47
2
KING v. BURWELL
Syllabus
cent and 400 percent of the federal poverty line. §36B.
In addition to those three reforms, the Act requires the creation of
an “Exchange” in each State—basically, a marketplace that allows
people to compare and purchase insurance plans. The Act gives each
State the opportunity to establish its own Exchange, but provides
that the Federal Government will establish “such Exchange” if the
State does not. 42 U. S. C. §§18031, 18041. Relatedly, the Act pro-
vides that tax credits “shall be allowed” for any “applicable taxpayer,”
26 U. S. C. §36B(a), but only if the taxpayer has enrolled in an insur-
ance plan through “an Exchange established by the State under [42
U. S. C. §18031],” §§36B(b)–(c). An IRS regulation interprets that
language as making tax credits available on “an Exchange,” 26 CFR
§1.36B–2, “regardless of whether the Exchange is established and
operated by a State . . . or by HHS,” 45 CFR §155.20.
Petitioners are four individuals who live in Virginia, which has a
Federal Exchange. They do not wish to purchase health insurance.
In their view, Virginia’s Exchange does not qualify as “an Exchange
established by the State under [42 U. S. C. §18031],” so they should
not receive any tax credits. That would make the cost of buying in-
surance more than eight percent of petitioners’ income, exempting
them from the Act’s coverage requirement. As a result of the IRS
Rule, however, petitioners would receive tax credits. That would
make the cost of buying insurance less than eight percent of their in-
come, which would subject them to the Act’s coverage requirement.
Petitioners challenged the IRS Rule in Federal District Court. The
District Court dismissed the suit, holding that the Act unambiguous-
ly made tax credits available to individuals enrolled through a Fed-
eral Exchange. The Court of Appeals for the Fourth Circuit affirmed.
The Fourth Circuit viewed the Act as ambiguous, and deferred to the
IRS’s interpretation under Chevron U. S. A. Inc. v. Natural Resources
Defense Council, Inc., 467 U. S. 837.
Held: Section 36B’s tax credits are available to individuals in States
that have a Federal Exchange. Pp. 7–21.
(a) When analyzing an agency’s interpretation of a statute, this
Court often applies the two-step framework announced in Chevron,
467 U. S. 837. But Chevron does not provide the appropriate frame-
work here. The tax credits are one of the Act’s key reforms and
whether they are available on Federal Exchanges is a question of
deep “economic and political significance”; had Congress wished to
assign that question to an agency, it surely would have done so ex-
pressly. And it is especially unlikely that Congress would have dele-
gated this decision to the IRS, which has no expertise in crafting
health insurance policy of this sort.
It is instead the Court’s task to determine the correct reading of
47
3
Cite as: 576 U. S. ____ (2015)
Syllabus
Section 36B. If the statutory language is plain, the Court must en-
force it according to its terms. But oftentimes the meaning—or am-
biguity—of certain words or phrases may only become evident when
placed in context. So when deciding whether the language is plain,
the Court must read the words “in their context and with a view to
their place in the overall statutory scheme.” FDA v. Brown & Wil-
liamson Tobacco Corp., 529 U. S. 120, 133. Pp. 7–9.
(b) When read in context, the phrase “an Exchange established by
the State under [42 U. S. C. §18031]” is properly viewed as ambigu-
ous. The phrase may be limited in its reach to State Exchanges. But
it could also refer to all Exchanges—both State and Federal—for
purposes of the tax credits. If a State chooses not to follow the di-
rective in Section 18031 to establish an Exchange, the Act tells the
Secretary of Health and Human Services to establish “such Ex-
change.” §18041. And by using the words “such Exchange,” the Act
indicates that State and Federal Exchanges should be the same. But
State and Federal Exchanges would differ in a fundamental way if
tax credits were available only on State Exchanges—one type of Ex-
change would help make insurance more affordable by providing bil-
lions of dollars to the States’ citizens; the other type of Exchange
would not. Several other provisions in the Act—e.g., Section
18031(i)(3)(B)’s requirement that all Exchanges create outreach pro-
grams to “distribute fair and impartial information concerning . . .
the availability of premium tax credits under section 36B”—would
make little sense if tax credits were not available on Federal Ex-
changes.
