Speculation about how the Court will resolve the challenge—which centers on the ACA provision that establishes federal premium tax credits through “an exchange established by the State”—has been mounting since it agreed last November to review the Fourth Circuit’s decision upholding an Internal Revenue Service (IRS) final rule that allows individuals to qualify for subsidies in the federally facilitated marketplaces. See King v. Burwell, 759 F.3d 358 (4th Cir. 2014).

 

Leading up to oral arguments, a number of commentators questioned whether the four named plaintiffs in the case had standing to bring the challenge either because they qualified for a hardship exemption to the health insurance mandate or were eligible for other types of coverage.

 

Although Justice Ginsburg raised the standing question almost immediately, the issue did not seem to command much of the Court’s attention.

 

Michael A. Carvin, arguing on behalf of the plaintiffs, indicated after some back-and-forth questioning that at least two plaintiffs could establish standing. Solicitor General Donald B. Verrilli, during his oral arguments, did not appear inclined to dispute the issue, saying the government was willing to infer, in the absence of any representation otherwise, that at least one of the plaintiffs was subject to the tax penalty for purposes of creating a case or controversy.

 

Turning to the merits, one of the most interesting lines of questioning—whether plaintiffs’ interpretation of the ACA subsidy provision would be unconstitutionally coercive on the states—was initiated by Justice Sotomayor, and, notably, also seized on by Justice Kennedy, the traditional swing-vote on the Court.

 

Plaintiffs have argued that Congress limited the subsidies to state-run marketplaces as a way to incentivize states to establish their own marketplaces rather than default to the federally facilitated model.

 

But Justice Sotomayor said under plaintiffs’ reading, states would have to decide between establishing their own marketplaces for their residents to access the federal subsidies or face a so-called “death spiral” of rising insurance costs that comes when the insured population lacks sufficient young and healthy individuals to adequately spread risk.

 

Sotomayor questioned whether this scenario would be unduly coercive on the states in the same way the Court found the ACA’s requirement that states expand their Medicaid programs or lose all federal funding was in National Fed. of Independent Bus. v. Sebelius, No. 11-393 (U.S. June 28, 2012) (NFIB).

 

Following on Sotomayor’s question, Justice Kennedy also expressed concern about the “serious constitutional problem” that the plaintiffs’ interpretation would raise should the Court accept it.

 

Carvin tried to distinguish the instant action from NFIB, arguing if states declined the Medicaid expansion their programs would be “completely thwarted,” whereas if states declined to run their own marketplaces they would lose federal subsidies but “still get the valuable benefits of an Exchange.” But Justices Sotomayor, Kagan, and Ginsburg all questioned what those benefits would be in the absence of the federal subsidies, which are viewed as critical to spurring the participation of individuals and insurers in the individual insurance market.

 

During the government’s allotted time, Justice Alito asked for Verrilli’s take on the unconstitutionally coercive argument. Verrilli did not seem to have a clear answer, calling it a “novel constitutional question.”Justice Kennedy also chimed in again on this point, noting if plaintiffs’argument was correct, the states were left without a rational choice. He also raised the question of constitutional avoidance, which Verrilli seized on as“another very powerful reason to read the statutory text our way.” Constitutional avoidance essentially dictates that courts interpret a statute if possible to avoid raising a constitutional question.

 

Switching gears, Justices Ginsberg and Kagan both questioned why, if Congress intended to incentivize states to establish their own marketplaces, it would bury such an important provision in a technical section for determining the amount of the subsidy. Carvin disputed, however, that the provision was “buried,” arguing it made sense that a tax credit would appear in the tax code.

 

Circling back to this issue during his argument, Verrilli said another problem with the plaintiffs’ interpretation was that the states were never put on notice that they faced a choice between establishing their own marketplace or losing out on federal subsidies. “[I]f that was really the plan, then the consequence for the States would be in neon lights in this statute. You would want to make absolutely sure that every State got the message,” he said.

 

Justice Alito noted that should the Court rule in plaintiffs’ favor, the states were not foreclosed from establishing their own marketplaces to avoid harm. He also suggested that the Court could delay the effect of its decision until the end of the current tax year to avoid“disruptive consequences.”

 

But Verrilli responded that it would be “unrealistic” for many of the 34 states that currently participate in the federal marketplace to set up their own marketplaces within that short of a timeframe.

 

Justice Scalia told Verrilli he thought Congress would step in “[i]f the consequences are as disastrous as you say.” The administration has indicated that it has no contingency plan should the Court strike down the subsidies, but Republican lawmakers in recent weeks have been working to develop alternatives.

 

The balance of the arguments largely focused on the parties’statutory analysis—plaintiffs’ contention that the plain meaning of the statute limited the subsidies to the state-run marketplaces versus the government’s position that the subsidy provision should not be read in isolation but in the context of the entire statutory scheme.

 

“Textually, [plaintiffs’] reading produces an incoherent statute that doesn’t work,” Verrilli said, adding that the government’s reading is “compelled by the Act’s structure and design.”

 

Justice Scalia acknowledged that the result advanced by plaintiffs “may not be the statute [Congress] intended,” but the “question is whether it’s the statute that they wrote.” Scalia emphasized that if the statute is unambiguous, which is precisely what the D.C. Circuit panel found in Halbig v. Burwell, 758 F.3d 390 (D.C. Cir. 2014), then any other interpretation was foreclosed, even if “it has untoward consequences for the rest of the statute.”

 

Carvin also highlighted other ACA provisions where the language encompassed both state and federal marketplaces, which he said showed“Congress knew how to create equivalence between non State Exchanges and Exchanges if and when it wanted to.”

 

Near the close of Verrilli’s oral arguments the discussion ventured briefly into Chevrondeference to the IRS rule implementing the subsidies.

 

Justice Kennedy seemed skeptical about leaving “this call”to the agency when “billions of dollars” in federal subsidies are at stake.

 

Verrilli said the case could be resolved in the government’s favor based on the statute alone. But with respect to Chevron, Verrilli continued, the ACA expressly delegated to the IRS the authority to implement the subsidy provision.

 

View a transcript of the oral arguments.