PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 14-1158
DAVID KING; DOUGLAS HURST; BRENDA LEVY; ROSE LUCK,
Plaintiffs - Appellants,
v.
SYLVIA MATTHEWS BURWELL, in her official capacity as U.S.
Secretary of Health and Human Services; UNITED STATES
DEPARTMENT OF HEALTH & HUMAN SERVICES; JACOB LEW, in his
official capacity as U.S. Secretary of the Treasury; UNITED
STATES DEPARTMENT OF THE TREASURY; INTERNAL REVENUE SERVICE;
JOHN KOSKINEN, in his official capacity as Commissioner of
Internal Revenue,
Defendants – Appellees,
------------------------------
SENATOR JOHN CORNYN; SENATOR TED CRUZ; SENATOR ORRIN HATCH;
SENATOR MIKE LEE; SENATOR ROB PORTMAN; SENATOR MARCO RUBIO;
CONGRESSMAN DARRELL ISSA; PACIFIC RESEARCH INSTITUTE; THE
CATO INSTITUTE; THE AMERICAN CIVIL RIGHTS UNION;
JONATHAN H. ADLER; MICHAEL F. CANNON; STATE OF OKLAHOMA;
STATE OF ALABAMA; STATE OF GEORGIA; STATE OF WEST VIRGINIA;
STATE OF NEBRASKA; STATE OF SOUTH CAROLINA; CONSUMERS’
RESEARCH; STATE OF KANSAS; THE GALEN INSTITUTE,
Amici Supporting Appellants,
COMMONWEALTH OF VIRGINIA; AMERICA’S HEALTH INSURANCE PLANS;
AMERICAN CANCER SOCIETY; AMERICAN CANCER SOCIETY CANCER
ACTION NETWORK; AMERICAN DIABETES ASSOCIATION; AMERICAN
HEART ASSOCIATION; PUBLIC HEALTH DEANS, CHAIRS, AND FACULTY;
MEMBERS OF CONGRESS AND STATE LEGISLATURES; AMERICAN
HOSPITAL ASSOCIATION; ECONOMIC SCHOLARS; FAMILIES USA; AARP;
NATIONAL HEALTH LAW PROGRAM,
Amici Supporting Appellees.
Appeal from the United States District Court for the Eastern
District of Virginia, at Richmond. James R. Spencer, Senior
District Judge. (3:13-cv-00630-JRS)
Argued: May 14, 2014 Decided: July 22, 2014
Before GREGORY and THACKER, Circuit Judges, and DAVIS, Senior
Circuit Judge.
Affirmed by published opinion. Judge Gregory wrote the opinion,
in which Judge Thacker and Senior Judge Davis joined. Judge
Davis wrote a concurring opinion.
ARGUED: Michael Anthony Carvin, JONES DAY, Washington, D.C., for
Appellants. Stuart F. Delery, UNITED STATES DEPARTMENT OF
JUSTICE, Washington, D.C., for Appellees. Stuart Alan Raphael,
OFFICE OF THE ATTORNEY GENERAL OF VIRGINIA, Richmond, Virginia,
for Amicus Commonwealth of Virginia. ON BRIEF: Yaakov M. Roth,
Jonathan Berry, JONES DAY, Washington, D.C., for Appellants.
Dana J. Boente, United States Attorney, OFFICE OF THE UNITED
STATES ATTORNEY, Alexandria, Virginia; Beth S. Brinkmann, Deputy
Assistant Attorney General, Mark B. Stern, Alisa B. Klein, Civil
Division, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C.,
for Appellees. Michael E. Rosman, CENTER FOR INDIVIDUAL RIGHTS,
Washington, D.C.; Carrie Severino, THE JUDICIAL EDUCATION
PROJECT, Washington, D.C.; Charles J. Cooper, David H. Thompson,
Howard C. Nielson, Jr., Brian W. Barnes, COOPER & KIRK, PLLC,
for Amici Senator John Cornyn, Senator Ted Cruz,
Senator Orrin Hatch, Senator Mike Lee, Senator Rob Portman,
Senator Marco Rubio, and Congressman Darrell Issa.
C. Dean McGrath, Jr., MCGRATH & ASSOCIATES, Washington, D.C.;
Ilya Shapiro, CATO INSTITUTE, Washington, D.C.; Bert W. Rein,
William S. Consovoy, J. Michael Connolly, WILEY REIN LLP,
Washington, D.C., for Amici Pacific Research Institute, The Cato
Institute, and The American Civil Rights Union.
Andrew M. Grossman, BAKER HOSTETLER, Washington, D.C., for Amici
Jonathan H. Adler and Michael F. Cannon. E. Scott Pruitt,
Attorney General, Patrick R. Wyrick, Solicitor General, OFFICE
OF THE ATTORNEY GENERAL OF OKLAHOMA, Oklahoma City, Oklahoma;
Luther Strange, Attorney General, OFFICE OF THE ATTORNEY GENERAL
OF ALABAMA, Montgomery, Alabama; Sam Olens, Attorney General,
2
OFFICE OF THE ATTORNEY GENERAL OF GEORGIA, Atlanta, Georgia;
Patrick Morrisey, Attorney General, OFFICE OF THE ATTORNEY
GENERAL OF WEST VIRGINIA, Charleston, West Virginia;
Jon Bruning, Attorney General, Katie Spohn, Deputy Attorney
General, OFFICE OF THE ATTORNEY GENERAL OF NEBRASKA, Lincoln,
Nebraska; Alan Wilson, Attorney General, OFFICE OF THE ATTORNEY
GENERAL OF SOUTH CAROLINA, Columbia, South Carolina, for Amici
State of Oklahoma, State of Alabama, State of Georgia, State of
West Virginia, State of Nebraska, and State of South Carolina.
Rebecca A. Beynon, KELLOGG, HUBER, HANSEN, TODD, EVANS & FIGEL,
P.L.L.C., Washington, D.C., for Amicus Consumers’ Research.
Derek Schmidt, Attorney General, Jeffrey A. Chanay, Deputy
Attorney General, Stephen R. McAllister, Solicitor General,
Bryan C. Clark, Assistant Solicitor General, OFFICE OF THE
ATTORNEY GENERAL OF KANSAS, Topeka, Kansas; Jon Bruning,
Attorney General, OFFICE OF THE ATTORNEY GENERAL OF NEBRASKA,
Lincoln, Nebraska, for Amici State of Kansas and State of
Nebraska. C. Boyden Gray, Adam J. White, Adam R.F. Gustafson,
BOYDEN GRAY & ASSOCIATES, Washington, D.C., for Amicus The Galen
Institute. Mark R. Herring, Attorney General,
Cynthia E. Hudson, Chief Deputy Attorney General, Trevor S. Cox,
Deputy Solicitor General, OFFICE OF THE ATTORNEY GENERAL OF
VIRGINIA, Richmond, Virginia, for Amicus Commonwealth of
Virginia. Joseph Miller, Julie Simon Miller, AMERICA’S HEALTH
INSURANCE PLANS, Washington, D.C.; Andrew J. Pincus,
Brian D. Netter, MAYER BROWN LLP, Washington, D.C., for Amicus
America’s Health Insurance Plans. Mary P. Rouvelas, AMERICAN
CANCER SOCIETY CANCER ACTION NETWORK, Washington, D.C.;
Brian G. Eberle, SHERMAN & HOWARD L.L.C., Denver, Colorado, for
Amici American Cancer Society, American Cancer Society Cancer
Action Network, American Diabetes Association, and American
Heart Association. Clint A. Carpenter, H. Guy Collier,
Ankur J. Goel, Cathy Z. Scheineson, Lauren A. D'Agostino,
MCDERMOTT WILL & EMERY LLP, Washington, D.C., for Amicus Public
Health Deans, Chairs, and Faculty. Elizabeth B. Wydra,
Douglas T. Kendall, Simon Lazarus, Brianne J. Gorod,
CONSTITUTIONAL ACCOUNTABILITY CENTER, Washington, D.C., for
Amicus Members of Congress and State Legislators.
