King v. Burwell
The Supreme Court ruled that tax credits under the Affordable Care Act are available to people who buy insurance through a federally-run marketplace, not just a state-run one, rejecting a challenge that would have cut off subsidies in most states.
The decision kept the health law's three central pieces working together nationwide, avoiding what the Court called a likely 'death spiral' in insurance markets in the roughly three dozen states that had let the federal government run their exchange.
“Congress passed the Affordable Care Act to improve health insurance markets, not to destroy them.”
The majority's rationale for reading the tax-credit provision to avoid destabilizing insurance markets.
How it got here: A federal trial court and the Fourth Circuit both upheld the IRS rule; the Supreme Court agreed to hear the case after a conflicting D.C. Circuit ruling.
The Case in Depth
What happened
Four Virginia residents who didn't want to buy health insurance sued over an IRS rule that made Affordable Care Act tax credits available on both state-run and federally-run insurance marketplaces. They argued the law's text limited subsidies to marketplaces "established by the State," which would have made insurance too expensive for them and exempted them from the law's coverage requirement.
The question before the Court
Could people who bought health insurance through the federal government's version of a state marketplace still get tax credits under the Affordable Care Act?
The Court's answer
Yes — the Court ruled that tax credits under Section 36B are available to people who buy insurance through either a state-run or a federally-run exchange. Even though the phrase "established by the State" might seem to point only to state exchanges, the Court found the phrase ambiguous once read alongside the rest of the law, which repeatedly assumes tax credits exist everywhere and directs the federal government to run "such Exchange" when a state declines to.
Because denying credits on federal exchanges would have gutted the law's coverage requirement in most states and risked spiraling insurance markets, the Court held that only the broader reading was consistent with what Congress designed the three-part law to accomplish, even though the challengers' narrower reading of the text alone was a strong one.
Curious how the Court got there? See the step-by-step legal reasoning →
Why it matters
Millions of people in states that relied on the federal marketplace kept the subsidies that made their health insurance affordable. Insurers avoided a wave of healthy customers dropping coverage, and states faced no new pressure to build their own exchanges just to preserve subsidies for their residents.
What changes now
This is a final merits decision resolving the meaning of the tax-credit provision nationwide; there is no remand on this question. The IRS rule making subsidies available on federal exchanges remains in effect, and the case set no further proceedings in motion for the plaintiffs beyond the ruling itself.
What this does not decide
The ruling does not address the constitutionality of the individual mandate or the Medicaid expansion, which were decided in an earlier case. It also does not evaluate whether the Affordable Care Act is good policy — it only resolves what the tax-credit provision means.
Concurrences and dissents
Dissent — Justice Scalia
“Words no longer have meaning if an Exchange that is not established by a State is “established by the State.””Scalia's core objection that the majority ignored the plain meaning of the statute's text.
Justice Scalia argued the phrase 'established by the State' unambiguously excludes federal exchanges, and that the majority rewrote the law under the guise of interpreting it. He contended the words appear seven times in provisions tied to tax credits, making a drafting error implausible, and that any resulting instability in insurance markets was a flaw for Congress, not the Court, to fix.
How the Court got there
The legal reasoning, step by step
- The Court declined to apply its usual Chevron framework, which normally defers to an agency's reasonable reading of an ambiguous statute, because a question of this economic and political significance was unlikely to have been left to the IRS to decide on its own.
- Reading the phrase 'an Exchange established by the State' in isolation, it appeared to exclude federally-run exchanges, but the Court found that other provisions using the words 'such Exchange' and describing functions all exchanges must perform made the phrase ambiguous when read in context.
- Because the text was ambiguous, the Court looked to the structure of the whole law, reasoning that only one reading could produce a result consistent with the statute's larger design of expanding insurance coverage nationwide.
- The Court found that denying subsidies on federal exchanges would gut the law's coverage requirement in most states and could trigger a self-reinforcing cycle of rising premiums and shrinking enrollment, an outcome Congress designed the law to prevent.
- The Court concluded that only the reading extending tax credits to all exchanges, state and federal alike, was compatible with the law's overall design, so it adopted that reading despite the petitioners' strong textual argument.