The argument that the phrase “established by the State” would be
superfluous if Congress meant to extend tax credits to both State and
Federal Exchanges is unpersuasive. This Court’s “preference for
avoiding surplusage constructions is not absolute.” Lamie v. United
States Trustee, 540 U. S. 526, 536. And rigorous application of that
canon does not seem a particularly useful guide to a fair construction
of the Affordable Care Act, which contains more than a few examples
of inartful drafting. The Court nevertheless must do its best, “bear-
ing in mind the ‘fundamental canon of statutory construction that the
words of a statute must be read in their context and with a view to
their place in the overall statutory scheme.’ ” Utility Air Regulatory
Group v. EPA, 573 U. S. ___, ___. Pp. 9–15.
(c) Given that the text is ambiguous, the Court must look to the
broader structure of the Act to determine whether one of Section
36B’s “permissible meanings produces a substantive effect that is
compatible with the rest of the law.” United Sav. Assn. of Tex. v.
Timbers of Inwood Forest Associates, Ltd., 484 U. S. 365, 371.
Here, the statutory scheme compels the Court to reject petitioners’
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KING v. BURWELL
Syllabus
interpretation because it would destabilize the individual insurance
market in any State with a Federal Exchange, and likely create the
very “death spirals” that Congress designed the Act to avoid. Under
petitioners’ reading, the Act would not work in a State with a Federal
Exchange. As they see it, one of the Act’s three major reforms—the
tax credits—would not apply. And a second major reform—the cov-
erage requirement—would not apply in a meaningful way, because so
many individuals would be exempt from the requirement without the
tax credits. If petitioners are right, therefore, only one of the Act’s
three major reforms would apply in States with a Federal Exchange.
The combination of no tax credits and an ineffective coverage re-
quirement could well push a State’s individual insurance market into
a death spiral. It is implausible that Congress meant the Act to op-
erate in this manner. Congress made the guaranteed issue and
community rating requirements applicable in every State in the Na-
tion, but those requirements only work when combined with the cov-
erage requirement and tax credits. It thus stands to reason that
Congress meant for those provisions to apply in every State as well.
Pp. 15–19.
(d) The structure of Section 36B itself also suggests that tax credits
are not limited to State Exchanges. Together, Section 36B(a), which
allows tax credits for any “applicable taxpayer,” and Section
36B(c)(1), which defines that term as someone with a household in-
come between 100 percent and 400 percent of the federal poverty
line, appear to make anyone in the specified income range eligible for
a tax credit. According to petitioners, however, those provisions are
an empty promise in States with a Federal Exchange. In their view,
an applicable taxpayer in such a State would be eligible for a tax
credit, but the amount of that tax credit would always be zero be-
cause of two provisions buried deep within the Tax Code. That ar-
gument fails because Congress “does not alter the fundamental de-
tails of a regulatory scheme in vague terms or ancillary provisions.”
Whitman v. American Trucking Assns., Inc., 531 U. S. 457. Pp. 19–
20.
(e) Petitioners’ plain-meaning arguments are strong, but the Act’s
context and structure compel the conclusion that Section 36B allows
tax credits for insurance purchased on any Exchange created under
the Act. Those credits are necessary for the Federal Exchanges to
function like their State Exchange counterparts, and to avoid the
type of calamitous result that Congress plainly meant to avoid.
Pp. 20–21.
759 F. 3d 358, affirmed.
R
OBERTS
, C. J., delivered the opinion of the Court, in which K
EN-
20
5
Cite as: 576 U. S. ____ (2015)
Syllabus
NEDY
, G
INSBURG
, B
REYER
, S
OTOMAYOR
, and K
AGAN
, JJ., joined. S
CALIA
,
J., filed a dissenting opinion, in which T
HOMAS
and A
LITO
, JJ., joined.
