Oral arguments in King v. Burwell

April 3, 2015

The oral arguments in King v. Burwell will determine the viability of a central mechanism of the ACA-tax credit subsidies for economically-eligible citizens.

GersonOral arguments often poorly predict the outcome of Supreme Court cases. However, the argument in King v. Burwell, which will determine the viability of a central mechanism of the Affordable Care Act (ACA)-tax credit subsidies for economically-eligible citizens-provides useful information. Given the tone of Justices’ questioning, it is likely that seven votes are set and the remaining two are looking for compromise. It is probable that at least one, maybe both, of the uncertain votes-those of the Chief Justice and Justice Kennedy-will create a majority to uphold the IRS subsidies in states that did not create exchanges.

The tax credits work in tandem with the individual mandate upheld in National Federation of Independent Business (NFIB) v. Sibelius, to allow lower-income persons to purchase health insurance and to avoid adverse selection that would drive up insurance costs. But NFIB also struck down, as unduly coercive on the states, a provision that would have required Medicaid expansion.

The tax code as amended by ACA provides for tax credit subsidies to individuals for health insurance coverage that is purchased through an “Exchange established by the State.” The question here is whether the IRS may extend subsidies for coverage purchased through exchanges established by the federal government, in view of the fact that a substantial majority of the states have not established exchanges.

The case pits judicial “contextualists,” who argue that the Court should not focus on a single provision at odds with the overall legislative scheme, against conservative “textualists,” who believe in literal application statutory language.

Starting with the first question of Justice Breyer, it was clear that the Court’s four judicial liberals-Justices Breyer, Ginsburg, Kagan and Sotomayor-will hold that “Exchange” is a term of art that means all exchanges, including those established by the federal government on behalf of the states. In their contextualist view, Congress had to have intended this because it inarguably wanted health insurance availability to be universal, and to allow the ACA to work as intended the subsidies had to be generally available as the tax code (amended by the ACA) makes clear.

Led by Justice Scalia, and likely joined by Justices Thomas and Alito, the strict textualists argue that the Court need go no further than the literal terms of the provision: “States” means “States.” If this would hamstring the ACA program, it is up to the Congress, not the Court, to repair the statute.

The textualist/contextualist battle line having been drawn, Justice Kennedy, reminiscent of what the Chief Justice did to craft a majority in NFIB, suggested a “conservative” way out. Harkening to NFIB’s holding that the states couldn’t be compelled to expand Medicaid, Kennedy suggested that if the plaintiffs won in King, in order to protect their citizens, the states would be forced to do the very thing they had been unable to do, i.e., establish exchanges. Kennedy invoked the doctrine of “constitutional avoidance” which would support the administration. Thus, it is not unlikely that Justice Kennedy will see a public need to save the ACA’s insurance subsidies, avoid the public disruption reversal would cause, and create a majority to affirm. Given what he did in NFIB, the Chief Justice may follow.

ABOUT THE AUTHOR

Stuart M. Gerson is a member of Epstein Becker Green’s Litigation and Health Care & Life Sciences practices.