The Patient Protection and Affordable Care Act allows individuals to purchase health insurance through “exchanges” — a marketplace to compare and purchase insurance products — that are run by either the state or federal government. The Act authorizes federal tax credits to low and middle-income individuals who have enrolled in coverage through “an exchange established by the State.” The IRS promulgated a regulation that makes the tax credit available to all eligible individuals regardless of whether the coverage was purchased through a state or federal exchange. Plaintiffs, Virginia residents subject to the federal exchange, sued asserting the IRS regulation was improper in that the Act plainly states tax credits are only available for those who purchase coverage through a state exchange. Plaintiffs argued the Virginia exchange does not qualify for them to receive tax credits thereby making the cost of their insurance more than 8 percent of their income exempting them from the coverage mandate. A federal District Court dismissed the suit and the Fourth Circuit affirmed.
In a 6-3 decision, the Supreme Court affirmed as well. Delivering the opinion for the court, Chief Justice Roberts departed from the Fourth Circuit’s deference to the IRS interpretation of the Act and stated that it is the Court’s responsibility to determine the correct application of the phrase “exchange established by the State” because of the political and economic significance of the interpretation. The Court held this phrase is ambiguous requiring the Court to look at the Act as a whole to determine whether a permissible meaning of this phrase can include credits for both state and federal exchange purchases. By accepting the plaintiffs’ assertions, the court opined, the insurance marketplace would destabilize and create a “death spiral” — increased premiums and a lack of market participants — which the Act was designed to avoid. The instability that would be created by removing tax credits to all eligible individuals makes it unlikely that this is the result Congress intended when drafting the law. Thus, according to the Court, the Act’s context creates a strong presumption that tax credits are available for insurance purchased on any exchange although the plaintiffs’ plain-meaning statutory construction argument was strong.