Melinda Reid Hatton, Maureen Mudron, AMERICAN HOSPITAL
ASSOCIATION, Washington, D.C.; Dominic F. Perella, Sean Marotta,
HOGAN LOVELLS US LLP, Washington, D.C., for Amicus American
Hospital Association. Matthew S. Hellman, Matthew E. Price,
Julie Straus Harris, Previn Warren, JENNER & BLOCK LLP,
Washington, D.C., for Amicus Economic Scholars.
Robert N. Weiner, Michael Tye, ARNOLD & PORTER LLP, Washington,
D.C., for Amicus Families USA. Stuart R. Cohen,
3
Michael Schuster, AARP FOUNDATION LITIGATION, Washington, D.C.;
Martha Jane Perkins, NATIONAL HEALTH LAW PROGRAM, Carrboro,
North Carolina, for Amici AARP and National Health Law Program.
4
GREGORY, Circuit Judge:
The plaintiffs-appellants bring this suit challenging the
validity of an Internal Revenue Service (“IRS”) final rule
implementing the premium tax credit provision of the Patient
Protection and Affordable Care Act (the “ACA” or “Act”). The
final rule interprets the ACA as authorizing the IRS to grant
tax credits to individuals who purchase health insurance on both
state-run insurance “Exchanges” and federally-facilitated
“Exchanges” created and operated by the Department of Health and
Human Services (“HHS”). The plaintiffs contend that the IRS’s
interpretation is contrary to the language of the statute,
which, they assert, authorizes tax credits only for individuals
who purchase insurance on state-run Exchanges. For reasons
explained below, we find that the applicable statutory language
is ambiguous and subject to multiple interpretations. Applying
deference to the IRS’s determination, however, we uphold the
rule as a permissible exercise of the agency’s discretion. We
thus affirm the judgment of the district court.
I.
In March of 2010, Congress passed the ACA to “increase the
number of Americans covered by health insurance and decrease the
cost of health care.” Nat’l Fed’n of Indep. Bus. v. Sebelius,
132 S. Ct. 2566, 2580 (2012) (NFIB). To increase the
5
availability of affordable insurance plans, the Act provides for
the establishment of “Exchanges,” through which individuals can
purchase competitively-priced health care coverage. See ACA
§§ 1311, 1321. Critically, the Act provides a federal tax
credit to millions of low- and middle-income Americans to offset
the cost of insurance policies purchased on the Exchanges. See
26 U.S.C. § 36B. The Exchanges facilitate this process by
advancing an individual’s eligible tax credit dollars directly
to health insurance providers as a means of reducing the up-
front cost of plans to consumers.
Section 1311 of the Act provides that “[e]ach State shall,
not later than January 1, 2014, establish an American Health
Benefit Exchange.” ACA § 1311(b)(1). However, § 1321 of the
Act clarifies that a state may “elect” to establish an Exchange.
Section 1321(c) further provides that if a state does not
“elect” to establish an Exchange by January 1, 2014, or fails to
meet certain federal requirements for the Exchanges, “the
Secretary [of HHS] shall . . . establish and operate such
exchange within the State . . . .” ACA § 1321(c)(1). Only
sixteen states plus the District of Columbia have elected to set
up their own Exchanges; the remaining thirty-four states rely on
federally-facilitated Exchanges.
Eligibility for the premium tax credits is calculated
according to 26 U.S.C. § 36B. This section defines the annual
6
“premium assistance credit amount” as the sum of the monthly
premium assistance amounts for “all coverage months of the
taxpayer occurring during the taxable year.” Id. § 36B(b)(1).
A “coverage month” is one in which the taxpayer is enrolled in a
health plan “through an Exchange established by the State under
section 1311.” Id. § 36B(c)(2)(A)(i); see also id.
§ 36B(b)(2)(A)-(B) (calculating the premium assistance amount in
relation to the price of premiums available and enrolled in
“through an Exchange established by the State under [§] 1311”).
In addition to the tax credits, the Act requires most
Americans to obtain “minimum essential” coverage or pay a tax
penalty imposed by the IRS. Id. § 5000A; NFIB, 132 S. Ct. at
2580. However, the Act includes an unaffordability exemption
that excuses low-income individuals for whom the annual cost of
health coverage exceeds eight percent of their projected
household income. 26 U.S.C. § 5000A(e)(1)(A). The cost of
coverage is calculated as the annual premium for the least
expensive insurance plan available on an Exchange offered in a
consumer’s state, minus the tax credit described above. Id.
§ 5000A(e)(1)(B)(ii). The tax credits thereby reduce the number
of individuals exempt from the minimum coverage requirement, and
in turn increase the number of individuals who must either
purchase health insurance coverage, albeit at a discounted rate,
or pay a penalty.
7
The IRS has promulgated regulations making the premium tax
credits available to qualifying individuals who purchase health
insurance on both state-run and federally-facilitated Exchanges.
See 26 C.F.R. § 1.36B-1(k); Health Insurance Premium Tax 7
Credit, 77 Fed. Reg. 30,377, 30,378 (May 23, 2012) (collectively
the “IRS Rule”). The IRS Rule provides that the credits shall
be available to anyone “enrolled in one or more qualified health
plans through an Exchange,” and then adopts by cross-reference
an HHS definition of “Exchange” that includes any Exchange,
“regardless of whether the Exchange is established and operated
by a State . . . or by HHS.” 26 C.F.R. § 1.36B-2; 45 C.F.R.
§ 155.20. Individuals who purchase insurance through federally-
facilitated Exchanges are thus eligible for the premium tax
credits under the IRS Rule. In response to commentary that this
interpretation might conflict with the text of the statute, the
IRS issued the following explanation:
The statutory language of section 36B and other
provisions of the Affordable Care Act support the
interpretation that credits are available to taxpayers
who obtain coverage through a State Exchange, regional
Exchange, subsidiary Exchange, and the Federally-
facilitated Exchange. Moreover, the relevant
legislative history does not demonstrate that Congress
intended to limit the premium tax credit to State
Exchanges. Accordingly, the final regulations
maintain the rule in the proposed regulations because
it is consistent with the language, purpose, and
structure of section 36B and the Affordable Care Act
as a whole.
77 Fed. Reg. at 30,378.
8
The plaintiffs in this case are Virginia residents who do
not want to purchase comprehensive health insurance. Virginia
has declined to establish a state-run Exchange and is therefore
served by the prominent federally-facilitated Exchange known as
HealthCare.gov. Without the premium tax credits, the plaintiffs
would be exempt from the individual mandate under the
unaffordability exemption. With the credits, however, the
reduced costs of the policies available to the plaintiffs
subject them to the minimum coverage penalty. According to the
plaintiffs, then, as a result of the IRS Rule, they will incur
some financial cost because they will be forced either to
purchase insurance or pay the individual mandate penalty.
The plaintiffs’ complaint alleges that the IRS Rule exceeds
the agency’s statutory authority, is arbitrary and capricious,
and is contrary to law in violation of the Administrative
Procedure Act (“APA”), 5 U.S.C. § 706. The plaintiffs contend
that the statutory language calculating the amount of premium
tax credits according to the cost of the insurance policy that
the taxpayer “enrolled in through an Exchange established by the
State under [§ 1311]” precludes the IRS’s interpretation that
the credits are also available on national Exchanges. 26 U.S.C.
§ 36B(b)(2)(A), (c)(2)(A)(i) (emphasis added). The district
court disagreed, finding that the statute as a whole clearly
evinced Congress’s intent to make the tax credits available
9
nationwide. The district court granted the defendants’ motion
to dismiss, and the plaintiffs timely appealed.
