VOL. XX, ISSUE 4
King v. Burwell Decision
Apple Sauce or Apple Pie?
The Affordable Care Act (ACA) survived another
court challenge with the decision rendered by the
Supreme Court in King v. Burwell. The decision for
the administration means that implementation of the
ACA will continue with little disruption unless Congress
takes action. This issue of Legislative Review reviews
the Supreme Court’s decision and the frank – almost
brutal – dissenting opinion.
Case Overview
The ACA was once again saved by the Supreme Court in
the King v. Burwell decision. This time, though, six (6)
justices upheld the Act while only three (3) dissented
from the majority opinion.
It was only three (3) years ago that the Supreme
Court upheld the case NFIB v. Sebelius; a case that
challenged the constitutionality of the individual
mandate. The Court determined that the individual
mandate was a tax and, therefore, was constitutional.
An unexpected outcome of the decision gave states the
option to decide if they wanted to expand Medicaid as
provided by the ACA. Today, 30 states including the
District of Columbia have expanded Medicaid and a
number of others are actively considering expansion
if they can obtain flexibility on implementation from
CMS (Center for Medicaid and Medicare Services).
King v. Burwell’s central question was whether the
Act allowed exchanges established by the federal
AUGUST 2015
Letter from Karen Knippen
Supreme Court cases were rarely “must read” material
for me. However, since the ACA, I’ve not only read
the cases but I’ve spent way too much time worrying
about what the Court might say and how it would
impact the insurance markets.
Many people, some brokers and their clients included,
wanted the administration to lose the King v. Burwell
decision. Surprisingly, I can see the merits of both the
majority decision and the dissent.
But, I will confess to breathing a sigh of relief at
the decision. Can you imagine the chaos and time
required to explain to clients how to respond to the
Court’s action had they found for the plaintiffs?
I think the Supreme Court decision assured us that
we could actually take a few minutes to breathe
this summer!
Sincerely yours,
Karen Knippen, RHU, REBC, CLTC
Senior Vice President
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continued on page 2
The information contained in this publication is intended for the general information of our clients. It should not be construed as legal
advice or legal opinion regarding any specific or factual situation.
government on behalf of a state to provide subsidies
for premiums. The petitioners in the case did not wish
to purchase health insurance. As such, they maintained
that the federal exchange in Virginia should not qualify
them for tax credits because it was not an exchange
“established by the state.” Without tax credits the
petitioners maintained that the cost of coverage would
have exceeded eight percent (8%) of income freeing
them from the individual mandate.
The Court’s finding for the administration in many
respects effectively upholds the employer mandate.
The threat to the employer mandate was that employers
face a penalty under the ACA only when an employee
obtains a tax credit in the exchange. If a federal
exchange could not pay a subsidy, employees in the
34 federal exchange states would not receive a
subsidy. As a result, an employer that didn’t provide
coverage or didn’t meet minimum coverage requirements
would not face a penalty even if an employee purchased
exchange-based coverage.
Congress had these three (3) reforms take effect on
the same day, January 1, 2014.
The Court looked at the text of the law at Section 36B.
Section 36B provides tax credits only if an individual
enrolls in an insurance plan “established by the state.”
The opinion stated that three (3) things had to be true:
1. The individual must enroll in an insurance plan
through an exchange
2. The exchange must be established by the State
3. The exchange must be established under US Code
Section 18031.
All parties to the case agreed that a federal exchange
qualified as an exchange for purposes of Section 36B.
The Court allowed that the determination of whether
the federal exchange met the requirement that it be
“established by the state” was ambiguous. The prevailing
argument was that the words have to be read “in
context” and “with a view to [its] place in the overall
regulatory scheme.”
The Decision
The majority decision discusses the interlocking reforms
of the ACA as a factor in their decision. These are:
1. Guaranteed issue and community rating which
precludes denial of coverage based on health status
2. The requirement that individuals have health
insurance or face a tax
3. Premium and cost-sharing assistance through
refundable tax credits to make mandated
coverage more affordable.
