Source: https://supreme.justia.com/cases/federal/us/576/14-114/
Timestamp: 2019-09-21 13:35:54
Document Index: 276522246

Matched Legal Cases: ['§ 1', '§300', '§5000', '§36', '§18031', '§36', '§18031', '§36', '§1', '§155', '§18031', '§18031', '§18041', '§300', '§300', '§5000', '§18091', '§5000', '§18091', '§1253', '§1255', '§1401', '§18031', '§18041', '§18031', '§5000', '§18031', '§36', '§36', '§18031', '§36', '§18031', '§18031', '§18031', '§18031', '§18024', '§18031', '§18032', '§18031', '§18031', '§18031', '§18031', '§18031', '§18031', '§125', '§18031', '§6055', '§18031', '§18031', '§18031', '§18041', '§18031', '§18031', '§36', '§18091', '§36', '§36', '§18031', '§36', '§18031', '§36', '§18031', '§201', '§18024']

King v. Burwell :: 576 U.S. ___ (2015) :: Justia US Supreme Court Center
Justia › US Law › US Case Law › US Supreme Court › Volume 576 › King v. Burwell
The Patient Protection and Affordable Care Act (42 U.S.C 18001) includes “guaranteed issue” and “community rating” requirements, which bar insurers from denying coverage or charging higher premiums based on health; requires individuals to maintain health insurance coverage or make a payment to the IRS, unless the cost of buying insurance would exceed eight percent of that individual’s income; and seeks to make insurance more affordable by giving refundable tax credits to individuals with household incomes between 100 per cent and 400 percent of the federal poverty line. The Act requires creation of an “Exchange” in each state— a marketplace to compare and purchase insurance plans; the federal government will establish “such Exchange” if the state does not. The Act provides that tax credits “shall be allowed” for any “applicable taxpayer,” only if the taxpayer has enrolled in an insurance plan through “an Exchange established by the State under [42 U.S.C. 18031],” An IRS regulation interprets that language as making credits available regardless of whether the exchange is established by a state or the federal government. Plaintiffs live in Virginia, which has a federal exchange. They argued Virginia’s Exchange does not qualify as “an Exchange established by the State,” so they should not receive any tax credits. That would make the cost of buying insurance more than eight percent of their income, exempting them from the coverage requirement. The district court dismissed their suit. The Fourth Circuit and Supreme Court affirmed. Tax credits are available to individuals in states that have a federal exchange. Given that the text is ambiguous, the Court looked to the broader structure of the Act and concluded that plaintiffs’ interpretation would destabilize the individual insurance market in any state with a federal exchange. It is implausible that Congress meant the Act to operate in that manner. Congress made the guaranteed issue and community rating requirements applicable in every state, but those requirements only work when combined with the coverage requirement and tax credits.
Under the Affordable Care Act, an exchange to compare and purchase insurance plans shall be deemed established by the state regardless of whether the exchange is established by a state or the federal government. While the language of the ACA is ambiguous, its structure suggests that any other interpretation would hinder its operation by undermining the individual insurance markets in states with a federal exchange.
The Patient Protection and Affordable Care Act (ACA), popularly known as Obamacare, gave rise to IRS regulations that interpreted the ACA's language regarding exchanges for comparing and purchasing health insurance plans that were established by states under Section 1311. These references appeared in nine places throughout the ACA. Furthermore, the ACA added Section 36B to the Internal Revenue Code, which provided that taxpayers could receive a credit against the tax imposed by that subtitle in an amount equal to the premium assistance credit amount of the taxpayer for the relevant year. This tax credit applied to the monthly premiums for one or more qualified health plans offered in the individual market within a state that covered the taxpayer or his or her spouse or any of their dependents, provided that the taxpayer enrolled in coverage by using an exchange established by a state under Section 1311.
Integrating this law in U.S. Treasury regulations, 26 C.F.R. § 1.36B-2(a)(1) provided that a taxpayer who enrolled in one or more qualified health plans through an exchange would receive a premium assistance amount. However, this IRS rule defined "exchange" in a way that covered both exchanges that were operated by a state, including regional or subsidiary exchanges, and those that were operated by the federal government through the U.S. Department of Health and Human Services (HHS), pursuant to its authority under Section 1321 of the ACA.
