King v. Burwell

• Citation: 576 U.S. 473,135 S.Ct. 2480,192 L.Ed.2d 483
• Decision Date: 25 June 2015
• Docket Number: No. 14–114.,14–114.
• Parties: David KING, et al., Petitioners v. Sylvia BURWELL, Secretary of Health and Human Services, et al.
• Court: United States Supreme Court

576 U.S. 473

135 S.Ct. 2480

192 L.Ed.2d 483

David KING, et al., Petitioners

v.Sylvia BURWELL, Secretary of Health and Human Services, et al.

No. 14–114.

Supreme Court of the United States

Argued March 4, 2015.

Decided June 25, 2015.

Michael A. Carvin, Washington, DC, for Petitioners.

Donald B. Verrilli, Solicitor General, Washington, DC, for Respondents.

Michael A. Carvin, Counsel of Record, Yaakov M. Roth, Jonathan Berry, Jones Day, Washington, DC, for Petitioners.

Christopher J. Meade, General Counsel, Department of the Treasury, M. Patricia Smith, Solicitor of Labor, Department of Labor, William B. Schultz, General Counsel, Department of Health and Human Services, Donald B. Verrilli, Jr., Solicitor General, Counsel of Record, Joyce R. Branda, Acting Assistant Attorney General, Ian Heath Gershengorn, Edwin S. Kneedler, Deputy Solicitors General, Beth S. Brinkmann, Deputy Assistant Attorney General, Brian H. Fletcher, Assistant to the Solicitor General, Mark B. Stern, Alisa B. Klein, Attorneys, Department of Justice, for Respondents.

Chief Justice ROBERTS delivered the opinion of the Court.

The Patient Protection and Affordable Care Act adopts a series of interlocking reforms designed to expand coverage in the individual health insurance market. First, the Act bars insurers from taking a person's health into account when deciding whether to sell health insurance or how much to charge. Second, the Act generally requires each person to maintain insurance coverage or make a payment to the Internal Revenue Service. And third, the Act gives tax credits to certain people to make insurance more affordable.

In addition to those reforms, the Act requires the creation of an "Exchange" in each State—basically, a marketplace that allows people to compare and purchase insurance plans. The Act gives each State the opportunity to establish its own Exchange, but provides that the Federal Government will establish the Exchange if the State does not.

This case is about whether the Act's interlocking reforms apply equally in each State no matter who establishes the State's Exchange. Specifically, the question presented is whether the Act's tax credits are available in States that have a Federal Exchange.

I

A

The Patient Protection and Affordable Care Act, 124 Stat. 119, grew out of a long history of failed health insurance reform. In the 1990s, several States began experimenting with ways to expand people's access to coverage. One common approach was to impose a pair of insurance market regulations —a "guaranteed issue" requirement, which barred insurers from denying coverage to any person because of his health, and a "community rating" requirement, which barred insurers from charging a person higher premiums for the same reason. Together, those requirements were designed to ensure that anyone who wanted to buy health insurance could do so.

The guaranteed issue and community rating requirements achieved that goal, but they had an unintended consequence: They encouraged people to wait until they got sick to buy insurance. Why buy insurance coverage when you are healthy, if you can buy the same coverage for the same price when you become ill? This consequence—known as "adverse selection"—led to a second: Insurers were forced to increase premiums to account for the fact that, more and more, it was the sick rather than the healthy who were buying insurance. And that consequence fed back into the first: As the cost of insurance rose, even more people waited until they became ill to buy it.

This led to an economic "death spiral." As premiums rose higher and higher, and the number of people buying insurance sank lower and lower, insurers began to leave the market entirely. As a result, the number of people without insurance increased dramatically.

This cycle happened repeatedly during the 1990s. For example, in 1993, the State of Washington reformed its individual insurance market by adopting the guaranteed issue and community rating requirements. Over the next three years, premiums rose by 78 percent and the number of people enrolled fell by 25 percent. By 1999, 17 of the State's 19 private insurers had left the market, and the remaining two had announced their intention to do so. Brief for America's Health Insurance Plans as Amicus Curiae 10–11.

For another example, also in 1993, New York adopted the guaranteed issue and community rating requirements. Over the next few years, some major insurers in the individual market raised premiums by roughly 40 percent. By 1996, these reforms had "effectively eliminated the commercial individual indemnity market in New York with the largest individual health insurer exiting the market." L. Wachenheim & H. Leida, The Impact of Guaranteed Issue and Community Rating Reforms on States' Individual Insurance Markets 38 (2012).

