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An In-Depth Look at the Supreme Court’s Decision in King v. Burwell

June 26, 2015

Context, “Inartful Drafting,” and Avoiding “Death Spirals”

By Patrick Keenan, Consumer Engagement Manager

King v. Burwell is a case where opponents of the Affordable Care Act wanted to give large meaning to only a couple small words: “an Exchange established by the State.” These opponents hoped that the Supreme Court would limit the tax credits that make insurance affordable only to the Exchanges that are run by States. Doing so would deny tax credits to millions of Americans in the 36 states that have Exchanges run by the Federal government. 

The Supreme Court upheld tax credits for all Americans, regardless of whether the Exchange through which they received those credits was run by the State or the Federal government. Below is a summary of their logic.

The Court stated that “a provision that may seem ambiguous in isolation is often clarified by the remainder of the statutory scheme” intended by Congress (15), The Court rejected the view that the entire viability of the Affordable Care Act turns on “the ultimate ancillary provision: a sub-sub-sub section of the Tax Code” (15): 

We doubt that is what Congress meant to do. Had Congress meant to limit tax credits to State Exchanges, it likely would have done so in the definition of “applicable taxpayer” or in some other prominent manner. It would not have used such a winding path of connect-the-dots provisions about the amount of the credit. (20)

The Court admitted that the Affordable Care Act suffers from “more than a few examples of inartful drafting” (14). This they ascribe to the complexity under which Congress assembled the law.  In thousands of pages, several words may cause confusion. That is nearly inevitable. However, broader context is key: “the words of a statute must be read in their context and with a view to their place in the overall statutory scheme” (15). Words cannot be taken in isolation; they must have meaning within the entire intent of the lawmakers. 

What is really important here is that the fate of the Affordable Care Act does not hinge on a couple of words, or later administrative interpretation. The opponents of the law had hoped to open up the question as to whether or not the IRS or other administrative bodies could use their interpretive powers to change the intended outcomes of the Affordable Care Act. The Supreme Court said they could not.  The Court stated clearly that Congress did not want to delegate its authority to interpret the statute to the IRS or any other body: 

The tax credits are among the Act’s key reforms, involving billions of dollars in spending each year and affecting the price of health insurance for millions of people. Whether those credits are  available on Federal Exchanges is thus a question of deep “economic and political significance” that is central to this statutory scheme; had Congress wished to assign that question to an agency, it surely would have done so expressly. (8) 

This is a huge victory for supporters of the law, as it begins to close the idea that a subsequent administration might be able to dismantle the law from the inside. 

While the Court understood the plain meaning argument of the opponents of the tax credits, the Court found it “untenable in light of [the statute] as a whole” (20). This is the key victory in this case. The Court clearly recognized that Congress had the intent to improve conditions in health insurance markets throughout the United States. The Court states “the Act clearly contemplates that there will be qualified individuals on every Exchange” (10), whether or not the Exchange was established by the State or the Federal government. It sees the concept of Exchanges clearly established under 42 USC §18031(b)(1), with a fall back if a State did not establish an Exchange. The Federal government would establish the Exchange for that state under 42 USC §18041(c)(1). The Court sees State Exchanges and Federal Exchanges as equivalent, as they “must meet the same requirements, perform the same functions, and serve the same purposes” (10) even though they are established by two different entities.  The Court concludes: “If Federal Exchanges were not established under Section 18031, therefore, literally none of the Act’s requirements would apply to them” (12). 

In constructing the importance of context, the Supreme Court laid out very clearly the rational for the Affordable Care Act.  The Supreme Court Congress as intending to do three things: 

  • Ensure that everyone had access to health insurance, regardless of health conditions, and that premiums were not individualized, but rather assessed on the total group of insured individuals (guaranteed issue and community rating)
  • Make coverage mandatory for most and have the IRS collect a shared responsibility payment from those who were uninsured, and 
  • Provide tax credits to make insurance more affordable. 

The Court states in its opinion that these “three reforms are “closely intertwined”” (4). Highlighting this point, the Court quotes the Affordable Care Act: “Together, those reforms “minimize . . . adverse selection and broaden the health insurance risk pool to include healthy individuals, which will lower health insurance premiums” (16).

The Court recognizes that Congress saw these three parts working together to ensure that people would not wait until they became sick to purchase insurance. They refer to this as the “death spiral” seen in the states of Washington and New York, after failed attempts at health insurance reform led to drastically high prices, which then reduced the insured rate.  The Court recognizes that Congress knew that: “guaranteed issue and community rating would not work without the coverage requirement” (5). The Court states later: “The combination of no tax credits and an ineffective coverage requirement could well push a State’s individual insurance market into a death spiral” (17).

The Court’s conclusion speaks for itself:

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. Section 36B can fairly be read consistent with what we see as Congress’s plan, and that is the reading we adopt. (21) 

For a copy of the full decision, go to:  

Below are the legal cases mentioned in each of the points above:

[1] United Sav. Assn. of Tex. v. Timbers of Inwood Forest Associates, Ltd.

[2] Utility Air Regulatory Group v. EPA

[3] FDA v. Brown & Williamson Tobacco Corp.

[4] Department of Revenue of Ore. v. ACF Industries, Inc.