JURIST Guest Columnist Timothy Jost of Washington and Lee University School of Law discusses how interpreting the ACA in King v. Burwell affect Medicaid and CHIP recipients …

An important issue flagged in the March 4 Supreme Court oral argument in King v. Burwell has until now been largely ignored. For those who have not been following the case, King v. Burwell challenges the availability of federal premium tax credits for individuals who purchase insurance through federally facilitated marketplaces under the Affordable Care Act. More than 8.4 million Americans have enrolled in health plans through the federally facilitated marketplaces, which serve two thirds of the states under the ACA. Eighty-seven percent of these enrollees receive premium tax credits. These tax credits reduce premiums an average of 72 percent for those who qualify for the tax credits, reducing their average net cost of insurance to about $101 a month.

The plaintiffs in King v. Burwell argue that the ACA limits premium tax credits to “Exchanges established by the State,” which they argue means state-operated marketplaces and not the federally facilitated marketplaces (called exchanges in the statute). Their claim is based on the fact that this phrase appears twice in the formula for calculating premium tax credits in § 36B of the Internal Revenue Code, added by &#167 1401 of the ACA. They contend, therefore, that the IRS rule authorizing the federally facilitated marketplaces to issue premium tax credits is invalid.

There is no evidence in the extensive record of congressional committee hearings or debates that this is what Congress intended. The members of Congress who in fact drafted the legislation have represented [PDF] to the Supreme Court that this claim is false. Moreover, the states [PDF] did not understand that premium tax credits would be limited to state-operated exchanges when they were deliberating as to whether to operate their own exchange or elect to let the federal government do it. More than fifty other provisions [PDF] of the ACA do not make sense if the statute is read as the plaintiffs would read it. And six of the nine federal judges who to date have considered this claim have rejected it, finding [PDF] either [PDF] that the statute clearly authorizes the federally facilitated exchange to grant premium tax credits or that the statute is ambiguous [PDF], and thus the courts should defer to the IRS rule. The judgment [PDF] of the two DC appellate court judges who found for the plaintiffs was subsequently vacated [PDF] by the full DC Circuit.

Nevertheless, the issue is now before the Supreme Court and at least two of the justices, Scalia and Alito, seemed sympathetic to the plaintiffs’ claims at oral argument.

One issue that has received little attention, however, is that the phrase “Exchange established by the State” in fact appears ten times in the ACA. The Competitive Enterprise Institute, which brought the King v. Burwell case, focused on two of the places where the phrase appears in Title I, the private insurance reform title of the ACA. But most of the sections where the phrase appears are in Title II, the Medicaid and CHIP Title.

Section 2201 of the Affordable Care Act (codified at 42 USC § 1396w-3) provides that as a condition of having a state Medicaid program and receiving any federal financial assistance under Medicaid, a state must, as of January 1, 2014 have in place procedures for enrolling in Medicaid and CHIP eligible individuals who are identified through an “Exchange established by the State.” Section 2201 further requires that states have procedures in place for establishing a secure interface between their Medicaid and CHIP Programs and an “Exchange established by the State” and for linking their websites to the website of an “Exchange established by the State.” The phrase “Exchange established by the State” appears four times in &#167 2201.

If the plaintiff’s argument as to the premium tax credits is accepted, then the statute says, in plain language, no exchange established by the state, no state Medicaid program, no federal Medicaid funding. And when the section says no Medicaid funding, it is not just referring to funding for the Medicaid expansion population, it covers the entire state Medicaid program: old people in nursing homes, kids in facilities for the mentally or physically disabled, seniors who receive help with their Medicare premiums or cost sharing, over half of the persons with AIDS in the United States.

Similarly, § 2101 (codified at 42 USC § 1397ee(d)(3)(C)) provides that, as a condition of approval of a state CHIP program, HHS must, not later than April 1, 2015, review the benefits offered and cost sharing imposed under the CHIP program and the benefits offered by qualified health plans through an “Exchange established by the State” and certify that they are least comparable. As of April 1, 2015, the CHIP Plans in 34 states must close down If the CEI’s interpretation of the ACA is correct.

King v. Burwell has been criticized because of the breathtaking damage it would inflict on the American health care system if successful. Millions of people will lose premium tax credits; millions more will lose coverage in the nongroup market outside of the exchanges; hospitals will lose billions of dollars. But obviously the ambitions of the right-wing organization that had brought his litigation have been much too modest. Had the proponents read Title II of the ACA as well as Title I, they could have shut down the programs that have for 50 years provided health care to America’s poor in 37 states.

The plaintiffs in this litigation claim that Congress intended to withhold premium tax credits from states that failed to operate their own exchanges because Congress wanted to force the states to operate their own exchanges. There is no evidence to support this theory—indeed I believe that no member of the 111th Congress has ever represented to a court that he or she believed this to be true at the time the statute was adopted. But it is simply inconceivable, and no one has yet argued, that Congress intended to deny Medicaid and CHIP funding to every state that decided not to operate its own exchange. Such a threat to the states would clearly raise constitutional questions, both as to whether the states were on notice of the threat and whether it was constitutionally coercive. But if you take seriously the plaintiff’s argument as to Title I, it must also apply to Title II. The government’s brief [PDF] makes this point, which was also affirmed by Solicitor General Verrilli at oral argument.

So how can we avoid shutting down the Medicaid and CHIP programs, and destroying the individual insurance markets in two thirds of the states? It is simple. The court should read carefully all of the provisions of the law relevant to the federal exchange and premium tax credits so as to achieve a “harmonious whole,” the way the court has often said statutes should be read. It should begin with the definition of exchange found in §1563 (42 USC § 300gg-91(d)(21)). Under that definition, an Exchange, including a federally facilitated exchange is a 1311 (42 USC § 18031) exchange. States are asked by § 1311 to establish exchanges. If they do not do so, § 1321 (42 USC § 18041(c)) directs the Department of Health and Human Services to establish “such Exchange”, the 1311 exchange, the required state exchange. Section 1413 (42 USC § 18083(a)) requires HHS to ensure that a system is available in each state for issuing premium tax credits. Section 1312 (42 USC § 18032(f)(1)) defines “qualified individuals” as those who reside in the state that established the exchange, but federal exchanges must be able to enroll qualified individuals or they are completely pointless.

The court must either decide that the word “by” in &#167 1401 is the only word that matters in the ACA, and ignore over 50 provisions that support the contention that the federal marketplace can be, given the way the term is used in the statute as a term of art, an exchange established by the state. But it must realize that this will not only deprive millions of Americans of access to private health insurance, but also close down the Medicaid and CHIP programs in two thirds of the states. Alternatively, it can take the route that Justice Kennedy seems to have been contemplating—use the doctrine of constitutional avoidance to rule against the plaintiffs since otherwise the threat to the states would raise constitutional coercion and notice requirements. As yet another alternative, it can simply affirm the Fourth Circuit’s decision to defer to the IRS’s interpretation of the statute under Chevron. But if it rules for the plaintiffs based on a blinkered reading of one word, it must realize that the damage it will inflict may affect millions of Americans on Medicaid or CHIP whose fate has so far been largely ignored.

Professor Timothy Jost holds the Robert L. Willett Family Professorship of Law at the Washington and Lee University School of Law. He is a co-author of a casebook, Health Law, used widely throughout the US in teaching health law, and of a treatise and hornbook by the same name.

Suggested citation:Timothy Jost, Another Perspective On King v. Burwell, JURIST – Academic Commentary, Mar. 14, 2015, http://jurist.org/academic/2015/03/timothy-jost-king-burwell.php.