Benefits and Compensation

After Pondering King, SCOTUS Stalls on Reform Subsidies

The U.S. Supreme Court has not yet acted on a request to hear a case that seeks to eliminate health insurance premium subsidies in the states that refused to set up their own health insurance exchanges. The High Court discussed whether to hear King v. Burwell on Oct. 31; however, its Nov. 3 orders from that Oct. 31 conference were silent on whether the Court will officially refuse to hear, or not hear, the case.

Rapid Circuit Split

Last summer, two contrasting opinions were issued the same day by federal circuit courts. In each case, the plaintiffs sought to invalidate a May 2012 IRS rule (77 Fed. Reg. 30377) providing that health insurance premium tax credits will be available to all taxpayers nationwide, asserting that it was not consistent with the ACA.

The cases are:

  • Halbig v. Burwell, No. 14-5018 (D.C. Cir., July 22, 2014): a three judge panel, two of whom were Republican appointees, took the stricter reading of plain language of the statute, and disregarded the IRS rules; and
  • King v. Burwell, No. 14-1158 (4th Cir., July 22, 2014): Circuit Judge Roger Gregory (appointed by Democratic President Clinton and confirmed during the Bush administration in 2001) upheld the subsidies, saying he thought the law was intended to make the tax credit as widely available as possible.

On July 31, the King plaintiffs filed for certiorari review before the Supreme Court. That same day, the government filed its motion asking the D.C. Circuit to do a full en banc review, which it hoped would reverse the three-judge panel’s decision in Halbig. On Sept. 4, the en banc court decided to review the panel decision and scheduled oral arguments for Dec. 17, 2014.

It would be unusual for the Supreme Court to review King before the full D.C. Circuit has had a chance to resolve the circuit split by overturning Halbig.

The King Plaintiffs’ Arguments

The idea of leapfrogging an en banc decision by the D.C. circuit doesn’t matter, Jones Day Attorney Michael Carvin wrote on behalf of the King plaintiffs.

Contrary to the government’s suggestion that the Halbig ruling was a fluke, the Oklahoma district court ruled that the IRS rule was unreasonable, thereby striking down the subsidies in Oklahoma v. Burwell, No. 11-cv-30 (E.D. Okla., Sept. 30, 2014).

Carvin pointed to the plain statutory text, which says: (1) if a state fails to set up an exchange, the federal government shall step in and do so, then operate it; and (2) subsidies are given to people enrolled though an exchange set by a state. Those two statements taken together mean that where the feds set up an exchange, no subsidies are authorized.

The IRS rule was a “distortion, not [an] interpretation” of the statute, he said, quoting from one of the judges in the D.C. circuit’s ruling.

The statute lacks anything saying HHS is to be considered to be a state when setting up exchanges, Carvin asserted.

Speaking of intent (or “purpose”), the real intent of the law was to try to make states run their own exchanges by tying subsidies on a state running them. This mirrors the way the ACA incentivized increased federal Medicaid funding on states’ acceptance of expanded enrollment rules. If a state did not accept the expansion of Medicaid enrollment it would lose federal money. That provision was struck down in NFIB v. Sebelius, 132 S. Ct. 2566 (2012), Carvin remarked.

Appealing to “context” is improper, because subsidies are clearly defined in the statute in one place only, and: “strained inferences from irrelevant provisions is plainly improper,” he said.

The Federal Government’s Arguments

In the government’s brief, U.S. Solicitor General Donald Verrilli said there was no circuit court split yet until the D.C. Circuit’s en banc rehearing in Halbig is concluded. He also said that IRS’ interpretation was due deference in the event that the statute contained ambiguous language.

But most of his argument focused on the view that the language had only one meaning and purpose when taken along with the intent of the law. He argued that the High Court should refuse to hear the case.

The law’s intent is to in achieve higher enrollment by previously uninsured low-and mid-income individuals. In order to do this, it was necessary to subsidize people in the individual market. Tax credits to individual enrollees were essential, he wrote in his brief.

Tax credits were supposed to work with guaranteed-issue rules imposed on insurers, and the individual mandate, to achieve the ACA’s goals of expanding health insurance coverage while not harming state insurance markets.

Further, in the buildup to passage, the CBO Director Douglas Elmendorf assumed subsidies would operate in all 50 states, and no legislator expressed a contrary view, Verrilli said.

The circuit court ruling in King said the statutory language “viewed in a vacuum” supported the challengers’ reading, but taken in statutory context, their position became implausible. Furthermore, the 4th Circuit said the IRS rule was a permissible reading, Verrilli noted.

Statutory language supports the idea that when HHS sets up an exchange, it satisfies every aspect of “an Exchange established by the State,” Verrilli said. If King’s arguments were allowed to prevail, the Act would be transformed into “a hash of superfluities, absurdities and internal contradictions,” he wrote.

For example, if there were no subsidies flowing in most states, all states would have to set thresholds and carry out reporting on subsidies that didn’t exist.

If King’s reading were correct, federally facilitated exchanges would have no customers because the definition of qualified individual would also fall by the wayside, Verrilli added.

At no place in the statute does the law say directly and expressly that a state’s residents lose their eligibility for credits unless the state establishes an exchange for itself, he noted.

The only reason the plaintiffs are persisting with their reading of the law is to ruin the operation of the ACA, and to force an end to insurance reform, the exchanges and the individual mandate, Verrilli said.

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