King, et al. v. Burwell

The Patient Protection and Affordable Care Act (“the Act”) advanced three key reforms to the U.S. health insurance market. First, it instituted insurance market regulations barring insurers from denying coverage or charging higher premiums to any individual based on health status. Second, it enacted a coverage mandate, requiring individuals to have health insurance or pay a tax penalty, unless the cost of insurance would exceed 8% of an individual’s annual income. Third, it provided tax credits to individuals with incomes between 100-400% of the poverty line to make insurance more affordable.

The Act also created a marketplace for the comparison and purchase of insurance in each State, known as “Exchanges.” States could establish their own Exchange. The Act empowered the Federal Government to establish an Exchange in States that declined to do so on their own.

Petitioners were four citizens of Virginia, a State with a Federal Exchange. They challenged the applicability of the coverage mandate to them and the eligibility of individuals enrolled in the Virginia Federal Exchange for tax credits. Their claim was based on a provision of the Act stating that tax credits are allowed to any “applicable taxpayer” if the taxpayer is enrolled in an insurance plan through “an Exchange established by the State.” Petitioners claimed that the federally-established Exchange in Virginia was not “an Exchange established by the State,” and, therefore, individuals using the Virginia Exchange were not eligible for tax credits. Without credits, the cost of purchasing insurance through the Exchange would be more than 8% of petitioners’ annual income, making them exempt from the coverage mandate.

The Court held that tax credits were available to qualified individuals purchasing insurance through any Exchange, whether that Exchange was operated by the State or by the Federal Government.

The Court based its decision on an interpretation of a provision of §36B of the Act defining individuals as eligible to receive tax credits if they enroll in an insurance plan through “an Exchange established by the State under [42 U.S.C. §18031].” The Court determined that a Federal Exchange is “an Exchange” under the Act’s terms and definitions, but that §36B is ambiguous as to whether Federal Exchanges count as “established by the State” under §18031. Therefore, the Court considered the broader structure of the Act, the design of the statutory scheme, and its purpose to determine that the Act provided tax credits to qualified individuals on both State-run and Federally-run Exchanges.

The Court acknowledged that, when considered in isolation, the most natural reading of the phrase implied the availability of tax credits only on State-run Exchanges. However, the Court determined that such a reading was inconsistent with other portions of the Act that described Federal and State-run Exchanges as equivalent and qualified individuals and tax credits as existing on all Exchanges.

In addition, the Court noted provisions suggesting that the Act’s three major reforms – plan requirements to accept individuals regardless of health status, the coverage mandate, and tax credits – were intended to function together, and that their intended purpose was to broaden health insurance risk pools by including healthy individuals and, in turn, lowering premiums. Withholding tax credits from individuals purchasing insurance through Federal Exchanges would result in far fewer individuals being subject to the coverage mandate, making insurance pools smaller and riskier and leading to higher premiums. The Court found it implausible that the legislature would deliberately design a statutory scheme that would create the unsustainable market conditions it aimed to avoid.

Therefore, the Court held that reading §36B in the context of the Act as a whole compelled the interpretation that individuals residing in States with Federally-run Exchanges, such as petitioners, were eligible for tax credits.

“[T]he statutory scheme compels us 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.” Page 15.

“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.” Page 21.