In 1996, Massachusetts adopted the guaranteed issue and community rating requirements and experienced similar results. But in 2006, Massachusetts added two more reforms: The Commonwealth required individuals to buy insurance or pay a penalty, and it gave tax credits to certain individuals to ensure that they could afford the insurance they were required to buy. Brief for Bipartisan Economic Scholars as Amici Curiae 24–25. The combination of these three reforms—insurance market regulations, a coverage mandate, and tax credits—reduced the uninsured rate in Massachusetts to 2.6 percent, by far the lowest in the Nation. Hearing on Examining Individual State Experiences with Health Care Reform Coverage Initiatives in the Context of National Reform before the Senate Committee on Health, Education, Labor, and Pensions, 111th Cong., 1st Sess., 9 (2009).

B

The Affordable Care Act adopts a version of the three key reforms that made the Massachusetts system successful. First, the Act adopts the guaranteed issue and community rating requirements. The Act provides that "each health insurance issuer that offers health insurance coverage in the individual ... market in a State must accept every ... individual in the State that applies for such coverage." 42 U.S.C. § 300gg–1(a). The Act also bars insurers from charging higher premiums on the basis of a person's health. § 300gg.

Second, the Act generally requires individuals to maintain health insurance coverage or make a payment to the IRS.

26 U.S.C. § 5000A. Congress recognized that, without an incentive, "many individuals would wait to purchase health insurance until they needed care." 42 U.S.C. § 18091(2)(I). So Congress adopted a coverage requirement to "minimize this adverse selection and broaden the health insurance risk pool to include healthy individuals, which will lower health insurance premiums." Ibid. In Congress's view, that coverage requirement was "essential to creating effective health insurance markets." Ibid. Congress also provided an exemption from the coverage requirement for anyone who has to spend more than eight percent of his income on health insurance.

26 U.S.C. §§ 5000A(e)(1)(A), (e)(1)(B)(ii).

Third, the Act seeks to make insurance more affordable by giving refundable tax credits to individuals with household incomes between 100 percent and 400 percent of the federal poverty line. § 36B. Individuals who meet the Act's requirements may purchase insurance with the tax credits, which are provided in advance directly to the individual's insurer. 42 U.S.C. §§ 18081, 18082.

These three reforms are closely intertwined. As noted, Congress found that the guaranteed issue and community rating requirements would not work without the coverage requirement. § 18091(2)(I). And the coverage requirement would not work without the tax credits. The reason is that, without the tax credits, the cost of buying insurance would exceed eight percent of income for a large number of individuals, which would exempt them from the coverage requirement. Given the relationship between these three reforms, the Act provided that they should take effect on the same day—January 1, 2014. See Affordable Care Act, § 1253, redesignated § 1255, 124 Stat. 162, 895; §§ 1401(e), 1501(d), id., at 220, 249.

C

In addition to those three reforms, the Act requires the creation of an "Exchange" in each State where people can shop for insurance, usually online. 42 U.S.C. § 18031(b)(1).

An Exchange may be created in one of two ways. First, the Act provides that "[e]ach State shall ... establish an American Health Benefit Exchange ... for the State." Ibid. Second, if a State nonetheless chooses not to establish its own Exchange, the Act provides that the Secretary of Health and Human Services "shall ... establish and operate such Exchange within the State." § 18041(c)(1).

The issue in this case is whether the Act's tax credits are available in States that have a Federal Exchange rather than a State Exchange. The Act initially provides that tax credits "shall be allowed" for any "applicable taxpayer." 26 U.S.C. § 36B(a). The Act then provides that the amount of the tax credit depends in part on whether the taxpayer has enrolled in an insurance plan through "an Exchange established by the State under section 1311 of the Patient Protection and Affordable Care Act [hereinafter 42 U.S.C. § 18031 ]." 26 U.S.C. §§ 36B(b) - (c) (emphasis added).

The IRS addressed the availability of tax credits by promulgating a rule that made them available on both State and Federal Exchanges. 77 Fed.Reg. 30378 (2012). As relevant here, the IRS Rule provides that a taxpayer is eligible for a tax credit if he enrolled in an insurance plan through "an Exchange," 26 CFR § 1.36B–2 (2013), which is defined as "an Exchange serving the individual market ... regardless of whether the Exchange is established and operated by a State ... or by HHS," 45 CFR § 155.20 (2014). At this point, 16 States and the District of Columbia have established their own Exchanges; the other 34 States have elected to have HHS do so.

D

Petitioners are four individuals who live in Virginia, which has a Federal Exchange. They do not wish to...