Only 16 states and the District of Columbia had set up exchanges by 2015. Four parallel challenges to the regulation argued that it exceeded the authority that Congress granted to the IRS by defining "exchange" too broadly to include federal exchanges. They argued that taxpayers who used the federal exchanges were not entitled to a tax credit, which likely would mean that these individuals would lose their health insurance coverage as well. About five or six million people across 34 states would be affected if the plaintiffs prevailed. Even more broadly, the foundation of the law would be threatened because a ruling for the plaintiffs would undermine the individual and employer mandates under the ACA without reducing the burden on insurers to provide coverage for individuals with pre-existing conditions. As a result, proponents of the law warned that individual insurance markets in states with federal exchanges would be severely harmed as insurers raised their premiums. However, the challengers claimed that striking down the IRS interpretation merely would encourage states to create their own exchanges.
In addition to the King v. Burwell, the other cases were Halbig v. Burwell, Pruitt v. Burwell, and Indiana v. IRS. The Supreme Court decided to review the King case after the Fourth Circuit Court of Appeals and the D.C. Court of Appeals reached clashing results in King and Halbig, respectively. Nevertheless, the D.C. court had vacated the initial ruling in Halbig when it reheard the case en banc, suggesting that it aligned with the Fourth Circuit's decision to uphold the law. By the time that the Supreme Court heard the case, then, there was no longer a real circuit split.
Although the Fourth Circuit had relied on Chevron as the basis for its decision, strict deference to an administrative agency is not appropriate on questions of critical significance that are not expressly delegated by Congress to the agency. The Court has greater power than the agency in this area, since the IRS lacks expertise in crafting health insurance policies. The more applicable precedent is FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120 (2000), which provides that an inquiry into whether a statutory provision consists of plain language requires reading the words in their context within the overall statutory scheme.
In this instance, the reference to "an exchange established by the state" is ambiguous. The ACA provides that the Secretary of HHS may establish an exchange in any situation when a state chooses not to establish its own exchange under Section 1311. The use of the phrase "such exchange" to define the federal exchange in Section 1321 suggests that Congress views state and federal exchanges as being essentially the same. Interpreting the law to require that tax credits are available only on state exchanges would create a major distinction between the two types of exchanges. Only the state exchanges would contribute to making insurance more affordable to individuals, which is a central purpose of the ACA.
Since the text is ambiguous, the question becomes whether one of the regulation's permissible meanings produces a substantive effect that is compatible with the rest of the law. Here, the relevant precedent is United Sav. Assn. of Tex. v. Timbers of Inwood Forest Associates, 484 U.S. 365 (1988). Following this analysis leads to the conclusion that the interpretation of the challengers would vitiate the ACA because it would not be effective in a state with a federal exchange. Since the tax credits would not apply, the coverage requirement that is central to the ACA also would be essentially meaningless because many people would be exempt from the requirement without the tax credits. As a result, citizens of states with a federal exchange would have no access to two of the law's three main reforms.
Moreover, adopting the interpretation of the challengers would destabilize the individual insurance markets in states with federal exchanges, and Congress surely did not intend this result when it crafted the ACA. The guaranteed issue and community rating requirements under the law are specifically applicable to all states, and they would not be effective without the tax credits and coverage requirements. Therefore, it is reasonable to infer that Congress intended those latter two components of the law to apply to all states as well.
Relying on the plain language of the law, Scalia argued that the phrase "exchange established by the state" was not ambiguous. He felt that there was no interpretational basis on which the majority could infer the inclusion of federal exchanges within the meaning of the phrase.
This decision marked a victory for the Obama administration by upholding the sweeping health care reforms that comprised its main contribution to American society. Roberts' pragmatic approach in moving beyond the language of the statute allowed the law to survive what appeared to be an existential challenge. Many observers were surprised that the Supreme Court did not rely on Chevron deference, which the Fourth Circuit had used to reach the same result. One of the more intriguing subtexts of the decision was Roberts' suggestion that the Court has greater authority in the area of administrative law when significant policy decisions are at stake, perhaps recapturing some of the ground that it yielded in that area over the previous three decades.