II.
We must first address whether the plaintiffs’ claims are
justiciable. The defendants make two arguments on this point:
(1) that the plaintiffs lack standing; and (2) that the
availability of a tax-refund action acts as an independent bar
to the plaintiffs’ claims under the APA.
A.
We review de novo the legal question of whether plaintiffs
have standing to sue. Wilson v. Dollar General Corp., 717 F.3d
337, 342 (4th Cir. 2013). Article III standing requires a
litigant to demonstrate “an invasion of a legally protected
interest” that is “concrete and particularized” and “‘actual or
imminent.’” Lujan v. Defenders of Wildlife, 504 U.S. 555, 560
(1992) (quoting Whitmore v. Arkansas, 495 U.S. 149, 155 (1990)).
The plaintiffs premise their standing on the claim that, if they
were not eligible for the premium tax credits, they would
qualify for the unaffordability exemption in 26 U.S.C. § 5000A
and would therefore not be subject to the tax penalty for
failing to maintain minimum essential coverage. Thus, because
of the credits, the plaintiffs argue that they face a direct
10
financial burden because they are forced either to purchase
insurance or pay the penalty.
We agree that this represents a concrete economic injury
that is directly traceable to the IRS Rule. The IRS Rule forces
the plaintiffs to purchase a product they otherwise would not,
at an expense to them, or to pay the tax penalty for failing to
comply with the individual mandate, also subjecting them to some
financial cost. Although it is counterintuitive, the tax
credits, working in tandem with the Act’s individual mandate,
impose a financial burden on the plaintiffs.
The defendants’ argument against standing is premised on
the claim that the plaintiffs want to purchase “catastrophic”
insurance coverage, which in some cases is more expensive than
subsidized comprehensive coverage required by the Act. The
defendants thus claim that the plaintiffs have acknowledged they
would actually expend more money on a separate policy even if
they were eligible for the credits. Regardless of the viability
of this argument, it rests on an incorrect premise. The
defendants misread the plaintiffs’ complaint, which, while
mentioning the possibility that several of the plaintiffs wish
to purchase catastrophic coverage, also clearly alleges that
each plaintiff does not want to buy comprehensive, ACA-compliant
coverage and is harmed by having to do so or pay a penalty. The
harm in this case is having to choose between ACA-compliant
11
coverage and the penalty, both of which represent a financial
cost to the plaintiffs. That harm is actual or imminent, and is
directly traceable to the IRS Rule. The plaintiffs thus have
standing to present their claims.
B.
The defendants also argue that the availability of a tax-
refund action bars the plaintiffs’ claims under the APA. The
defendants assert that the proper course of action for the
plaintiffs is to pay the tax penalty and then present their
legal arguments against the IRS Rule as part of a tax-refund
action brought under either 26 U.S.C. § 7422(a) (“No suit or
proceeding shall be maintained in any court for the recovery of
any internal revenue tax alleged to have been erroneously or
illegally assessed or collected, . . . until a claim for refund
or credit has been duly filed . . . .”), or the Little Tucker
Act, 28 U.S.C. § 1346 (granting district courts jurisdiction to
hear “[a]ny civil action against the United States for the
recovery of any internal-revenue tax alleged to have been
erroneously or illegally assessed or collected, or any penalty
claimed to have been collected without authority or any sum
alleged to have been excessive or in any manner wrongfully
12
collected under the internal-revenue laws”). 1 The defendants do
not, nor could they, assert this as a jurisdictional bar, but
instead point to “general equitable principles disfavoring the
issuance of federal injunctions against taxes, absent clear
proof that available remedies at law [are] inadequate.” Bob
Jones Univ. v. Simon, 416 U.S. 725, 742 n.16 (1974). The
defendants argue that a tax refund action presents an “adequate
remedy” that the plaintiffs must first pursue before challenging
the IRS Rule directly under the APA. See 5 U.S.C. § 704
(“Agency action made reviewable by statute and final agency
action for which there is no other adequate remedy in a court
are subject to judicial review.”).
The defendants’ arguments are not persuasive. First, they
fail to point to a single case in which a court has refused to
entertain a similar suit on the grounds that the parties were
required to first pursue a tax-refund action under 26 U.S.C.
§ 7422(a) or 28 U.S.C. § 1346. Moreover, the plaintiffs are not
seeking a tax refund; they ask for no monetary relief, alleging
instead claims for declaratory and injunctive relief in an
attempt to forestall the lose-lose choice (in their minds) of
1
Although 26 U.S.C. § 7422(a) does not appear to
specifically authorize suits, § 6532 speaks of refund suits
filed “under § 7422(a).” See also Cohen v. United States, 650
F.3d 717, 731, n.11 (D.C. Cir. 2011) (en banc).
13
purchasing a product they do not want or paying the penalty.
Section 7422(a) does not allow for prospective relief. Instead,
it bars suit “for the recovery of any internal revenue tax
alleged to have been erroneously or illegally assessed or
collected.” 26 U.S.C. 7422(a) (emphasis added); see also Cohen,
650 F.3d at 732 (“[Section 7422(a)] does not, at least
explicitly, allow for prospective relief.”). Similarly, “[t]he
Little Tucker Act does not authorize claims that seek primarily
equitable relief.” Berman v. United States, 264 F.3d 16, 21
(1st Cir. 2001) (citing Richardson v. Morris, 409 U.S. 464, 465
(1973); Bobula v. United States Dep’t of Justice, 970 F.2d 854,
858-59 (Fed. Cir. 1992)).
It is clear, then, that the alternative forms of relief
suggested by the defendants would not afford the plaintiffs the
complete relief they seek. This is simply not a typical tax
refund action in which an individual taxpayer complains of the
manner in which a tax was assessed or collected and seeks
reimbursement for wrongly paid sums. The plaintiffs here
challenge the legality of a final agency action, which is
consistent with the APA’s underlying purpose of “remov[ing]
obstacles to judicial review of agency action.” Bowen v.
Massachusetts, 487 U.S. 879, 904 (1988). Requiring the
plaintiffs to choose between purchasing insurance and thereby
waiving their claims or paying the tax and challenging the IRS
14
Rule after the fact creates just such an obstacle. We therefore
find that the plaintiffs’ suit is not barred under the APA.
III.
Turning to the merits, “we review questions of statutory
construction de novo.” Orquera v. Ashcroft, 357 F.3d 413, 418
(4th Cir. 2003). Because this case concerns a challenge to an
agency’s construction of a statute, we apply the familiar two-
step analytic framework set forth in Chevron U.S.A., Inc. v.
Natural Res. Def. Council, Inc., 467 U.S. 837 (1984). At
Chevron’s first step, a court looks to the “plain meaning” of
the statute to determine if the regulation responds to it.
Chevron, 467 U.S. at 842-43. If it does, that is the end of the
inquiry and the regulation stands. Id. However, if the statute
is susceptible to multiple interpretations, the court then moves
to Chevron’s second step and defers to the agency’s
interpretation so long as it is based on a permissible
construction of the statute. Id. at 843.
A.
At step one, “[i]f the statute is clear and unambiguous
‘that is the end of the matter, for the court, as well as the
agency, must give effect to the unambiguously expressed intent
of Congress.’” Bd. of Governors of the Fed. Reserve Sys. v.
