Challenge to Obama Health Care Law
The Patient Protection and Affordable Care Act, 124 Stat. 119, grew out of a long history of failed health insurance reform. The Affordable Care Act adopted the guaranteed issue and community rating requirements. The Act provided that “each health insurance issuer that offers health insurance coverage in the individual market in a State must accept every individual in the State that applies for such coverage.” The Act also barred insurers from charging higher premiums on the basis of a person’s health. Second, the Act generally required individuals to maintain health insurance coverage or make a payment to the IRS. Congress recognized that, without an incentive, “many individuals would wait to purchase health insurance until they needed care.” So Congress adopted a coverage requirement to “minimize this adverse selection and broaden the health insurance risk pool to include healthy individuals, which will lower health insurance premiums.” In Congress’s view, that coverage requirement was essential to creating effective health insurance markets. Congress also provided an exemption from the coverage requirement for anyone who has to spend more than eight percent of his income on health insurance. The Act sought to make insurance more affordable by giving refundable tax credits to individuals with household incomes between 100 percent and 400 percent of the federal poverty line. §36B. Individuals who meet the Act’s requirements might purchase insurance with the tax credits, which were provided in advance directly to the individual’s insurer.
The Supreme Court observed that the three reforms were closely intertwined. Congress found that the guaranteed issue and community rating requirements would not work without the coverage requirement. And the coverage requirement would not work without the tax credits. The reason was that, without the tax credits, the cost of buying insurance would exceed eight percent of income for a large number of individuals, which would exempt them from the coverage requirement. Given the relationship between these three reforms, the Act provided that they should take effect on the same day—January 1, 2014.
The Act also required the creation of an “Exchange” in each State where people could shop for insurance, usually online. 42 U. S. C. §18031(b)(1). An Exchange might be created in one of two ways. First, the Act provided that each State shall establish an American Health Benefit Exchange for the State. Second, if a State nonetheless choose not to establish its own Exchange, the Act provided that the Secretary of Health and Human Services shall establish and operate such Exchange within the State. §18041(c)(1).The issue in the present case was whether the Act’s tax credits are available in States that have a Federal Exchange rather than a State Exchange. The Act initially provided that tax credits “shall be allowed” for any “applicable taxpayer.” 26 U. S. C. §36B(a). The Act then provided that the amount of the tax credit depend in part on whether the taxpayer has enrolled in an insurance plan through “an Exchange established by the State under section 1311 of the Patient Protection and Affordable Care Act [hereinafter 42 U. S. C. §18031].
Petitioners were four individuals who live in Virginia, which had a Federal Exchange. They did not wish to purchase health insurance. In their view, Virginia’s Exchange did not qualify as “an Exchange established by the State under 42 U. S. C. §18031,” so they should not receive any tax credits. That would make the cost of buying insurance more than eight percent of their income, which would exempt them from the Act’s coverage requirement. But under the IRS Rule, however, Virginia’s Exchange would qualify as “an Exchange established by the State” so petitioners would receive tax credits. That would make the cost of buying insurance less than eight percent of petitioners’ income, which would subject them to the Act’s coverage requirement. The IRS Rule therefore required petitioners to either buy health insurance they did not want, or make a payment to the IRS. Petitioners challenged the IRS Rule in Federal District Court. The District Court dismissed the suit, holding that the Act unambiguously made tax credits available to individuals enrolled through a Federal Exchange. King v. Sebelius, 997 F. Supp. 2d 415 (ED Va. 2014). The Court of Appeals for the Fourth Circuit affirmed. 759 F. 3d 358 (2014).
Section 36B allow an individual to receive tax credits only if the individual enroll in an insurance plan through “an Exchange established by the State under [42 U. S. C. §18031].” The Supreme Court had to determine whether a Federal Exchange is “established by the State” for purposes of Section 36B. At the outset, it might seem that a Federal Exchange cannot fulfill this requirement. After all, the Act defines “State” to mean each of the 50 States and the District of Columbia—a definition that does not include the Federal Government. But when read in context, “with a view to its place in the overall statutory scheme,” the meaning of the phrase “established by the State” is not so clear.
The Supreme Court observed that it must bear in mind the fundamental canon of statutory construction that the words of a statute must be read in their context and with a view to their place in the overall statutory scheme. After reading Section36B along with other related provisions in the Act, it observed that the phrase “an Exchange established by the State under Section 18031” was ambiguous.
To resolve the issue, the Court then turned to the broader structure of the Act to determine the meaning of Section 36B. “A provision that may seem ambiguous in isolation is often clarified by the remainder of the statutory scheme because only one of the permissible meanings produces a substantive effect that is compatible with the rest of the law.” United Sav. Assn. of Tex. v. Timbers of Inwood Forest Associates, Ltd., 484 U. S. 365 (1988). The Court observed that the statutory scheme compelled it 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 Act to avoid. Under petitioners’ reading, however, the Act would operate quite differently in a State with a Federal Exchange. As they see it, one of the Act’s three major reforms—the tax credits—would not apply. And a second major reform—the coverage requirement—would not apply in a meaningful way. The Court reasoned that it was implausible that Congress meant the Act to operate in this manner.
Finally the Supreme Court observed that in a democracy, the power to make the law rests with those chosen by the people. The Supreme Court’s role is more confined—“to say what the law is.” Marbury v. Madison, 1 Cranch 137, 177 (1803). That is easier in some cases than in others. But in every case the Court 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, the Supreme Court must interpret the Act in a way that is consistent with the former, and avoid the latter. Section 36B can fairly be read consistent with the Congress’s plan, and that is the reading the Court adopted. The judgment of the United States Court of Appeals for the Fourth Circuit was thus affirmed.