The Affordable Care Act adopts a version of the three key reforms that made the Massachusetts system successful. First, the Act adopts the guaranteed issue and community rating requirements. 42 U. S. C. §§300gg, 300gg–1. Second, the Act generally requires individuals to maintain health insurance coverage or make a payment to the IRS, unless the cost of buying insurance would exceed eight percent of that individual’s income. 26 U. S. C. §5000A. And third, the Act seeks to make insurance more affordable by giving refundable tax credits to individuals with household incomes between 100 percent and 400 percent of the federal poverty line. §36B.
In addition to those three reforms, the Act requires the creation of an “Exchange” in each State—basically, a marketplace that allows people to compare and purchase insurance plans. The Act gives each State the opportunity to establish its own Exchange, but provides that the Federal Government will establish “such Exchange” if the State does not. 42 U. S. C. §§18031, 18041. Relatedly, the Act provides that tax credits “shall be allowed” for any “applicable taxpayer,” 26 U. S. C. §36B(a), but only if the taxpayer has enrolled in an insurance plan through “an Exchange established by the State under [ 42 U. S. C. §18031],” §§36B(b)–(c). An IRS regulation interprets that language as making tax credits available on “an Exchange,” 26 CFR §1.36B–2, “regardless of whether the Exchange is established and operated by a State . . . or by HHS,” 45 CFR §155.20.
Petitioners are four individuals who live in Virginia, which has a Federal Exchange. They do not wish to purchase health insurance. In their view, Virginia’s Exchange does not qualify as “an Exchange established by the State under [ 42 U. S. C. §18031],” so they should not receive any tax credits. That would make the cost of buying insurance more than eight percent of petitioners’ income, exempting them from the Act’s coverage requirement. As a result of the IRS Rule, however, petitioners would receive tax credits. That would make the cost of buying insurance less than eight percent of their income, which would subject them to the Act’s coverage requirement.
Petitioners challenged the IRS Rule in Federal District Court. The District Court dismissed the suit, holding that the Act unambiguously made tax credits available to individuals enrolled through a Federal Exchange. The Court of Appeals for the Fourth Circuit affirmed. The Fourth Circuit viewed the Act as ambiguous, and deferred to the IRS’s interpretation under Chevron U. S. A. Inc. v. Natural Resources Defense Council, Inc., 467 U. S. 837 .
(a) When analyzing an agency’s interpretation of a statute, this Court often applies the two-step framework announced in Chevron, 467 U. S. 837 . But Chevron does not provide the appropriate framework here. The tax credits are one of the Act’s key reforms and whether they are available on Federal Exchanges is a question of deep “economic and political significance”; had Congress wished to assign that question to an agency, it surely would have done so expressly. And it is especially unlikely that Congress would have delegated this decision to the IRS, which has no expertise in crafting health insurance policy of this sort.
It is instead the Court’s task to determine the correct reading of Section 36B. If the statutory language is plain, the Court must enforce it according to its terms. But oftentimes the meaning—or ambiguity—of certain words or phrases may only become evident when placed in context. So when deciding whether the language is plain, the Court must read the words “in their context and with a view to their place in the overall statutory scheme.” FDA v. Brown & Williamson Tobacco Corp., 529 U. S. 120 . Pp. 7–9.
(b) When read in context, the phrase “an Exchange established by the State under [ 42 U. S. C. §18031]” is properly viewed as ambiguous. The phrase may be limited in its reach to State Exchanges. But it could also refer to all Exchanges—both State and Federal—for purposes of the tax credits. If a State chooses not to follow the directive in Section 18031 to establish an Exchange, the Act tells the Secretary of Health and Human Services to establish “such Exchange.” §18041. And by using the words “such Exchange,” the Act indicates that State and Federal Exchanges should be the same. But State and Federal Exchanges would differ in a fundamental way if tax credits were available only on State Exchanges—one type of Exchange would help make insurance more affordable by providing billions of dollars to the States’ citizens; the other type of Exchange would not. Several other provisions in the Act—e.g., Section 18031(i)(3)(B)’s requirement that all Exchanges create outreach programs to “distribute fair and impartial information concerning . . . the availability of premium tax credits under section 36B”—would make little sense if tax credits were not available on Federal Exchanges.