Dimension Fin. Corp., 474 U.S. 361, 368 (1986) (quoting Chevron,
15
467 U.S. at 842-43). A statute is ambiguous only if the
disputed language is “reasonably susceptible of different
interpretations.” Nat’l R.R. Passenger Corp. v. Atchison Topeka
& Santa Fe Ry. Co., 470 U.S. 451, 473 n.27 (1985). “The
objective of Chevron step one is not to interpret and apply the
statute to resolve a claim, but to determine whether Congress’s
intent in enacting it was so clear as to foreclose any other
interpretation.” Grapevine Imports, Ltd. v. United States, 636
F.3d 1367, 1377 (Fed. Cir. 2011). Courts should employ all the
traditional tools of statutory construction in determining
whether Congress has clearly expressed its intent regarding the
issue in question. Chevron, 467 U.S. at 843 n.9; Nat’l Elec.
Mfrs. Ass’n v. U.S. Dep’t of Energy, 654 F.3d 496, 504 (4th Cir.
2011).
1.
In construing a statute’s meaning, the court “begin[s], as
always, with the language of the statute.” Duncan v. Walker,
533 U.S. 167, 172 (2001). As described above, 26 U.S.C. § 36B
provides that the premium assistance amount is the sum of the
monthly premium assistance amounts for all “coverage months” for
which the taxpayer is covered during a year. A “coverage month”
is one in which “the taxpayer . . . is covered by a qualified
health plan . . . enrolled in through an Exchange established by
the State under [§] 1311 of the [Act].” 26 U.S.C.
16
§ 36B(b)(2)(A). Similarly, the statute calculates an
individual’s tax credit by totaling the “premium assistance
amounts” for all “coverage months” in a given year. Id.
§ 36B(b)(1). The “premium assistance amount” is based in part
on the cost of the monthly premium for the health plan that the
taxpayer purchased “through an Exchange established by the State
under [§] 1311.” Id. § 36B(b)(2).
The plaintiffs assert that the plain language of both
relevant subsections in § 36B is determinative. They contend
that in defining the terms “coverage months” and “premium
assistance amount” by reference to Exchanges that are
“established by the State under [§] 1311,” Congress limited the
availability of tax credits to individuals purchasing insurance
on state Exchanges. Under the plaintiffs’ construction, the
premium credit amount for individuals purchasing insurance
through a federal Exchange would always be zero.
The plaintiffs’ primary rationale for their interpretation
is that the language says what it says, and that it clearly
mentions state-run Exchanges under § 1311. If Congress meant to
include federally-run Exchanges, it would not have specifically
chosen the word “state” or referenced § 1311. The federal
government is not a “State,” and so the phrase “Exchange
established by the State under [§] 1311,” standing alone,
supports the notion that credits are unavailable to consumers on
17
federal Exchanges. Further, the plaintiffs assert that because
state and federal Exchanges are referred to separately in § 1311
and § 1321, the omission in 26 U.S.C. § 36B of any reference to
federal Exchanges established under § 1321 represents an
intentional choice on behalf of Congress to exclude federal
Exchanges and include only state Exchanges established under
§ 1311.
There can be no question that there is a certain sense to
the plaintiffs’ position. If Congress did in fact intend to
make the tax credits available to consumers on both state and
federal Exchanges, it would have been easy to write in broader
language, as it did in other places in the statute. See 42
U.S.C. § 18032(d)(3)(D)(i)(II) (referencing Exchanges
“established under this Act”).
However, when conducting statutory analysis, “a reviewing
court should not confine itself to examining a particular
statutory provision in isolation. Rather, [t]he meaning – or
ambiguity – of certain words or phrases may only become evident
when placed in context.” Nat’l Ass’n of Home Builders v.
Defenders of Wildlife, 551 U.S. 644, 666 (2007) (internal
citation and quotation marks omitted). With this in mind, the
defendants’ primary counterargument points to ACA §§ 1311 and
1321, which, when read in tandem with 26 U.S.C. § 36B, provide
an equally plausible understanding of the statute, and one that
18
comports with the IRS’s interpretation that credits are
available nationwide.
As noted, § 1311 provides that “[e]ach State shall, not
later than January 1, 2014, establish an American Health Benefit
Exchange (referred to in this title as an “Exchange”)[.]” It
goes on to say that “[a]n Exchange shall be a governmental
agency or nonprofit entity that is established by a State,”
apparently narrowing the definition of “Exchange” to encompass
only state-created Exchanges. ACA § 1311(d)(1). Similarly, the
definitions section of the Act, § 1563(b), provides that “[t]he
term ‘Exchange’ means an American Health Benefit Exchange
established under [§] 1311,” further supporting the notion that
all Exchanges should be considered as if they were established
by a State.
Of course, § 1311’s directive that each State establish an
Exchange cannot be understood literally in light of § 1321,
which provides that a state may “elect” to do so. Section
1321(c) provides that if a state fails to establish an Exchange
by January 1, 2014, the Secretary “shall . . . establish and
operate such Exchange within the State and the Secretary shall
take such actions as are necessary to implement such other
requirements.” (emphasis added). The defendants’ position is
that the term “such Exchange” refers to a state Exchange that is
set up and operated by HHS. In other words, the statute
19
mandates the existence of state Exchanges, but directs HHS to
establish such Exchanges when the states fail to do so
themselves. In the absence of state action, the federal
government is required to step in and create, by definition, “an
American Health Benefit Exchange established under [§] 1311” on
behalf of the state.
Having thus explained the parties’ competing primary
arguments, the court is of the opinion that the defendants have
the stronger position, although only slightly. Given that
Congress defined “Exchange” as an Exchange established by the
state, it makes sense to read § 1321(c)’s directive that HHS
establish “such Exchange” to mean that the federal government
acts on behalf of the state when it establishes its own
Exchange. However, the court cannot ignore the common-sense
appeal of the plaintiffs’ argument; a literal reading of the
statute undoubtedly accords more closely with their position.
As such, based solely on the language and context of the most
relevant statutory provisions, the court cannot say that
Congress’s intent is so clear and unambiguous that it
“foreclose[s] any other interpretation.” Grapevine Imports, 636
F.3d at 1377.
2.
We next examine two other, less directly relevant
provisions of the Act to see if they shed any more light on
20
Congress’s intent. Food and Drug Admin. v. Brown & Williamson
Tobacco Corp., 529 U.S. 120, 132-33 (2000) (“A court must . . .
interpret the statute as a symmetrical and coherent regulatory
scheme, and fit, if possible, all parts into a harmonious
whole.”) (citation and internal quotation marks omitted).
First, the defendants argue that reporting provisions in
§ 36B(f) conflict with the plaintiffs’ interpretation and
confirm that the premium tax credits must be available on
federally-run Exchanges. Section 36B(f) – titled
“Reconciliation of credit and advance credit” – requires the IRS
to reduce the amount of a taxpayer’s end-of-year premium tax
credit by the amount of any advance payment of such credit. See
26 U.S.C. § 36B(f)(1) (“The amount of the credit allowed under
this section for any taxable year shall be reduced (but not
below zero) by the amount of any advance payment of such
credit[.]”). To enable the IRS to track these advance payments,
the statute requires “[e]ach Exchange (or any person carrying
out 1 or more responsibilities of an Exchange under section
1311(f)(3) or 1321(c) of the [Act])” to provide certain
information to the Department of the Treasury. Id. § 36B(f)(3)
(emphasis added). There is no dispute that the reporting
requirements apply regardless of whether an Exchange was
established by a state or HHS. The Exchanges are required to
report the following information:
21
(A) The level of coverage described in section
1302(d) of the Patient Protection and Affordable
Care Act and the period such coverage was in
effect.
(B) The total premium for the coverage without regard
to the credit under this section or cost-sharing
reductions under section 1402 of such Act.
(C) The aggregate amount of any advance payment of
such credit or reductions under section 1412 of
such Act.
(D) The name, address, and TIN of the primary insured
and the name and TIN of each other individual
obtaining coverage under the policy.
(E) Any information provided to the Exchange,
including any change of circumstances, necessary
to determine eligibility for, and the amount of,
such credit.
