King v. Burwell, 576 U.S. 473 (2015), was a 6-3 decision by the Supreme Court of the United States interpreting provisions of the Patient Protection and Affordable Care Act (ACA). The Court’s decision upheld, as consistent with the statute, the outlay of premium tax credits to qualifying persons in all states, both those with exchanges established directly by a state, and those otherwise established by the Department of Health and Human Services.
The petitioners had argued that the plain language of the statute provided eligibility for tax credits only to those persons in states with state-operated exchanges. The Court found the plaintiffs’ interpretation to be “the most natural reading of the pertinent statutory phrase.” Nevertheless, the Court found the statute as a whole to be ambiguous, and that “the pertinent statutory phrase” ought to be interpreted in a manner “that is compatible with the rest of the law.” The majority opinion stated: “Congress made the guaranteed issue and community rating requirements applicable in every State in the Nation. But those requirements only work when combined with the coverage requirement and tax credits. So it stands to reason that Congress meant for those provisions to apply in every State as well.”
King v. Burwell, Halbig v. Burwell, Pruitt v. Burwell,[note 1] and Indiana v. IRS were federal lawsuits challenging U.S. Treasury regulation, 26 C.F.R. § 1.36B-2(a)(1), issued under the Patient Protection and Affordable Care Act (ACA). The challengers argued that the ACA allows for certain subsidies only on state-established exchanges, and that the regulation as implemented by the Internal Revenue Service (IRS), providing for subsidies on state-run exchanges as well as federal exchanges, exceeded the authority Congress granted to it. The Competitive Enterprise Institute coordinated and funded the King and Halbig lawsuits.
Timothy Jost, a health law professor at the Washington and Lee University School of Law, wrote that if the challenges were successful, approximately 5 million Americans who obtained coverage through federal exchanges could have lost their tax credits and, in all likelihood, their health insurance coverage. According to Jost, the individual and employer mandates might also have “disappear[ed] or [been] severely undermined” in states with federal exchanges. Insurers, however, would still have been required to cover all applicants regardless of pre-existing conditions, which could have destabilized the individual insurance markets in states with federal exchanges and could have led to rapid rises in premiums and the possible collapse of one or more of those markets.
The Urban Institute estimated that a decision in favor of King would have resulted in 8.2 million more uninsured people in 34 states. Government figures released June 2, 2015 (for the period ending March 31, 2015) show that approximately 6.4 million Americans were enrolled in a federal exchange and received a supplement at that time, and thus, presumably would have lost the subsidy had the court found for the plaintiff.
On the benefits side, supporters of the plaintiffs argued that stopping unauthorized government spending was important in its own right, that issuing the subsidies was unlawfully subjecting 57 million Americans to taxes from which they were statutorily exempt, and that removing those subsidies “would lend transparency to the PPACA by revealing to millions of Exchange enrollees the full cost of the law’s mandates and regulations.” The American Action Forum estimated a ruling for the plaintiffs would result in a pay increase of up to $940 per affected worker, 237,000 new jobs, and nearly 1.3 million workers added to the labor force.
As of 2015, sixteen states and the District of Columbia had set up their own exchanges.[note 2] If the subsidies and (in effect) the mandates had been struck down in the other 34 states, many thought that the economic foundation of the ACA would have been undermined, putting the entirety of the legislation at risk. Supporters of the plaintiffs, as well as some politicians, also argued that the effects of striking down the subsidies would have been mitigated by government action (including the possibility of states setting up their own exchanges in response to a ruling in favor of the plaintiffs).
The district court in King, and the district court in Halbig both ruled against the plaintiffs. However, on July 22, 2014, the Fourth Circuit Court of Appeals in King and the D.C. Court of Appeals in Halbig came to opposite conclusions, creating a circuit split. When the D.C. appeals court decided to rehear the case en banc, however, the court vacated its initial ruling, removing the split. On September 9, 2014, in Pruitt v. Burwell, the U.S. District Court for the Eastern District of Oklahoma ruled for the plaintiffs, invalidating the IRS rule. On November 7, 2014, the Supreme Court granted certiorari in the King case. Oral arguments were heard on March 4, 2015, and a decision was handed down on June 25, 2015, with a win for the Obama administration preserving subsidies in states that have not established their own exchange.