The argument that the phrase “established by the State” would be superfluous if Congress meant to extend tax credits to both State and Federal Exchanges is unpersuasive. This Court’s “preference for avoiding surplusage constructions is not absolute.” Lamie v. United States Trustee, 540 U. S. 526 . And rigorous application of that canon does not seem a particularly useful guide to a fair construction of the Affordable Care Act, which contains more than a few examples of inartful drafting. The Court nevertheless must do its best, “bearing in mind the ‘fundamental canon of statutory construction that the words of a statute must be read in their context and with a view to their place in the overall statutory scheme.’ ” Utility Air Regulatory Group v. EPA, 573 U. S. ___, ___. Pp. 9–15.
(c) Given that the text is ambiguous, the Court must look to the broader structure of the Act to determine whether one of Section 36B’s “permissible meanings produces a substantive effect that is compatible with the rest of the law.” United Sav. Assn. of Tex. v. Timbers of Inwood Forest Associates, Ltd., 484 U. S. 365 .
(d) The structure of Section 36B itself also suggests that tax credits are not limited to State Exchanges. Together, Section 36B(a), which allows tax credits for any “applicable taxpayer,” and Section 36B(c)(1), which defines that term as someone with a household income between 100 percent and 400 percent of the federal poverty line, appear to make anyone in the specified income range eligible for a tax credit. According to petitioners, however, those provisions are an empty promise in States with a Federal Exchange. In their view, an applicable taxpayer in such a State would be eligible for a tax credit, but the amount of that tax credit would always be zero because of two provisions buried deep within the Tax Code. That argument fails because Congress “does not alter the fundamental details of a regulatory scheme in vague terms or ancillary provisions.” Whitman v. American Trucking Assns., Inc., 531 U. S. 457 . Pp. 19–20.
The Patient Protection and Affordable Care Act, 124Stat. 119, grew out of a long history of failed health insurance reform. In the 1990s, several States began experimenting with ways to expand people’s access to coverage. One common approach was to impose a pair of insurance market regulations—a “guaranteed issue” requirement, which barred insurers from denying coverage to any person because of his health, and a “community rating” requirement, which barred insurers from charging a person higher premiums for the same reason. Together, those requirements were designed to ensure that anyone who wanted to buy health insurance could do so.
The Affordable Care Act adopts a version of the three key reforms that made the Massachusetts system successful. First, the Act adopts the guaranteed issue and community rating requirements. The Act provides that “each health insurance issuer that offers health insurance coverage in the individual . . . market in a State must accept every . . . individual in the State that applies for such coverage.” 42 U. S. C. §300gg–1(a). The Act also bars insurers from charging higher premiums on the basis of a person’s health. §300gg.
Second, the Act generally requires individuals to maintain health insurance coverage or make a payment to the IRS. 26 U. S. C. §5000A. Congress recognized that, without an incentive, “many individuals would wait to purchase health insurance until they needed care.” 42 U. S. C. §18091(2)(I). So Congress adopted a coverage requirement to “minimize this adverse selection and broaden the health insurance risk pool to include healthy individuals, which will lower health insurance premiums.” Ibid. In Congress’s view, that coverage requirement was “essential to creating effective health insurance markets.” Ibid. Congress also provided an exemption from the coverage requirement for anyone who has to spend more than eight percent of his income on health insurance. 26 U. S. C. §§5000A(e)(1)(A), (e)(1)(B)(ii).
These three reforms are closely intertwined. As noted, Congress found that the guaranteed issue and community rating requirements would not work without the coverage requirement. §18091(2)(I). And the coverage requirement would not work without the tax credits. The reason is that, without the tax credits, the cost of buying insurance would exceed eight percent of income for a large number of individuals, which would exempt them from the coverage requirement. Given the relationship between these three reforms, the Act provided that they should take effect on the same day—January 1, 2014. See Affordable Care Act, §1253, redesignated §1255, 124Stat. 162, 895; §§1401(e), 1501(d), id., at 220, 249.
In addition to those three reforms, the Act requires the creation of an “Exchange” in each State where peoplecan shop for insurance, usually online. 42 U. S. C. §18031(b)(1). An Exchange may be created in one of two ways. First, the Act provides that “[e]ach State shall . . . establish an American Health Benefit Exchange . . . for the State.” Ibid. Second, if a State nonetheless chooses not to establish its own Exchange, the Act provides that the Secretary of Health and Human Services “shall . . . establish and operate such Exchange within the State.” §18041(c)(1).