(F) Information necessary to determine whether a
taxpayer has received excess advance payments.
Id.
The defendants argue, sensibly, that if premium tax credits
were not available on federally-run Exchanges, there would be no
reason to require such Exchanges to report the information found
in subsections (C), (E), and (F). It is therefore possible to
infer from the reporting requirements that Congress intended the
tax credits to be available on both state- and federally-
facilitated Exchanges. The plaintiffs acknowledge that some of
the reporting requirements are extraneous for federally-run
Exchanges, but note that the other categories of reportable
information, i.e., subsections (A), (B), and (D), remain
relevant even in the absence of credits. The plaintiffs suggest
22
that Congress was simply saving itself the trouble of writing
two separate subsections, one for each type of Exchange, by
including a single comprehensive list.
The second source of potentially irreconcilable language
offered by the defendants concerns the “qualified individuals”
provision under ACA § 1312. That section sets forth provisions
regarding which individuals may purchase insurance from the
Exchanges. It provides that only “qualified individuals” may
purchase health plans in the individual markets offered through
the Exchanges, and explains that a “qualified individual” is a
person who “resides in the State that established the Exchange.”
ACA § 1312. The defendants argue that unless their reading of
§ 1321 is adopted and understood to mean that the federal
government stands in the shoes of the state for purposes of
establishing an Exchange, there would be no “qualified
individuals” existing in the thirty-four states with federally-
facilitated Exchanges because none of those states is a “State
that established the Exchange.” This would leave the federal
Exchanges with no eligible customers, a result Congress could
not possibly have intended.
The plaintiffs acknowledge that this would be untenable,
and suggest that the residency requirement is only applicable to
state-created Exchanges. They note that § 1312 states that a
“qualified individual” – “with respect to an Exchange” – is one
23
who “resides in the State that established the Exchange.” ACA
§ 1312(f)(1)(A) (emphasis added). Accordingly, because
“Exchange” is defined as an Exchange established under § 1311,
i.e., the provision directing states to establish Exchanges, the
residency requirement only limits enrollment on state Exchanges.
Having considered the parties’ competing arguments on both
of the above-referenced sections, we remain unpersuaded by
either side. Again, while we think the defendants make the
better of the two cases, we are not convinced that either of the
purported statutory conflicts render Congress’s intent clear.
Both parties offer reasonable arguments and counterarguments
that make discerning Congress’s intent difficult. Additionally,
we note that the Supreme Court has recently reiterated the
admonition that courts avoid revising ambiguously drafted
legislation out of an effort to avoid “apparent anomal[ies]”
within a statute. Michigan v. Bay Mills Indian Cmty., No. 12-
515, 572 U.S. ___, ___, slip op. at 10 (May 27, 2014). It is
not especially surprising that in a bill of this size – “10
titles stretch[ing] over 900 pages and contain[ing] hundreds of
provisions,” NFIB, 132 S. Ct. at 2580, – there would be one or
more conflicting provisions. See Bay Mills, at 10-11 (“Truth be
told, such anomalies often arise from statutes, if for no other
reason than that Congress typically legislates by parts
. . . .”). Wary of granting excessive analytical weight to
24
relatively minor conflicts within a statute of this size, we
decline to accept the defendants’ arguments as dispositive of
Congress’s intent.
3.
The Act’s legislative history is also not particularly
illuminating on the issue of tax credits. See Philip Morris
USA, Inc. v. Vilsack, 736 F.3d 284, 289 (4th Cir. 2013)
(considering legislative history at Chevron step one). But see
Nat’l Elec. Mfrs. Ass’n, 654 F.3d at 505 (noting that, “in
consulting legislative history at step one of Chevron, we have
utilized such history only for limited purposes, and only after
exhausting more reliable tools of construction”). As both
parties concede, the legislative history of the Act is somewhat
lacking, particularly for a bill of this size. 2 Several floor
statements from Senators support the notion that it was well
understood that tax credits would be available for low- and
middle-income Americans nationwide. For example, Senator Baucus
stated that the “tax credits will help to ensure all Americans
2
As another court considering a similar challenge to the
IRS Rule recently noted, “[b]ecause the House and Senate
versions of the Act were synthesized through a reconciliation
process, rather than the standard conference committee process,
no conference report was issued for the Act, and there is a
limited legislative record relating to the final version of the
bill.” Halbig v. Sebelius, No. 13-623, 2014 WL 129023, at *17
n.13 (D.D.C. Jan. 15, 2014).
25
can afford quality health insurance.” 155 Cong. Rec. S11,964
(Nov. 21, 2009). He later estimated that “60 percent of those
who are getting insurance in the individual market on the
exchange will get tax credits . . . .” 155 Cong. Rec. S12,764
(Dec. 9, 2009). Similarly, Senator Durbin stated that half of
the “30 million Americans today who have no health insurance
. . . will qualify for . . . tax credits to help them pay their
premiums so they can have and afford health insurance.” 155
Cong. Rec. S13,559 (Dec. 20, 2009). These figures only make
sense if all financially eligible Americans are understood to
have access to the credits.
However, it is possible that such statements were made
under the assumption that every state would in fact establish
its own Exchange. As the district court stated, “Congress did
not expect the states to turn down federal funds and fail to
create and run their own Exchanges.” King v. Sebelius, No.
3:13-cv-630, 2014 WL 637365, at *14 (E.D. Va. Feb. 18, 2014).
The Senators’ statements therefore do not necessarily address
the question of whether the credits would remain available in
the absence of state-created Exchanges. The plaintiffs argue
extensively that Congress could not have anticipated that so few
states would establish their own Exchanges. Indeed, they argue
that Congress attempted to “coerce” the states into establishing
Exchanges by conditioning the availability of the credits on the
26
presence of state Exchanges. The plaintiffs contend that
Congress struck an internal bargain in which it decided to favor
state-run Exchanges by incentivizing their creation with
billions of dollars of tax credits. According to the
plaintiffs, however, Congress’s plan backfired when a majority
of states refused to establish their own Exchanges, in spite of
the incentives. The plaintiffs thus acknowledge that the lack
of widely available tax credits is counter to Congress’s
original intentions, but consider this the product of a
Congressional miscalculation that the courts have no business
correcting.
Although the plaintiffs offer no compelling support in the
legislative record for their argument, 3 it is at least plausible
that Congress would have wanted to ensure state involvement in
the creation and operation of the Exchanges. Such an approach
would certainly comport with a literal reading of 26 U.S.C.
§ 36B’s text. In any event, it is certainly possible that the
Senators quoted above were speaking under the assumption that
3
The plaintiffs take an isolated, stray comment from
Senator Baucus during a Senate Finance Committee hearing well
out of context, see J.A. 285-87, and similarly place too much
emphasis on a draft bill from the Senate Health, Education,
Labor, and Pensions Committee that would have conditioned
subsidies for a state’s residents on the state’s adoption of
certain “insurance reform provisions,” see S. 1679, § 3104(a),
(d)(2), 111th Cong. (2009).
27
each state would establish its own Exchange, and that they could
not have envisioned the issue currently being litigated.
Although Congress included a fallback provision in the event the
states failed to act, it is not clear from the legislative
record how large a role Congress expected the federal Exchanges
to play in administering the Act. We are thus of the opinion
that nothing in the legislative history of the Act provides
compelling support for either side’s position.
Having examined the plain language and context of the most
relevant statutory sections, the context and structure of
related provisions, and the legislative history of the Act, we
are unable to say definitively that Congress limited the premium
tax credits to individuals living in states with state-run
Exchanges. We note again that, on the whole, the defendants
have the better of the statutory construction arguments, but
that they fail to carry the day. Simply put, the statute is
ambiguous and subject to at least two different interpretations.
As a result, we are unable to resolve the case in either party’s
favor at the first step of the Chevron analysis.
