Most of the legal world this week has been talking about King v. Burwell, a case from the D.C. Circuit which the Supreme Court announced last Friday it would take up. There are three potential companion cases, one of which is happening right here in Indiana. Strap in for a long ride.
What’s at stake? Although the facts differ in each case, the basic question comes down to the fact that the ACA, as written, seems to suggest that certain subsidies and mandates only apply to insurance exchanges set up by the states. Various parties in states that refused to set up exchanges (and for whom exchanges were set up by the federal government) argue that these provisions don’t apply. If the Court rules in their favor, the ACA will be severely weakened in those states, which include Indiana. The ACA will still be law, but the IRS will no longer be able to grant subsidies or collect penalties in those states where exchanges are run by the federal government.
What are the cases? First and foremost, to get any confusion about names out of the way, in each case, the official defendants are some combination of the IRS, the Department of Health and Human Services (HHS), the Treasury and their directors. I’ll be simply referring to them as the IRS for this post, since that is the most straightforward. Sylvia Burwell is the Secretary of HHS.
The first case, which the Court agreed to hear, is King v. Burwell. In this case, the Plaintiffs are residents of Virginia who do not wish to purchase the mandated health care. Without the subsidies provided by the IRS, they would not be required to so, because their income would exempt them. They therefore challenged the right of the IRS to give them a tax credit. The Fourth Circuit ruled in favor of the IRS.
The next case, Halbig v. Burwell, is very similar. In this case, both individuals and employees are challenging the tax credit provisions, on the grounds that, without the credits, they would not meet the criteria for being subject to the mandates and associated penalties. The D.C. Circuit has ruled in favor of the Plaintiffs in a 2-1 decision, but have granted an en banc review scheduled for December.
In Pruitt v. Burwell (alternatively called Oklahoma v. Burwell; Scott Pruitt is the Attorney General of Oklahoma), a district court ruled against the IRS on similar grounds. In Indiana v. IRS, the state and various school officials have sued on similar grounds, but this case has not been heard yet.
What’s the key issue? These cases are not attacking the ACA directly. Instead they are challenging the IRS rules which apply the same credits and penalties to the federally-run exchanges as the state-run exchanges, bringing suit under the Administrative Procedure Act (APA), which allows plaintiffs to challenge administrative rules in court once all administrative remedies have been exhausted.
In challenging the IRS rules, the plaintiffs will be up against what is known as the “Chevron two-step test”, after Chevron v. Natural Resources Defense Council, in which the test was elucidated. The test, used to judge whether an administrative agency’s interpretation of the law is valid, has (unsurprisingly) two steps:
- On the particular issue, has Congress spoken directly with clear intent? If so, then that interpretation must rule, and neither court nor agency can change it.
- If the law is ambiguous, is the agency’s interpretation reasonable?
The Fourth Circuit and D.C. Circuit disagreed on whether the first step was met. Exactly what it takes for a law to be “clear” is a somewhat open question, which the Supreme Court is pretty well guaranteed to speak to. This is the step at which the Plaintiffs likely need to win the case, if they are to succeed.
The reason for this is that step two does not require the agency to be correct in its interpretation. If the court can thing of a better interpretation, that doesn’t matter. If the agency’s interpretation is merely “reasonable,” it will stand, regardless of the court’s opinions on it. This is called “Chevron deference,” because it is, by its very nature, extremely deferential. Once an agency gets past step one, it’s much smoother sailing.
So was Congress clear? Maybe. This is what the Court will need to examine. From a strictly textualist point of view, yes, Congress was clear. The language very clearly says that the tax credits are for exchanges set up by the State. However, like most things, this isn’t quite that simple. There is another important principle at stake. Courts should not, when interpreting Congressional intent, do so in such a way as to render parts of the law absurd. The IRS argues that a strict reading of these provisions in the ACA would do just that, and they may have a good argument.
Again, what’s the deal for Hoosiers? If the Court rules for the plaintiffs, Hoosiers who are eligible for tax credits will no longer be eligible. If they have received any, they will have to pay them back. Along this this, however, provisions which demarcate those businesses and individuals to whom the mandates apply are determined partially by income, less any tax credits, and a large number will suddenly become exempt from the requirements of the ACA.
That should cover the basics. The Supreme Court is expected to rule on the case by next June.