Petitioners are four individuals who live in Virginia, which has a Federal Exchange. They do not wish to purchase health insurance. In their view, Virginia’s Exchange does not qualify as “an Exchange established by the State under [ 42 U. S. C. §18031],” so they should not receive any tax credits. That would make the cost of buying insurance more than eight percent of their income, which would exempt them from the Act’s coverage requirement. 26 U. S. C. §5000A(e)(1).
Under the IRS Rule, however, Virginia’s Exchange would qualify as “an Exchange established by the State under [ 42 U. S. C. §18031],” so petitioners would receive tax credits. That would make the cost of buying insurance less than eight percent of petitioners’ income, which would subject them to the Act’s coverage requirement. The IRS Rule therefore requires petitioners to either buy health insurance they do not want, or make a payment to the IRS.
Petitioners challenged the IRS Rule in Federal District Court. The District Court dismissed the suit, holding that the Act unambiguously made tax credits available to individuals enrolled through a Federal Exchange. King v. Sebelius, 997 F. Supp. 2d 415 (ED Va. 2014). The Court of Appeals for the Fourth Circuit affirmed. 759 F. 3d 358 (2014). The Fourth Circuit viewed the Act as “ambiguous and subject to at least two different interpretations.” Id., at 372. The court therefore deferred to the IRS’s interpretation under Chevron U. S. A. Inc. v. Natural Resources Defense Council, Inc., 467 U. S. 837 (1984) . 759 F. 3d, at 376.
The Affordable Care Act addresses tax credits in what is now Section 36B of the Internal Revenue Code. That section provides: “In the case of an applicable taxpayer, there shall be allowed as a credit against the tax imposed by this subtitle . . . an amount equal to the premium assistance credit amount.” 26 U. S. C. §36B(a). Section 36B then defines the term “premium assistance credit amount” as “the sum of the premium assistance amounts determined under paragraph (2) with respect to all coverage months of the taxpayer occurring during the taxable year.” §36B(b)(1) (emphasis added). Section 36B goes on to define the two italicized terms—“premium assistance amount” and “coverage month”—in part by referring to an insurance plan that is enrolled in through “an Exchange established by the State under [ 42 U. S. C. §18031].” 26 U. S. C. §§36B(b)(2)(A), (c)(2)(A)(i).
The parties dispute whether Section 36B authorizes tax credits for individuals who enroll in an insurance plan through a Federal Exchange. Petitioners argue that a Federal Exchange is not “an Exchange established by the State under [ 42 U. S. C. §18031],” and that the IRS Rule therefore contradicts Section 36B. Brief for Petitioners 18–20. The Government responds that the IRS Rule is lawful because the phrase “an Exchange established by the State under [ 42 U. S. C. §18031]” should be read to include Federal Exchanges. Brief for Respondents 20–25.
When analyzing an agency’s interpretation of a statute, we often apply the two-step framework announced in Chevron, 467 U. S. 837 . Under that framework, we ask whether the statute is ambiguous and, if so, whether the agency’s interpretation is reasonable. Id., at 842–843. This approach “is premised on the theory that a statute’s ambiguity constitutes an implicit delegation from Congress to the agency to fill in the statutory gaps.” FDA v. Brown & Williamson Tobacco Corp., 529 U. S. 120, 159 (2000) . “In extraordinary cases, however, there may be reason to hesitate before concluding that Congress has intended such an implicit delegation.” Ibid.
This is one of those cases. The tax credits are among the Act’s key reforms, involving billions of dollars in spending each year and affecting the price of health insurance for millions of people. Whether those credits are available on Federal Exchanges is thus a question of deep “economic and political significance” that is central to this statutory scheme; had Congress wished to assign that question to an agency, it surely would have done so expressly. Utility Air Regulatory Group v. EPA, 573 U. S. ___, ___ (2014) (slip op., at 19) (quoting Brown & Williamson, 529 U. S., at 160). It is especially unlikely that Congress would have delegated this decision to the IRS, which has no expertise in crafting health insurance policy of this sort. See Gonzales v. Oregon, 546 U. S. 243 –267 (2006). This is not a case for the IRS.