B.
Finding that Congress has not “directly spoken to the
precise question at issue,” we move to Chevron’s second step.
467 U.S. at 842. At step two, we ask whether the “agency’s
[action] is based on a permissible construction of the statute.”
28
Id. at 843. We “will not usurp an agency’s interpretive
authority by supplanting its construction with our own, so long
as the interpretation is not ‘arbitrary, capricious, or
manifestly contrary to the statute.’ A construction meets this
standard if it ‘represents a reasonable accommodation of
conflicting policies that were committed to the agency’s care by
the statute.’” Philip Morris, 736 F.3d at 290 (quoting Chevron,
467 U.S. at 844, 845). We have been clear that “[r]eview under
this standard is highly deferential, with a presumption in favor
of finding the agency action valid.” Ohio Vall. Envt’l
Coalition v. Aracoma Coal Co., 556 F.3d 177, 192 (4th Cir.
2009).
As explained, we cannot discern whether Congress intended
one way or another to make the tax credits available on HHS-
facilitated Exchanges. The relevant statutory sections appear
to conflict with one another, yielding different possible
interpretations. In light of this uncertainty, this is a
suitable case in which to apply the principles of deference
called for by Chevron. See Scialabba v. Cuellar de Osorio, No.
12-930, 573 U.S. ___, ___, slip op. at 14 (June 9, 2014)
(“[I]nternal tension [in a statute] makes possible alternative
reasonable constructions, bringing into correspondence in one
way or another the section’s different parts. And when that is
so, Chevron dictates that a court defer to the agency’s choice
29
. . . .”) (plurality opinion); Nat’l Elec. Mfrs. Ass’n, 654 F.3d
at 505 (“[W]e have reached Chevron’s second step after
describing statutory language as ‘susceptible to more precise
definition and open to varying constructions.’”) (quoting Md.
Dep’t of Health and Mental Hygiene v. Centers for Medicare and
Medicaid Servs., 542 F.3d 424, 434 (4th Cir. 2008)). 4
What we must decide is whether the statute permits the IRS
to decide whether the tax credits would be available on federal
Exchanges. In answering this question in the affirmative we are
primarily persuaded by the IRS Rule’s advancement of the broad
4
We recognize that not every ambiguity in a statute gives
rise to Chevron deference. Often, but not always, courts will
yield to an agency’s interpretation only when the ambiguity
creates some discretionary authority for the agency to fulfill.
See Chamber of Commerce of U.S. v. N.L.R.B., 721 F.3d 152, 161
(4th Cir. 2013) (“‘Mere ambiguity in a statute is not evidence
of congressional delegation of authority.’ Rather, ‘[t]he
ambiguity must be such as to make it appear that Congress either
explicitly or implicitly delegated authority to cure that
ambiguity.’”) (quoting Am. Bar Ass’n v. F.T.C., 430 F.3d 457,
469 (D.C. Cir. 2005)) (alteration in original). However, given
the importance of the tax credits to the overall statutory
scheme, it is reasonable to assume that Congress created the
ambiguity in this case with at least some degree of
intentionality. See City of Arlington v. F.C.C., 133 S. Ct.
1863, 1868 (2013) (“Congress knows to speak in plain terms when
it wishes to circumscribe, and in capacious terms when it wishes
to enlarge, agency discretion.”). There are several possible
reasons for leaving an ambiguity of this sort: Congress perhaps
might not have wanted to resolve a politically sensitive issue;
additionally, it might have intended to see how large a role the
states were willing to adopt on their own before having the
agency respond with rules that could best effectuate the purpose
of the Act in light of the actual circumstances present several
years after the bill’s passage.
30
policy goals of the Act. See Vill. of Barrington v. Surface
Transp. Bd., 636 F.3d 650, 666 (D.C. Cir. 2011) (“[W]hen an
agency interprets ambiguities in its organic statute, it is
entirely appropriate for that agency to consider . . . policy
arguments that are rationally related to the [statute’s] goals.”
(internal quotation marks and citation omitted)); Ariz. Pub.
Serv. Co. v. EPA, 211 F.3d 1280, 1287 (D.C. Cir. 2000) (“[A]s
long as the agency stays within [Congress’s] delegation, it is
free to make policy choices in interpreting the statute, and
such interpretations are entitled to deference.”) (quotation
marks omitted). There is no question that the Act was intended
as a major overhaul of the nation’s entire health insurance
market. The Supreme Court has recognized the broad policy goals
of the Act: “to increase the number of Americans covered by
health insurance and decrease the cost of health care.” NFIB,
132 S. Ct. at 2580. Similarly, Title I of the ACA is titled
“Quality, Affordable Health Care for All Americans” (emphasis
added).
Several provisions of the Act are necessary to achieving
these goals. To begin with, the individual mandate requires
nearly all Americans to have health insurance or pay a fine.
Increasing the pool of insured individuals has the intended
side-effect of increasing revenue for insurance providers. The
increased revenue, in turn, supports several more specific
31
policy goals contained in the Act. The most prominent of these
are the guaranteed-issue and community-rating provisions. In
short, these provisions bar insurers from denying coverage or
charging higher premiums because of an individual’s health
status. See ACA § 1201. However, these requirements, standing
alone, would result in an “adverse selection” scenario whereby
individuals disproportionately likely to utilize health care
would drive up the costs of policies available on the Exchanges.
Congress understood that one way to avoid such price
increases was to require near-universal participation in the
insurance marketplace via the individual mandate. In
combination with the individual mandate, Congress authorized
broad incentives - totaling hundreds of billions of dollars – to
further increase market participation among low- and middle-
income individuals. A Congressional Budget Office report issued
while the Act was under consideration informed Congress that
there would be an “an influx of enrollees with below-average
spending for health care, who would purchase coverage because of
the new subsidies to be provided and the individual mandate to
be imposed.” J.A. 95. The report further advised Congress that
“[t]he substantial premium subsidies available in the exchanges
would encourage the enrollment of a broad range of people”; and
that the structure of the premium tax credits, under which
federal subsidies increase if premiums rise, “would dampen the
32
chances that a cycle of rising premiums and declining enrollment
would ensue.” J.A. 108-109. As the defendants further explain,
denying tax credits to individuals shopping on federal Exchanges
would throw a debilitating wrench into the Act’s internal
economic machinery:
Insurers in States with federally-run Exchanges would
still be required to comply with guaranteed-issue and
community-rating rules, but, without premium tax
subsidies to encourage broad participation, insurers
would be deprived of the broad policy-holder base
required to make those reforms viable. Adverse
selection would cause premiums to rise, further
discouraging market participation, and the ultimate
result would be an adverse-selection “death spiral” in
the individual insurance markets in States with
federally-run Exchanges.
Br. of Appellees, at 35; see also Amicus Br. of America’s Health
Insurance Plans, at 3-6; Amicus Br. for Economic Scholars, at 3-
6. 5
It is therefore clear that widely available tax credits are
essential to fulfilling the Act’s primary goals and that
Congress was aware of their importance when drafting the bill.
The IRS Rule advances this understanding by ensuring that this
5
Likewise, four Supreme Court Justices have remarked on the
importance of the tax credit system: “Without the federal
subsidies, individuals would lose the main incentive to purchase
insurance inside the exchanges, and some insurers may be
unwilling to offer insurance inside of exchanges. With fewer
buyers and even fewer sellers, the exchanges would not operate
as Congress intended and may not operate at all.” NFIB, 132 S.
Ct. at 2674 (Scalia, Kennedy, Thomas, and Alito, JJ.,
dissenting).
33
essential component exists on a sufficiently large scale. The
IRS Rule became all the more important once a significant number
of states indicated their intent to forgo establishing
Exchanges. With only sixteen state-run Exchanges currently in
place, the economic framework supporting the Act would crumble
if the credits were unavailable on federal Exchanges.
