of a statute.

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