It is instead our task to determine the correct reading of Section 36B. If the statutory language is plain, we must enforce it according to its terms. Hardt v. Reliance Standard Life Ins. Co., 560 U. S. 242, 251 (2010) . But oftentimes the “meaning—or ambiguity—of certain words or phrases may only become evident when placed in context.” Brown & Williamson, 529 U. S., at 132. So when deciding whether the language is plain, we must read the words “in their context and with a view to their place in the overall statutory scheme.” Id., at 133 (internal quotation marks omitted). Our duty, after all, is “to construe statutes, not isolated provisions.” Graham County Soil and Water Conservation Dist. v. United States ex rel. Wilson, 559 U. S. 280, 290 (2010) (internal quotation marks omitted).
We begin with the text of Section 36B. As relevant here, Section 36B allows an individual to receive tax credits only if the individual enrolls in an insurance plan through “an Exchange established by the State under [ 42 U. S. C. §18031].” In other words, three things must be true: First, the individual must enroll in an insurance plan through “an Exchange.” Second, that Exchange must be “established by the State.” And third, that Exchange must be established “under [ 42 U. S. C. §18031].” We address each requirement in turn.
Second, we must determine whether a Federal Exchange is “established by the State” for purposes of Section 36B. At the outset, it might seem that a Federal Exchange cannot fulfill this requirement. After all, the Act defines “State” to mean “each of the 50 States and the District of Columbia”—a definition that does not include the Federal Government. 42 U. S. C. §18024(d). But when read in context, “with a view to [its] place in the overall statutory scheme,” the meaning of the phrase “established by the State” is not so clear. Brown &Williamson, 529 U. S., at 133 (internal quotation marks omitted).
After telling each State to establish an Exchange, Section 18031 provides that all Exchanges “shall make available qualified health plans to qualified individuals.” 42 U. S. C. §18031(d)(2)(A). Section 18032 then defines the term “qualified individual” in part as an individual who “resides in the State that established the Exchange.” §18032(f)(1)(A). And that’s a problem: If we give the phrase “the State that established the Exchange” its most natural meaning, there would be no “qualified individuals” on Federal Exchanges. But the Act clearly contemplates that there will be qualified individuals on every Exchange. As we just mentioned, the Act requires all Exchanges to “make available qualified health plans to qualified individuals”—something an Exchange could not do if there were no such individuals. §18031(d)(2)(A). And the Act tells the Exchange, in deciding which health plans to offer, to consider “the interests of qualified individuals . . . in the State or States in which such Exchange operates”—again, something the Exchange could not do if qualified individ-uals did not exist. §18031(e)(1)(B). This problem arises repeatedly throughout the Act. See, e.g., §18031(b)(2) (allowing a State to create “one Exchange . . . for providing . . . services to both qualified individuals and qualified small employers,” rather than creating separate Exchanges for those two groups).[1]
Third, we must determine whether a Federal Exchange is established “under [ 42 U. S. C. §18031].” This too might seem a requirement that a Federal Exchange cannot fulfill, because it is Section 18041 that tells the Secretary when to “establish and operate such Exchange.” But here again, the way different provisions in the statute interact suggests otherwise.
This interpretation of “under [ 42 U. S. C. §18031]” fits best with the statutory context. All of the requirements that an Exchange must meet are in Section 18031, so it is sensible to regard all Exchanges as established under that provision. In addition, every time the Act uses the word “Exchange,” the definitional provision requires that we substitute the phrase “Exchange established under section 18031.” If Federal Exchanges were not established under Section 18031, therefore, literally none of the Act’s requirements would apply to them. Finally, the Act repeatedly uses the phrase “established under [ 42 U. S. C. §18031]” in situations where it would make no sense to distinguish between State and Federal Exchanges. See, e.g., 26 U. S. C. §125(f)(3)(A) (2012 ed., Supp. I) (“The term ‘qualified benefit’ shall not include any qualified health plan . . . offered through an Exchange established under [ 42 U. S. C. §18031]”); 26 U. S. C. §6055(b)(1)(B)(iii)(I) (2012 ed.) (requiring insurers to report whether each insurance plan they provided “is a qualified health plan offered through an Exchange established under [ 42 U. S. C. §18031]”). A Federal Exchange may therefore be considered one established “under [ 42 U. S. C. §18031].”
