The Affordable Care Act Tax Credit Subsidies Are Constitutional

In King v. Burwell, a divided Court ruled that all tax subsidies granted under the healthcare law are legal. Had the Court ruled otherwise, the sweeping healthcare reform law may have been in jeopardy.

The latest ACA lawsuit before the Supreme Court specifically addresses whether regulations promulgated by the Internal Revenue Service (IRS) can extend tax-credit subsidies to coverage purchased through exchanges established by the federal government under Section 1321 of the ACA. Under the statute, tax credits are available for health insurance that is purchased through an exchange “established by the State”. However, after most states failed to create their own marketplaces, the IRS extended the subsidies to insurance purchased through the federal government’s exchange, which is operated via Healthcare.gov.

To date, more than six million people have purchased insurance through the federal exchange, the majority of whom received the tax subsidy. Four individuals who live in Virginia, which has a Federal Exchange, challenged the IRS regulations because they do not wish to purchase health insurance. The district court dismissed the suit, and the Fourth Circuit Court of Appeals affirmed. It concluded that because the ACA was ambiguous, courts should defer the IRS’s interpretation. Although a circuit split had not yet developed, the U.S. Supreme Court elected to intervene.

By a vote of 6-3, the Court upheld the availability of tax subsidies to everyone who purchased insurance via an exchange. Chief Justice John G. Roberts, Jr. wrote for the majority and was joined by Justices Stephen G. Breyer, Ruth Bader Ginsburg, Elena Kagan, Anthony M. Kennedy, and Sonia Sotomayor.

In its opinion, the majority chastised Congress for writing the law so ambiguously that the Court had to intervene. As the opinion acknowledged, the definition of “State” is difficult to discern from the text of the ACA, noting that the phrase “established by the State” may be “limited in its reach to State Exchanges. But it could also refer to all Exchanges—both State and Federal—for purposes of the tax credits.”

Since the text of the statute was ambiguous, the majority looked to the broader structure and intent of the ACA. It ultimately concluded that it was implausible that Congress intended for tax subsidies to only apply to insurance coverage obtained through state exchanges, noting that the challengers’ interpretation of the law 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.”

As Chief Justice Roberts further explained: “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.”

Justice Antonin Scalia authored the dissent, which was joined by Justices Samuel A. Alito, Jr. and Clarence Thomas. In his strongly worded opinion, Justice Scalia criticized the majority for again bending over backwards to save the health care law, lamenting that “words no longer have meaning if an Exchange that is not established by the State is ‘established by the State.’”  He even came up with his own nickname for it — “SCOTUScare.”