What the Supreme Court said about the IRS tax credit rule

June 23

The Supreme Court has not ruled on the Internal Revenue Service’s regulation purporting to authorize tax credits and cost sharing subsidies in federally run health insurance exchanges, but two recent decisions – Michigan v. Bay Mills Indian Community and UARG v. EPA — address related questions of statutory interpretation.  Both decisions take a dim view of arguments that relevant statutory language does not mean what it says.

Over at Darwin’s Fool, my sometime-co-author Michael Cannon shows how the rationales could apply in Halbig and the other cases challenging the legality of the IRS rule.  Here’s a brief portion of Justice Kagan’s opinion for the Court in Bay Mills, as applied to Halbig by Cannon:

 this Court does not revise legislation, as [the IRS] proposes, just because the text as written creates an apparent anomaly as to some subject it does not address. Truth be told, such anomalies often arise from statutes, if for no other reason than that Congress typically legislates by parts-addressing one thing without examining all others that might merit comparable treatment. Rejecting a similar argument that a statutory anomaly (between property and non-property taxes) made “not a whit of sense,” we explained in one recent case that “Congress wrote the statute it wrote” — meaning, a statute going so far and no further…The same could be said of [the PPACA conditioning tax credits on states establishing Exchanges]. This Court has no roving license, in even ordinary cases of statutory interpretation, to disregard clear language simply on the view that (in [the IRS's] words) Congress “must have intended” something broader…And still less do we have that warrant when the consequence would be to expand [benefits and penalties beyond the lines drawn by Congress]…

And here’s a similarly edited snippet from Justice Scalia’s opinion in UARG

An agency has no power to “tailor” legislation to bureaucratic policy goals by rewriting unambiguous statutory terms. Agencies exercise discretion only in the interstices created by statutory silence or ambiguity; they must always “‘give effect to the unambiguously expressed intent of Congress.’” . . .

The power of executing the laws necessarily includes both authority and responsibility to resolve some questions left open by Congress that arise during the law’s administration. But it does not include a power to revise clear statutory terms that turn out not to work in practice. . . .

Cannon has more from the decisions here.  Of course both cases present different legal issues and can be distinguished from Halbig, but it’s nonetheless interesting how relevant portions of each decision are.

Some quick background: The text of the PPACA provides tax credits and cost-sharing subsidies for the purchase of qualifying health insurance plans by qualified individuals on health insurance exchanges “established by the State under Section 1311″ of the law.  After some states announced their intention not to create such exchanges, the IRS promulgated a regulation authorizing tax credits and subsidies in exchanges established by the federal government under Section 1321 of the PPACA, in addition to state exchanges established under Section 1311.  Four lawsuits have been filed challenging the IRS rule.  Two are pending in district courts in Oklahoma and Indiana and two others (Halbig v. Sebelius and King v. Sebelius) are on appeal in the U.S. Courts of Appeals for the D.C. Circuit and Fourth Circuit, respectively.

For more, here are pre-2014 Volokh posts on the question and a brief post on how this litigation began.  Copies of commentary, court decisions, and related legal materials are collected here.

Jonathan H. Adler teaches courses in constitutional, administrative, and environmental law at the Case Western University School of Law, where he is the inaugural Johan Verheij Memorial Professor of Law and Director of the Center for Business Law and Regulation.
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David Bernstein · June 23