The upshot of all this is that the phrase “an Exchange established by the State under [ 42 U. S. C. §18031]” is properly viewed as ambiguous. The phrase may be limited in its reach to State Exchanges. But it is also possible that the phrase refers to all Exchanges—both State and Federal—at least for purposes of the tax credits. If a State chooses not to follow the directive in Section 18031 that it establish an Exchange, the Act tells the Secretary to establish “such Exchange.” §18041. And by using the words “such Exchange,” the Act indicates that State and Federal Exchanges should be the same. But State and Federal Exchanges would differ in a fundamental way if tax credits were available only on State Exchanges—one type of Exchange would help make insurance more affordable by providing billions of dollars to the States’ citizens; the other type of Exchange would not.[2]
The conclusion that Section 36B is ambiguous is further supported by several provisions that assume tax credits will be available on both State and Federal Exchanges. For example, the Act requires all Exchanges to create outreach programs that must “distribute fair and impartial information concerning . . . the availability of premium tax credits under section 36B.” §18031(i)(3)(B). The Act also requires all Exchanges to “establish and make avail-able by electronic means a calculator to determine the actual cost of coverage after the application of any pre-mium tax credit under section 36B.” §18031(d)(4)(G). And the Act requires all Exchanges to report to the Treasury Secretary information about each health plan they sell, including the “aggregate amount of any advance payment of such credit,” “[a]ny information . . . necessary to determine eligibility for, and the amount of, such credit,” and any “[i]nformation necessary to determine whether a taxpayer has received excess advance payments.” 26 U. S. C. §36B(f)(3). If tax credits were not available on Federal Exchanges, these provisions would make little sense.
Petitioners and the dissent respond that the words “established by the State” would be unnecessary if Congress meant to extend tax credits to both State and Fed-eral Exchanges. Brief for Petitioners 20; post, at 4–5. But “our preference for avoiding surplusage constructions is not absolute.” Lamie v. United States Trustee, 540 U. S. 526, 536 (2004) ; see also Marx v. General Revenue Corp., 568 U. S. ___, ___ (2013) (slip op., at 13) (“The canon against surplusage is not an absolute rule”). And specifically with respect to this Act, rigorous application of the canon does not seem a particularly useful guide to a fair construction of the statute.
The Affordable Care Act contains more than a few examples of inartful drafting. (To cite just one, the Act creates three separate Section 1563s. See 124Stat. 270, 911, 912.) Several features of the Act’s passage contributed to that unfortunate reality. Congress wrote key partsof the Act behind closed doors, rather than through “the traditional legislative process.” Cannan, A Legislative History of the Affordable Care Act: How Legislative Procedure Shapes Legislative History, 105 L. Lib. J. 131, 163 (2013). And Congress passed much of the Act using a complicated budgetary procedure known as “reconciliation,” which limited opportunities for debate and amendment, and bypassed the Senate’s normal 60-vote filibuster requirement. Id., at 159–167. As a result, the Act does not reflect the type of care and deliberation that one might expect of such significant legislation. Cf. Frankfurter, Some Reflections on the Reading of Statutes, 47 Colum. L. Rev. 527, 545 (1947) (describing a cartoon “in which a senator tells his colleagues ‘I admit this new bill is too complicated to understand. We’ll just have to pass it to find out what it means.’ ”).
Given that the text is ambiguous, we must turn to the broader structure of the Act to determine the meaning of Section 36B. “A provision that may seem ambiguous in isolation is often clarified by the remainder of the statu-tory scheme . . . because only one of the permissible meanings produces a substantive effect that is compatible with the rest of the law.” United Sav. Assn. of Tex. v. Timbers of Inwood Forest Associates, Ltd., 484 U. S. 365, 371 (1988) . Here, the statutory scheme compels us to reject petitioners’ interpretation because it would destabilize the individual insurance market in any State with a Federal Exchange, and likely create the very “death spirals” that Congress designed the Act to avoid. See New York State Dept. of Social Servs. v. Dublino, 413 U. S. 405 –420 (1973) (“We cannot interpret federal statutes to negate their own stated purposes.”).[3]
As discussed above, Congress based the Affordable Care Act on three major reforms: first, the guaranteed issue and community rating requirements; second, a requirement that individuals maintain health insurance coverage or make a payment to the IRS; and third, the tax credits for individuals with household incomes between 100 percent and 400 percent of the federal poverty line. In a State that establishes its own Exchange, these three reforms work together to expand insurance coverage. The guaranteed issue and community rating requirements ensure that anyone can buy insurance; the coverage requirement creates an incentive for people to do so before they get sick; and the tax credits—it is hoped—make insurance more affordable. Together, those reforms “minimize . . . adverse selection and broaden the health in-surance risk pool to include healthy individuals, which will lower health insurance premiums.” 42 U. S. C. §18091(2)(I).