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54
_________________
_________________
1
Cite as: 576 U. S. ____ (2015)
Opinion of the Court
NOTICE: This opinion is subject to formal revision before publication in the
preliminary print of the United States Reports. Readers are requested to
notify the Reporter of Decisions, Supreme Court of the United States, Wash-
ington, D. C. 20543, of any typographical or other formal errors, in order
that corrections may be made before the preliminary print goes to press.
SUPREME COURT OF THE UNITED STATES
No. 14–114
DAVID KING,
ET AL
., PETITIONERS v. SYLVIA
BURWELL, SECRETARY OF HEALTH
AND HUMAN SERVICES,
ET AL
.
ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF
APPEALS FOR THE FOURTH CIRCUIT
[June 25, 2015]
C
HIEF
J
USTICE
R
OBERTS
delivered the opinion of the
Court.
The Patient Protection and Affordable Care Act adopts a
series of interlocking reforms designed to expand coverage
in the individual health insurance market. First, the Act
bars insurers from taking a person’s health into account
when deciding whether to sell health insurance or how
much to charge. Second, the Act generally requires each
person to maintain insurance coverage or make a payment
to the Internal Revenue Service. And third, the Act gives
tax credits to certain people to make insurance more
affordable.
In addition to those reforms, the Act requires the crea-
tion of an “Exchange” in each State—basically, a market-
place that allows people to compare and purchase insur-
ance plans. The Act gives each State the opportunity to
establish its own Exchange, but provides that the Federal
Government will establish the Exchange if the State does
not.
This case is about whether the Act’s interlocking re-
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40
2
KING v. BURWELL
Opinion of the Court
forms apply equally in each State no matter who estab-
lishes the State’s Exchange. Specifically, the question pre-
sented is whether the Act’s tax credits are available in
States that have a Federal Exchange.
I
A
The Patient Protection and Affordable Care Act, 124
Stat. 119, grew out of a long history of failed health insur-
ance reform. In the 1990s, several States began experi-
menting with ways to expand people’s access to coverage.
One common approach was to impose a pair of insurance
market regulations—a “guaranteed issue” requirement,
which barred insurers from denying coverage to any per-
son because of his health, and a “community rating” re-
quirement, which barred insurers from charging a person
higher premiums for the same reason. Together, those
requirements were designed to ensure that anyone who
wanted to buy health insurance could do so.
The guaranteed issue and community rating require-
ments achieved that goal, but they had an unintended
consequence: They encouraged people to wait until they
got sick to buy insurance. Why buy insurance coverage
when you are healthy, if you can buy the same coverage
for the same price when you become ill? This conse-
quence—known as “adverse selection”—led to a second:
Insurers were forced to increase premiums to account for
the fact that, more and more, it was the sick rather than
the healthy who were buying insurance. And that conse-
quence fed back into the first: As the cost of insurance
rose, even more people waited until they became ill to
buy it.
This led to an economic “death spiral.” As premiums
rose higher and higher, and the number of people buying
insurance sank lower and lower, insurers began to leave
the market entirely. As a result, the number of people
39
3
Cite as: 576 U. S. ____ (2015)
Opinion of the Court
without insurance increased dramatically.
This cycle happened repeatedly during the 1990s. For
example, in 1993, the State of Washington reformed its
individual insurance market by adopting the guaranteed
issue and community rating requirements. Over the next
three years, premiums rose by 78 percent and the number
of people enrolled fell by 25 percent. By 1999, 17 of the
State’s 19 private insurers had left the market, and the
remaining two had announced their intention to do so.
Brief for America’s Health Insurance Plans as Amicus
Curiae 10–11.
For another example, also in 1993, New York adopted
the guaranteed issue and community rating requirements.
Over the next few years, some major insurers in the indi-
vidual market raised premiums by roughly 40 percent. By
1996, these reforms had “effectively eliminated the com-
mercial individual indemnity market in New York with
the largest individual health insurer exiting the market.”
L. Wachenheim & H. Leida, The Impact of Guaranteed
Issue and Community Rating Reforms on States’ Individ-
ual Insurance Markets 38 (2012).
