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SCOTUS Upholds Obamacare Subsidies at Chevron “0” – Cautions to Congress and the Agencies

Posted in Agency Authority, Judicial Review & Remedies

USSC SealThe United States Supreme Court (SCOTUS) today decided, in King v. Burwell, that the Patient Protection and Affordable Care Act (Obamacare or PPACA) permitted health care insurance premium tax subsidies for those enrolled in Federal Exchanges, not just State Exchanges. But there is a catch: SCOTUS found Obamacare so poorly written that ambiguity must be resolved on statutory purpose, not statutory text, and SCOTUS gave no deference to the Internal Revenue Service (IRS) regulations under review, concluding that Congress could not have intended to delegate regulatory authority to the IRS. Much celebrated for saving Obamacare, the decision has a significant regulatory downside.

Question Presented: As a refresher, King v. Burwell presented a narrow question for SCOTUS review: Whether the IRS may permissibly promulgate regulations to extend tax-credit subsidies to coverage purchased through exchanges established by the federal government under Obamacare. Recall that the United States Court of Appeals for the Fourth Circuit held below that “the applicable statutory language is ambiguous and subject to multiple interpretations. Applying deference to the IRS’s determination, however, we uphold the rule as a permissible exercise of the agency’s discretion.” On the other hand, the United States Court of Appeals for the District of Columbia Circuit vacated the IRS regulations in Halbig v. Burwell on the same day: “a federal Exchange is not an “Exchange established by the State,” and [Obamacare] does not authorize the IRS to provide tax credits for insurance purchased on federal Exchanges.”

SCOTUS granted certiorari to resolve the evanescent intercircuit conflict, even after D.C. Circuit vacated its panel decision by ordering en banc review.

SCOTUS and the lower federal courts, for some 30 years, have applied Chevron v. NRDC as a nominally two-step process when analyzing an agency’s interpretation of a statute: determine first whether the statute is ambiguous (Chevron Step 1), and if it is ambiguous, defer to the agency interpretation of the statute (Chevron Step 2). An issue thoroughly founded in statutory construction and Chevron deference appeared to be clear, but not so.

Chevron Inappropriate: SCOTUS (6 – 3) did not reach the regulatory issue – stopping short of the Chevron process for want of the preliminary step often overlooked: whether Congress delegated (express) or intended to delegate (implied) authority to an expert agency – an example of so-called Chevron Step 0.

[The Chevron] approach “is premised on the theory that a statute’s ambiguity constitutes an implicit delegation from Con­gress to the agency to fill in the statutory gaps.” ….  “In extraordinary cases, however, there may be reason to hesitate before concluding that Congress has intended such an implicit delegation.” …..

This is one of those cases. The tax credits are among the Act’s key reforms, involving billions of dollars in spending each year and affecting the price of health insur­ance for millions of people. Whether those credits are available on Federal Exchanges is thus a question of deep “economic and political significance” that is central to this statutory scheme; had Congress wished to assign that question to an agency, it surely would have done so ex­pressly. …. It is especially unlikely that Con­gress would have delegated this decision to the IRS, which has no expertise in crafting health insurance policy of this sort. …. This is not a case for the IRS.

[citations omitted]. The regulations at issue thus become irrelevant. The first caution to the Congress and the agencies warns that Congress should express, and the agencies expressly recognize, (1) Congress must statutorily delegate regulatory authority to an agency, and (2) that agency most possess expertise on the subject matter.

King did not, prior to SCOTUS, raise a Chevron Step 0 issue, and interjecting that issue into today’s decisions has meaning. Notions of what is “key” and what is “central to this statutory scheme,” even though derived from prior precedent, are not clear and easily applied standards, but likely to be vociferously contested in any number of cases. King may express a warning that courts should give robust scrutiny to agency aggrandizement of their regulatory authority. King may also signal that Chevron may have less value than often ascribed to it. Whether taking the SCOTUS majority view of the interpretivism and the dissenting view of strict linguists, such a warning is appropriate.

Judicial Interpretation: Applying a Chevron Step 0, no-deference, approach, SCOTUS undertook to interpret Obamacare in its own:

It is instead our task to determine the correct reading of Section 36B. If the statutory language is plain, we must enforce it according to its terms. …. But often­times the “meaning – or ambiguity – of certain words or phrases may only become evident when placed in context.” ….   So when deciding whether the language is plain, we must read the words “in their context and with a view to their place in the overall statutory scheme.” …. Our duty, after all, is “to construe statutes, not isolated provisions.”

The SCOTUS majority rejected a narrow, even clause-only, approach to one section of Obamacare and, indeed, that any plain meaning existed. The SCOTUS majority spends considerable time and effort on contextual reading of the entire statute, and the dissent suggests in sum that the statutory interpretation exercise should be limited to the specific language. These diametrically opposed views are not new, and do fluctuate. SCOTUS’s typical hewing through the different theories of statutory interpretation, however, fails again to provide Congress with future interpretive guidance for drafting.

Inartful Drafting: The majority of SCOTUS was decidedly unhappy with the Congress’ drafting of Obamacare and roundly chastised that Congress, reaching back a long way to remind Congress that it should have known better:

The Affordable Care Act contains more than a few examples of inartful drafting. (To cite just one, the Act creates three separate Section 1563s. ….) Several features of the Act’s passage contributed to that unfortunate reality. Congress wrote key parts of the Act behind closed doors, rather than through “the traditional legislative process.” …. And Congress passed much of the Act using a complicated budgetary procedure known as “reconciliation,” which limited opportunities for debate and amendment, and bypassed the Senate’s normal 60-vote filibuster requirement. …. As a result, the Act does not reflect the type of care and deliberation that one might expect of such significant legislation. Cf. Frankfurter, Some Reflections on the Reading of Statutes, 47 Colum. L. Rev. 527, 545 (1947) (describing a cartoon “in which a senator tells his colleagues ‘I admit this new bill is too complicated to understand. We’ll just have to pass it to find out what it means.’”).

Justice Scalia’s dissent offers Congress no solace – the dissenters would hold Congress to the very precise enacted language and allow Congress to reap whatever it had sown.

The phenomenon is not new, but perhaps exacerbated in King. Some have even suggested that the central clause respecting health care insurance exchange premium subsidiaries – referring to “an Exchange established by the State” – was a drafting mistake. It is little surprising, then, that SCOTUS would dismiss deference to any form of interpretation other than its own.

Impact: Much has already been made of King – celebration by adherents, deprecation by opponents. The lessons of King, however, may be very different: SCOTUS, faced with a dog’s breakfast of legislation, eviscerated deference to the IRS regulation entirely by deciding King at Chevron Step 0 and its own unfettered interpretation. Neither any Congress nor the Administration should be pleased with such a result. True, the Obamacare insurance premium subsidies will remain in place nationwide, but that is because a SCOTUS majority found an interpretation to support it, not because Congress or the IRS completed their tasks with aplomb. Such systems failures, for better or worse, can only result in greater judicial scrutiny of legislation and regulations.

Whither the IRS regulation? The IRS has but to remove the regulation that it was not delegated authority to promulgate – by means consistent with law. Short of that, the regulation will simply fossilize as another artifact of failure.