Furthermore, without an exception to the individual mandate,
millions more Americans unable to purchase insurance without the
credits would be forced to pay a penalty that Congress never
envisioned imposing on them. The IRS Rule avoids both these
unforeseen and undesirable consequences and thereby advances the
true purpose and means of the Act.
It is thus entirely sensible that the IRS would enact the
regulations it did, making Chevron deference appropriate.
Confronted with the Act’s ambiguity, the IRS crafted a rule
ensuring the credits’ broad availability and furthering the
goals of the law. In the face of this permissible construction,
we must defer to the IRS Rule. See Scialabba, at 33 (“Whatever
Congress might have meant in enacting [the statute], it failed
to speak clearly. Confronted with a self-contradictory,
ambiguous provision in a complex statutory scheme, the Board
chose a textually reasonable construction consonant with its
view of the purposes and policies underlying immigration law.
Were we to overturn the Board in that circumstance, we would
34
assume as our own the responsible and expert agency’s role.”);
Nat’l Elec. Mfrs. Ass’n, 654 F.3d at 505 (“[W]e defer at
[Chevron’s] step two to the agency’s interpretation so long as
the construction is a reasonable policy choice for the agency to
make.”) (second alteration in original).
Tellingly, the plaintiffs do not dispute that the premium
tax credits are an essential component of the Act’s viability.
Instead, as explained above, they concede that Congress probably
wanted to make subsidies available throughout the country, but
argue that Congress was equally concerned with ensuring that the
states play a leading role in administering the Act, and thus
conditioned the availability of the credits on the creation of
state Exchanges. The plaintiffs argue that the IRS Rule exceeds
the agency’s authority because it irreconcilably conflicts with
Congress’s goal of ensuring state leadership. For the reasons
explained above, however, we are not persuaded by the
plaintiffs’ “coercion” argument and do not consider it a valid
basis for circumscribing the agency’s authority to implement the
Act in an efficacious manner.
The plaintiffs also attempt to avert Chevron deference by
arguing that ACA §§ 1311 and 1321 are administered by HHS and
not the IRS, and that as a result the IRS had no authority to
enact its final rule. However, the relevant statutory language
is found in 26 U.S.C. § 36B, which is part of the Internal
35
Revenue Code and subject to interpretation by the IRS. See 77
Fed. Reg. at 30,378 (describing the IRS Rule as a valid
interpretation of 26 U.S.C. § 36B). Although the IRS Rule
adopts by cross-reference an HHS definition of “Exchange,” 26
C.F.R. § 1.36B-1(k), the Act clearly gives to the IRS authority
to resolve ambiguities in 26 U.S.C. § 38B (“The Secretary shall
prescribe such regulations as may be necessary to carry out the
provisions of this section”). This clear delegation of
authority to the IRS relieves us of any possible doubt regarding
the propriety of relying on one agency’s interpretation of a
single piece of a jointly-administered statute.
Finally, the plaintiffs contend that a rule of statutory
construction that requires tax exemptions and credits to be
construed narrowly displaces Chevron deference in this case.
However, while the Supreme Court has stated that tax credits
“must be expressed in clear and unambiguous terms,” Yazoo &
Miss. Valley R.R. Co. v. Thomas, 132 U.S. 174, 183 (1889), the
Supreme Court has never suggested that this principle displaces
Chevron deference, and in fact has made it quite clear that it
does not. See Mayo Found. for Medical Educ. and Research v.
United States, 131 S. Ct. 704, 713 (2011) (“[T]he principles
underlying our decision in Chevron apply with full force in the
tax context.”); see also id. at 712 (collecting cases in which
36
the Supreme Court has applied Chevron deference interpreting IRS
regulations).
Rejecting all of the plaintiffs’ arguments as to why
Chevron deference is inappropriate in this case, for the reasons
explained above we are satisfied that the IRS Rule is a
permissible construction of the statutory language. We must
therefore apply Chevron deference and uphold the IRS Rule. 6
Accordingly, the judgment of the district court is
affirmed.
AFFIRMED
6
The Commonwealth of Virginia, acting as amicus on behalf
of the defendants, argues that the plaintiffs’ construction of
the statute violates the Constitution’s Spending Clause by
failing to provide Virginia with “clear notice” that receipt of
billions of dollars in tax credits for its low- and middle-
income citizens was contingent on establishing an Exchange. The
Commonwealth’s argument derives from Pennhurst State School &
Hospital v. Halderman, in which the Supreme Court stated that
“if Congress intends to impose a condition on the grant of
federal moneys, it must do so unambiguously. By insisting that
Congress speak with a clear voice, we enable the States to
exercise their choice knowingly, cognizant of the consequences
of their participation.” 451 U.S. 1, 17 (1981) (internal
citations omitted). Although ably advanced, we have no reason
to reach the Commonwealth’s constitutional argument because we
find the IRS Rule to be an appropriate exercise of the agency’s
authority under Chevron. See Norfolk S. Ry. Co. v. City of
Alexandria, 608 F.3d 150, 157 (4th Cir. 2010) (“The principle of
constitutional avoidance . . . requires the federal courts to
avoid rendering constitutional rulings unless absolutely
necessary.”) (citing Ashwander v. Tenn. Valley Auth., 297 U.S.
288, 347 (1936) (Brandeis, J., concurring)).
37
DAVIS, Senior Circuit Judge, concurring:
I am pleased to join in full the majority’s holding that
the Patient Protection and Affordable Care Act (the Act)
“permits” the Internal Revenue Service to decide whether premium
tax credits should be available to consumers who purchase health
insurance coverage on federally-run Exchanges. Maj. Op. at 30.
But I am also persuaded that, even if one takes the view that
the Act is not ambiguous in the manner and for the reasons
described, the necessary outcome of this case is precisely the
same. That is, I would hold that Congress has mandated in the
Act that the IRS provide tax credits to all consumers regardless
of whether the Exchange on which they purchased their health
insurance coverage is a creature of the state or the federal
bureaucracy. Accordingly, at Chevron Step One, the IRS Rule
making the tax credits available to all consumers of Exchange-
purchased health insurance coverage, 26 C.F.R. § 1.36B-1(k), 77
Fed. Reg. 30,377, 30,378 (May 23, 2012), is the correct
interpretation of the Act and is required as a matter of law.
Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc.,
467 U.S. 837, 842-43 (1984).
Although the Act expressly contemplates state-run
Exchanges, ACA § 1311(b)(1), Congress created a contingency
provision that permits the federal government, via the Secretary
of Health and Human Services, to “establish and operate such
38
Exchange within the State and . . . take such actions as are
necessary to implement such other requirements.” Id. §
1321(c)(1). This contingency provision is triggered when a state
elects not to set up an Exchange, when a state is delayed in
setting up an Exchange, or when a state Exchange fails to meet
certain statutory and regulatory requirements. Id. § 1321(c)(1).
Enter the premium tax credits, essentially a tax subsidy
for the purchase of health insurance. The amended tax code, 26
U.S.C. § 36B(b), sets forth the formula for calculating the
amount of a consumer’s premium tax credit. In general, the
credit is equal to the lesser of two amounts: the monthly
premium for a qualified health plan “enrolled in through an
Exchange established by the State,” or the excess of the
adjusted monthly premium for a certain type of health plan over
a percentage of the taxpayer’s household income. Id. §
36B(b)(2).
Appellants contend that the language “enrolled in through
an Exchange established by the State” precludes the IRS from
providing premium tax credits to consumers who purchase health
insurance coverage on federal Exchanges. To them, “established
by the State” in the premium tax credits calculation
subprovision is the sine qua non of this case. An Exchange
established by the State is not an Exchange established by the
federal government, they argue; thus, the equation for
39
calculating the amount of the premium tax credit is wholly
inapplicable to all consumers who purchase health insurance
coverage on federally-run Exchanges (the amount would be zero,
according to Appellants).
