King v. Burwell in the U.S. Supreme Court

March 2, 2015

The case is about individuals’ refundable tax credits that help pay for individuals’ health insurance in the 34 (37) states whose Exchanges are administered by the federal Department of Health and Human Services. There are about 8.6 million subscribers now enrolled – ranging from about 1.6 million in Florida and 1.2 million in Texas to 18,000 in South Dakota and 21,000 in Alaska who could be impacted. This does not apply to states like California or New York or Vermont or Washington State, which decided to run their own Exchanges.

The petitioners, 4 residents[1] of the Commonwealth of Virginia, maintain that the ACA does not authorize individual refundable tax credits in states unless the state decided to operate their own state Exchange, rather than deferring it to HHS. Health coverage for 385,000 fellow Virginians would be impacted. The District Court and the 4th Circuit Court of Appeals decided that the ACA did authorize refundable tax credits to all individuals regardless of which option their state chose. The Supreme Court is now about to hear oral argument on March 4. The Supreme Court’s decision will apply to at least 8.6 million individuals (and growing) in all 34 (or 37) states with HHS operated Exchanges – not California.

Here is a little background on the arguments. The Affordable Care Act/ObamaCare requires all Americans to have basic health coverage — the lowest cost bronze coverage pays at least 60% of the costs of their health care. It requires all insurers in the individual and small employer markets to sell coverage regardless of an individual’s health status. It helps individuals pay for their coverage through a refundable tax credit that is graduated based on an individual’s ability to afford coverage – i.e. those with the lower incomes pay less and those with higher incomes pay more and the tax credits pay the difference.[2] These are referred to as the three legs of the stool of the ACA (affordability, availability and personal responsibility). The tax credits are paid by the US Treasury to the private health plan that the individual selects within the Exchange – in other words these are individual tax credits for individual health insurance purchased through Exchanges.[3]

The ACA permits states to choose to operate their own Exchange, or have the federal government (HHS) operate their Exchange consistent with the laws governing insurance in the individual’s state of residence. The federal regulations from the IRS (Treasury) and HHS (Health and Human Services) give states four options: run your own Exchange, run a regional Exchange with several other states, run a hybrid Exchange where the state performs some functions and the federal government others functions, or have the federal government (HHS) run it for you. Many states decided to let HHS run their Exchanges – an option that California strongly considered and rejected.

The IRS rule that is being challenged (26 C.F.R. § 1.36B-2(a)(1)[4] provides individual federal tax credits regardless of which approach a state took. The petitioners say that under the ACA the credits are only available to individuals in states that operate their own Exchange, and the IRS rules should be struck down as a violation of the ACA. Their argument is based on their reading of 26 USC 36B (tax credits) and Sections 1311 (state operated Exchanges) and 1321 (state Exchanges operated by HHS) of the Affordable Care Act. The ACA subsection of 26 USC 36B[5] in question is cross-referenced back to ACA §1311 and makes no reference to §1321. The federal government (the respondent) defends its rule by pointing out that §1321 is a subsidiary of §1311 (i.e. the federal government is operating the Exchange for the state in accordance with state insurance laws and the state’s Medicaid rules), that the ACA from start to finish is about providing affordable coverage for every American, and that administrative rule making is to be given wide deference by the courts.

The Fourth Circuit in King v. Burwell held that in reading the whole Act and the legislative history Congress clearly intended the tax credits to be available nationwide regardless of whether an individual purchased coverage through state or HHS Exchanges, and the IRS rule was fully consistent with the ACA.

You may find the briefs of the Petitioners and Respondents compelling reading if you are a lawyer, or have great fondness for legal writing. See I found the Petitioner’s efforts to come up with an argument to explain why Congress intended to disadvantage individuals in states with HHS run Exchanges and then didn’t tell anyone about it to be the most entertaining portion of the briefs. Since there was not a word of contemporary legislative history to that effect, they created hypothetical back room deal making to encourage state-operated Exchanges and punish the citizens of states that chose federally operated Exchanges.

This is a Hail Mary pass to undo the ACA at a time when it appears to be working increasingly well – more people are getting coverage, the electronic enrollment is functioning, and individual insurance market premiums are stable. However, the Supreme Court took this case on certiorari (i.e. it was discretionary) indicating that at least 4 Justices thought it had some merit and wanted to hear it. A parallel case, Halbig v. Burwell, Number 14-5018 (DC Circuit, July 21, 2014) is pending before an en banc panel of the DC Circuit, which had vacated the 2-1 decision striking down the IRS rule.

Many of the ACA’s Congressional opponents have been asking the Administration what it will do to preserve coverage for the 8+ million residents in states with federal Exchanges and assure the viability of their individual insurance markets. To date, the Administration has maintained it has no back-up plans, and it expects the IRS rule-making to be sustained.

Others have pointed to the market and human chaos that will ensue if the IRS rule is struck down – removing one of the key pillars (affordability) of the Affordable Care Act in these states. See Amicus Brief of the Commonwealth of Virginia and many other states including Mississippi, North Carolina, Iowa, New Mexico, Maine and North Dakota, which selected HHS to operate their state’s Exchanges.

Essentially, this was a case generated by two distinguished scholars affiliated with the Cato Institute about a possible drafting glitch in the ACA.[6] It’s surprising that it has gone to the Supreme Court given the undisputed legislative history of the ACA to cover every American, but nine justices will yet again have an opportunity to go down in the history books ruling for or against coverage for every American.



[1] Petitioners claim they want to buy catastrophic coverage rather than bronze coverage and their eligibility for tax credits/premium assistance disqualifies them from purchasing catastrophic coverage.

[2] Because individual health insurance premiums are age rated and family rated (i.e. you pay substantially higher premiums in individual markets as you age or have more family members), those who are older and with larger families get more help (bigger tax credits) than individuals (with equal incomes) who are younger and have fewer family members.

[3] Employers and employees have a different system of tax subsidies – pre-tax purchasing. For the self-employed a tax deduction is also available.


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[6] Jonathan H. Adler & Michael F. Cannon, Taxation Without Representation: The Illegal IRS Rule To Expand Tax Credits Under the PPACA, 23 Health Matrix 119, 123 (2013)