The government may have lost in D.C., but it just won in the Fourth Circuit

It’s a busy day. Just hours after the D.C. Circuit invalidated an IRS rule extending tax credits to federally established exchanges, the Fourth Circuit issued an opinion upholding the very same rule.

The Fourth Circuit’s decision in King v. Burwell basically adopts the theory laid out in Judge Edwards’s dissent in Halbig. In the Fourth Circuit’s view, the relevant ACA language—the language that pins the calculation of tax credits to the cost of a plan purchased on an exchange that was “established by the State under 1311”—is “ambiguous and subject to multiple interpretations.”

The court started its analysis by agreeing that it’s possible to read the ACA to withdraw tax credits from those purchasing health plans on federally established exchanges. “There can be no question that there is a certain sense to the plaintiffs’ position,” the court acknowledges. But the court refused to get bogged down by a “particular statutory provision in isolation.” Context matters for statutory interpretation.

And the context here, the court held, cuts against the challengers’ interpretation. The ACA also provides, in §1321, that, when a state fails to establish an exchange, the Secretary “shall . . . establish and operate such Exchange within the State.” In the court’s view, “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.”

The court also looked to the broader context of the statute, where several provisions would make no sense under the challengers’ interpretation. The ACA requires federally established exchanges to report to the IRS about tax credits offered on their exchanges. But that would be a senseless requirement if tax credits weren’t available. “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.”

Similarly, the court noted that the ACA allows “qualified individuals” to buy health insurance on exchanges, but defines a “qualified individual” to mean someone who “resides in the State that established the Exchange.” In states with federally established exchanges, accepting the plaintiffs’ argument would “leave the federal Exchanges with no eligible customers, a result Congress could not possibly have intended.”

At the end of the day, the court said that it could not definitively “discern whether Congress intended one way or another to make the tax credits available on HHS-facilitated exchanges.” As such, the court reasoned, under basic principles of Chevron deference, the IRS’s interpretation of the ambiguous statute was owed deference. That’s especially so, the court reasoned, since “the plaintiffs do not dispute that the premium tax credits are an essential component of the Act’s viability.”

What does this mean, especially in light of the D.C. Circuit’s decision today? Odds are the Fourth Circuit case won’t be taken en banc. Not only did the panel get it right (at least as I see it), but the five Republican appointees are outnumbered by the ten Democratic appointees (including Gregory, who was originally appointed by Clinton and wrote today’s Fourth Circuit opinion).

If the D.C. Circuit does vote to rehear Halbig en banc, the likely result would be an opinion upholding the tax credits on a theory that looks like the one the Fourth Circuit adopted. That would then be no split, which might diminish the likelihood of Supreme Court review. If the D.C. Circuit panel’s opinion stands, however, Supreme Court review is almost inevitable. Stay tuned.


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