I am not persuaded and for a simple reason: “[E]stablished
by the State” indeed means established by the state - except
when it does not, i.e., except when a state has failed to
establish an Exchange and when the Secretary, charged with
acting pursuant to a contingency for which Congress planned, id.
§ 1321(c), establishes and operates the Exchange in place of the
state. When a state elects not to establish an Exchange, the
contingency provision authorizes federal officials to establish
and operate “such Exchange” and to take any action adjunct to
doing so.
That disposes of the Appellants’ contention. This is not a
case that calls up the decades-long clashes between textualists,
purposivists, and other schools of statutory interpretation. See
Abbe Gluck, The States As Laboratories of Statutory
Interpretation: Methodological Consensus and the New Modified
Textualism, 119 Yale L.J. 1750, 1762-63 (2010). The case can be
resolved through a contextual reading of a few different
subsections of the statute. If there were any remaining doubt
over this construction, the bill’s structure dispels it: The
contingency provision at § 1321(c)(1) is set forth in “Part III”
40
of the bill, titled “State Flexibility Relating to Exchanges,” a
section that appears after the section that creates the
Exchanges and mandates that they be operated by state
governments, ACA § 1311(b). What’s more, the contingency
provision does not create two-tiers of Exchanges; there is no
indication that Congress intended the federally-operated
Exchanges to be lesser Exchanges and for consumers who utilize
them to be less entitled to important benefits. Thus, I conclude
that a holistic reading of the Act’s text and proper attention
to its structure lead to only one sensible conclusion: The
premium tax credits must be available to consumers who purchase
health insurance coverage through their designated Exchange
regardless of whether the Exchange is state- or federally-
operated.
The majority opinion understandably engages with the
Appellants and respectfully posits they could be perceived to
advance a plausible construction of the Act, i.e., that Congress
may have sought to restrict the scope of the contingency
provision when it used the phrase “established by the State” in
the premium tax credits calculation subprovision. But as the
majority opinion deftly illustrates, a straightforward reading
of the Act strips away any and all possible explanations for why
Congress would have intended to exclude consumers who purchase
health insurance coverage on federally-run Exchanges from
41
qualifying for premium tax credits. (The best Appellants can
come up with seems to be some non-existent Congressional desire
for “state leadership” (whatever that means) in effecting a
comprehensive overhaul of the nation’s health insurance
marketplaces and related health care markets.) Such a reading,
the majority opinion persuasively explains, is not supported by
the legislative history or by the overall structure of the Act.
Maj. Op. at 27, 24. Moreover, the majority carefully and
cogently explains how “widely available tax credits are
essential to fulfilling the Act’s primary goals and [how]
Congress was aware of their importance when drafting the bill.”
Maj. Op. at 33. Thus, the majority correctly holds that Congress
did not intend a reading that has no legislative history to
support it and runs contrary to the Act’s text, structure, and
goals. Appellants’ “literal reading” of the premium tax credits
calculation subprovision renders the entire Congressional scheme
nonsensical. Cf. Maj. Op. at 27.
In fact, Appellants’ reading is not literal; it’s cramped.
No case stands for the proposition that literal readings should
take place in a vacuum, acontextually, and untethered from other
parts of the operative text; indeed, the case law indicates the
opposite. National Association of Home Builders v. Defenders of
Wildlife, 551 U.S. 644, 666 (2007). So does common sense: If I
ask for pizza from Pizza Hut for lunch but clarify that I would
42
be fine with a pizza from Domino’s, and I then specify that I
want ham and pepperoni on my pizza from Pizza Hut, my friend who
returns from Domino’s with a ham and pepperoni pizza has still
complied with a literal construction of my lunch order. That is
this case: Congress specified that Exchanges should be
established and run by the states, but the contingency provision
permits federal officials to act in place of the state when it
fails to establish an Exchange. The premium tax credit
calculation subprovision later specifies certain conditions
regarding state-run Exchanges, but that does not mean that a
literal reading of that provision somehow precludes its
applicability to substitute federally-run Exchanges or erases
the contingency provision out of the statute.
That Congress sometimes specified state and federal
Exchanges in the bill is as unremarkable as it is unrevealing.
This was, after all, a 900-page bill that purported to
restructure the means of providing health care in this country.
Neither the canons of construction nor any empirical analysis
suggests that congressional drafting is a perfectly harmonious,
symmetrical, and elegant endeavor. See generally Abbe Gluck &
Lisa Schultz Bressman, Statutory Interpretation from the Inside:
An Empirical Study of Congressional Drafting, Delegation, and
the Canons: Part I, 65 Stan. L. Rev. 901 (2013). Sausage-makers
are indeed offended when their craft is linked to legislating.
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Robert Pear, If Only Laws Were Like Sausages, N.Y. Times, Dec.
5, 2010, at WK3. At worst, the drafters’ perceived
inconsistencies (if that is what they are at all) are far less
probative of Congress’ intent than the unqualified and broad
contingency provision.
Appellants insist that the use of “established by the
State” in the premium tax credits calculation subprovision is
evidence of Congress’ intent to limit the availability of tax
credits to consumers of state Exchange-purchased health
insurance coverage. Their reading bespeaks a deeply flawed
effort to squeeze the proverbial elephant into the proverbial
mousehole. Whitman v. American Trucking Associations, 531 U.S.
457, 468 (2001). If Congress wanted to create a two-tiered
Exchange system, it would have done so expressly in the section
of the Act that authorizes the creation of contingent,
federally-run Exchanges. If Congress wanted to limit the
availability of premium tax credits to consumers who purchase
health coverage on state-run Exchanges, it would have said so
rather than tinkering with the formula in a subprovision
governing how to calculate the amount of the credit.
The real danger in the Appellants’ proposed interpretation
of the Act is that it misses the forest for the trees by eliding
Congress’ central purpose in enacting the Act: to radically
restructure the American health care market with “the most
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expansive social legislation enacted in decades.” Sheryl Gay
Stolberg & Robert Pear, Obama Signs Health Care Overhaul Into
Law, With a Flourish, N.Y. Times, March 24, 2010, at A19. The
widespread availability of premium tax credits was intended as a
critical part of the bill, a point the President highlighted at
the bill signing. Transcript of Remarks by the President and
Vice President at Signing of the Health Insurance Reform Bill,
March 23, 2010 (“And when this exchange is up and running,
millions of people will get tax breaks to help them afford
coverage, which represents the largest middle-class tax cut for
health care in history. That's what this reform is about.”).
Appellants’ approach would effectively destroy the statute by
promulgating a new rule that makes premium tax credits
unavailable to consumers who purchased health coverage on
federal Exchanges. But of course, as their counsel largely
conceded at oral argument, that is their not so transparent
purpose.
Appellants, citizens of the Commonwealth of Virginia, do
not wish to buy health insurance. Most assuredly, they have the
right, but not the unfettered right, Nat’l Fed’n of Indep. Bus.
v. Sebelius, 132 S. Ct. 2566 (2012), to decline to do so. They
have a clear choice, one afforded by the admittedly less-than-
perfect representative process ordained by our constitutional
structure: they can either pay the relatively minimal amounts
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needed to obtain health care insurance as provided by the Act,
or they can refuse to pay and run the risk of incurring a tiny
tax penalty. Id. What they may not do is rely on our help to
deny to millions of Americans desperately-needed health
insurance through a tortured, nonsensical construction of a
federal statute whose manifest purpose, as revealed by the
wholeness and coherence of its text and structure, could not be
more clear.
As elaborated in this separate opinion, I am pleased to
concur in full in Judge Gregory’s carefully reasoned opinion for
the panel.
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