In 1996, Massachusetts adopted the guaranteed issue
and community rating requirements and experienced
similar results. But in 2006, Massachusetts added two
more reforms: The Commonwealth required individuals to
buy insurance or pay a penalty, and it gave tax credits to
certain individuals to ensure that they could afford the
insurance they were required to buy. Brief for Bipartisan
Economic Scholars as Amici Curiae 24–25. The combina-
tion of these three reforms—insurance market regula-
tions, a coverage mandate, and tax credits—reduced the
uninsured rate in Massachusetts to 2.6 percent, by far the
lowest in the Nation. Hearing on Examining Individual
State Experiences with Health Care Reform Coverage
Initiatives in the Context of National Reform before the
Senate Committee on Health, Education, Labor, and
38
4
KING v. BURWELL
Opinion of the Court
Pensions, 111th Cong., 1st Sess., 9 (2009).
B
The Affordable Care Act adopts a version of the three
key reforms that made the Massachusetts system success-
ful. First, the Act adopts the guaranteed issue and com-
munity rating requirements. The Act provides that “each
health insurance issuer that offers health insurance cov-
erage in the individual . . . market in a State must accept
every . . . individual in the State that applies for such
coverage.” 42 U. S. C. §300gg–1(a). The Act also bars
insurers from charging higher premiums on the basis of a
person’s health. §300gg.
Second, the Act generally requires individuals to main-
tain health insurance coverage or make a payment to the
IRS. 26 U. S. C. §5000A. Congress recognized that, with-
out an incentive, “many individuals would wait to pur-
chase health insurance until they needed care.” 42
U. S. C. §18091(2)(I). So Congress adopted a coverage
requirement to “minimize this adverse selection and
broaden the health insurance risk pool to include healthy
individuals, which will lower health insurance premiums.”
Ibid. In Congress’s view, that coverage requirement was
“essential to creating effective health insurance markets.”
Ibid. Congress also provided an exemption from the cov-
erage requirement for anyone who has to spend more than
eight percent of his income on health insurance. 26
U. S. C. §§5000A(e)(1)(A), (e)(1)(B)(ii).
Third, the Act seeks to make insurance more affordable
by giving refundable tax credits to individuals with
household incomes between 100 percent and 400 percent
of the federal poverty line. §36B. Individuals who meet
the Act’s requirements may purchase insurance with the
tax credits, which are provided in advance directly to the
individual’s insurer. 42 U. S. C. §§18081, 18082.
These three reforms are closely intertwined. As noted,
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Cite as: 576 U. S. ____ (2015)
Opinion of the Court
Congress found that the guaranteed issue and community
rating requirements would not work without the coverage
requirement. §18091(2)(I). And the coverage requirement
would not work without the tax credits. The reason is
that, without the tax credits, the cost of buying insurance
would exceed eight percent of income for a large number of
individuals, which would exempt them from the coverage
requirement. Given the relationship between these three
reforms, the Act provided that they should take effect on
the same day—January 1, 2014. See Affordable Care Act,
§1253, redesignated §1255, 124 Stat. 162, 895; §§1401(e),
1501(d), id., at 220, 249.
C
In addition to those three reforms, the Act requires the
creation of an “Exchange” in each State where people
can shop for insurance, usually online. 42 U. S. C.
§18031(b)(1). An Exchange may be created in one of two
ways. First, the Act provides that “[e]ach State shall . . .
establish an American Health Benefit Exchange . . . for
the State.” Ibid. Second, if a State nonetheless chooses
not to establish its own Exchange, the Act provides that
the Secretary of Health and Human Services “shall . . .
establish and operate such Exchange within the State.”
§18041(c)(1).
The issue in this case is whether the Act’s tax credits
are available in States that have a Federal Exchange
rather than a State Exchange. The Act initially provides
that tax credits “shall be allowed” for any “applicable
taxpayer.” 26 U. S. C. §36B(a). The Act then provides
that the amount of the tax credit depends in part on
whether the taxpayer has enrolled in an insurance plan
through “an Exchange established by the State under
section 1311 of the Patient Protection and Affordable Care
Act [hereinafter 42 U. S. C. §18031].”
26 U. S. C.
§§36B(b)–(c) (emphasis added).
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