The Court maintained that Congress recognized the
intertwining of these three (3) factors and determined
that all three (3) were necessary to make the Act work.
Without the tax credits the cost of buying insurance
would exceed eight percent (8%) of income for a large
number of individuals who would then qualify for an
exemption from the requirement to have coverage. As
support for this argument, the Court pointed out that
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The majority opinion acknowledges that the ACA
contains a number of examples of “inartful drafting.”
It goes on to argue that without the subsidies the
exchanges would not operate as Congress intended.
The Act made the guaranteed issue and community
rating requirements applicable in every state. As such,
these requirements would only work when combined
with the tax credits.
The Court also found that the tax credits were to be
allowed for “any applicable taxpayer.” Should the
petitioners prevail, in a federal exchange state, an
applicable taxpayer would be eligible for a tax credit
but the amount of the tax credit would always be
zero. This is due to language in the Tax Code that says
that the “amount of the tax credits shall be ‘an amount
equal to the premium assistance credit amount.’” The
Court argues that Congress could not have intended
to base the viability of tax credits on a “sub-sub-sub
section” of the Tax Code.
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The Court allows the following:
“But, while the meaning of the phrase ‘an Exchange
established by the State under [42 U.S.C. Section
18031]’ may seem plain ‘when viewed in isolation,’
such a reading turns out to be ‘untenable in light
of [the statute] as a whole.’”
Given this, the Court affirms that “the context and
structure of the Act compel us to depart from what
would otherwise be the most natural reading of the
pertinent statutory phrase.” The Court also noted that
Congress intended the Act to improve health insurance
markets. This requires the Court to interpret the law in
a way that “improves health insurance markets, not to
destroy them.”
The Dissent
Justice Scalia wrote a scathing dissent of the majority’s
opinion. He was joined by Justices Thomas and Alito in
his dissent.
In his dissent, Justice Scalia offered that the case was
so obvious that there should not have been a need for
the Supreme Court to hear it. He stated that “Words
no longer have meaning if an Exchange that is not
established by a State is ‘established by a State.’” He
argues that Congress would not have included the
words “established by a State” in seven (7) different
places in the Act, and not in others, if they did not
intend for these words to have a purpose. Moreover, he
argues that the finding for the administration renders
the limiting words “by the state” with no operative
effect at all.
As a part of his scathing dissent he states: “But
normal rules in interpretation seems always to yield
to the overriding principle of the present Court: The
Affordable Care Act must be saved.”
Some of the more colorful phrases in the dissenting
opinion include:
• “The Court’s next bit of interpretive jiggerypokery involves other parts of the Act that
purportedly presuppose the availability of tax
credits on both federal and state exchanges.”
• “Pure applesauce.” This written in response to the
assertion that there would be no qualified individuals
on federal exchange without the subsidies.
• “We should start calling this law SCOTUScare.”
• “The somersaults of statutory interpretation they
have performed (‘penalty’ means tax. ‘further
[Medicaid] payments to the State’ means only
incremental Medicaid payments to the State,
‘established by the State’ means not established
by the State) will be cited by litigants endlessly to
the confusion of honest jurisprudence.”
And, as a summarizing statement, referencing both the
NFIB and King cases he concludes:
“And the cases will publish forever the discouraging
truth that the Supreme Court of the United States
favors some laws over others, and is prepared to do
whatever it takes to uphold and assist its favorites.”
What’s Next
There are still some ACA related cases percolating in
the courts. However, given this decision and the prior
decision, the likelihood of significant changes that
would affect further implementation of the ACA are small.
Several bills have been introduced in Congress to
address ACA issues. Also, the Republican led Senate
continues to explore the use of reconciliation to overturn the law. In reality, however, with the President in
the White House and with millions of individuals now
covered by the ACA, repeal efforts are unlikely to be
successful.
Even the promise of a Republican President may not
unwind all of the law’s provisions. There is little appetite
to restore large scale individual case underwriting, for
example.
Employers should continue to develop and pursue ACA
implementation strategies that support their goals and
the needs of their employees.
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King v. Burwell Decision
Apple Sauce or Apple Pie?
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