135 S. Ct. 2480 (2015)
The Patient Protection and Affordable Care Act was enacted in 2010 after earlier state-level attempts at insurance market reforms in the 1990s produced adverse selection and rising premiums.1 The Act combined guaranteed-issue and community-rating requirements with an individual coverage mandate and refundable tax credits for households earning between 100 and 400 percent of the federal poverty line.2 It directed each State to establish an American Health Benefit Exchange but provided that the Secretary of Health and Human Services would establish and operate such an Exchange if a State did not.3
Sixteen States and the District of Columbia created their own Exchanges; the remaining thirty-four States, including Virginia, have Federal Exchanges operated by HHS.4 The IRS promulgated a regulation in 2012 interpreting the tax-credit provisions to apply to insurance purchased on any Exchange, whether established by a State or by the Federal Government.5 Petitioners, four Virginia residents who did not wish to purchase health insurance, filed suit in the Eastern District of Virginia challenging that regulation.6
The district court dismissed the complaint, concluding that the statute unambiguously made credits available on Federal Exchanges.7 The Fourth Circuit affirmed, treating the statute as ambiguous and deferring to the IRS interpretation under Chevron.8 On the same day the Fourth Circuit ruled, the D.C. Circuit reached the opposite conclusion in a separate case and vacated the IRS rule.9 The Supreme Court granted certiorari to resolve the conflict.10
Whether Section 36B of the Internal Revenue Code authorizes tax credits for individuals who enroll in health insurance plans through Exchanges established by the Federal Government rather than by a State?11
Yes. When read in context, the phrase "an Exchange established by the State under [42 U.S.C. §18031]" is properly viewed as ambiguous.14
The Act directs the Secretary to establish "such Exchange" if a State does not.15 This indicates that State and Federal Exchanges should function equivalently for purposes of the tax credits.16
Applying the rule to these facts, the structure of the Act compels the conclusion that tax credits must be available on Federal Exchanges.17 Denying them would destabilize the individual insurance market in the thirty-four States with Federal Exchanges.18 It would create the very death spirals that Congress designed the Act to avoid through its interlocking reforms.19 Several provisions would make little sense if credits were unavailable on Federal Exchanges.20 The petitioners' contrary reading would render the coverage requirement ineffective for most individuals on Federal Exchanges.21 This would leave only one of the Act's three major reforms operational in those States.22
Section 36B authorizes tax credits for insurance purchased on any Exchange created under the Act, including Federal Exchanges.23
Related opinions on this issue
Joined by Justices Thomas And Alito
Justice Scalia dissented.24 He contended that the plain meaning of "Exchange established by the State" limits tax credits to state-established Exchanges.25 The majority's contextual reading impermissibly rewrites the statute.26
The Act repeatedly distinguishes between establishment by a State and establishment by the Secretary.27 The majority's approach nullifies the limiting phrase "by the State" in at least seven provisions.28 Statutory purpose cannot override clear text.29
The Court lacked authority to correct any supposed flaw in the legislative design and should have left any fix to Congress.30
Whether the IRS regulation making tax credits available on Federal Exchanges is entitled to Chevron deference?31
Chevron deference does not apply to questions of deep economic and political significance that are central to a statutory scheme.32 This is especially true when it is unlikely that Congress would have delegated the resolution of such a question to the agency without an express statement.33 This is particularly so when the agency lacks expertise in health insurance policy.34
No. The availability of tax credits on Federal Exchanges presents a question of deep economic and political significance involving billions of dollars annually and affecting the price of health insurance for millions of people.3536
Applying the rule to the established facts, the IRS regulation interpreting Section 36B to extend credits to Federal Exchanges therefore receives no deference.37 The Court must instead determine the correct reading of the statute itself by examining its text, context, and structure.38
The IRS regulation is not entitled to Chevron deference.39