It is implausible that Congress meant the Act to operate in this manner. See National Federation of Independent Business v. Sebelius, 567 U. S. ___, ___ (2012) (Scalia, Kennedy, Thomas, and Alito, JJ., dissenting) (slip op., at 60) (“Without the federal subsidies . . . the exchanges would not operate as Congress intended and may not operate at all.”). Congress made the guaranteed issue and community rating requirements applicable in every State in the Nation. But those requirements only work when combined with the coverage requirement and the tax credits. So it stands to reason that Congress meant for those provisions to apply in every State as well.[4]
According to petitioners, however, those provisions are an empty promise in States with a Federal Exchange. In their view, an applicable taxpayer in such a State would be eligible for a tax credit—but the amount of that tax credit would always be zero. And that is because—diving several layers down into the Tax Code—Section 36B says that the amount of the tax credits shall be “an amount equal to the premium assistance credit amount,” §36B(a); and then says that the term “premium assistance credit amount” means “the sum of the premium assistance amounts determined under paragraph (2) with respect to all coverage months of the taxpayer occurring during the taxable year,” §36B(b)(1); and then says that the term “premium assistance amount” is tied to the amount of the monthly premium for insurance purchased on “an Exchange established by the State under [42 U. S. C. §18031],” §36B(b)(2); and then says that the term “coverage month” means any month in which the taxpayer has insurance through “an Exchange established by the State under [ 42 U. S. C. §18031],” §36B(c)(2)(A)(i).
We have held that Congress “does not alter the fundamental details of a regulatory scheme in vague terms or ancillary provisions.” Whitman v. American Trucking Assns., Inc., 531 U. S. 457, 468 (2001) . But in petitioners’ view, Congress made the viability of the entire Affordable Care Act turn on the ultimate ancillary provision: a sub-sub-sub section of the Tax Code. We doubt that is what Congress meant to do. Had Congress meant to limit tax credits to State Exchanges, it likely would have done so in the definition of “applicable taxpayer” or in some other prominent manner. It would not have used such a winding path of connect-the-dots provisions about the amount of the credit.[5]
Petitioners’ arguments about the plain meaning of Section 36B are strong. But while the meaning of the phrase “an Exchange established by the State under [ 42 U. S. C. §18031]” may seem plain “when viewed in isolation,” such a reading turns out to be “untenable in light of [the statute] as a whole.” Department of Revenue of Ore. v. ACF Industries, Inc., 510 U. S. 332, 343 (1994) . In this instance, the context and structure of the Act compel us to depart from what would otherwise be the most natural reading of the pertinent statutory phrase.
Reliance on context and structure in statutory interpretation is a “subtle business, calling for great wariness lest what professes to be mere rendering becomes creation and attempted interpretation of legislation becomes legislation itself.” Palmer v. Massachusetts, 308 U. S. 79, 83 (1939) . For the reasons we have given, however, such reliance is appropriate in this case, and leads us to conclude that Section 36B allows tax credits for insurance purchased on any Exchange created under the Act. Those credits are necessary for the Federal Exchanges to function like their State Exchange counterparts, and to avoid the type of calamitous result that Congress plainly meant to avoid.
4 The dissent argues that our analysis “show[s] only that the statu-tory scheme contains a flaw,” one “that appeared as well in other parts of the Act.” Post, at 14. For support, the dissent notes that the guaranteed issue and community rating requirements might apply in the federal territories, even though the coverage requirement does not. Id., at 14–15. The confusion arises from the fact that the guaranteed issue and community rating requirements were added as amendments to the Public Health Service Act, which contains a definition of the word “State” that includes the territories, 42 U. S. C. §201(f), while the later-enacted Affordable Care Act contains a definition of the word “State” that excludes the territories, §18024(d). The predicate for the dissent’s point is therefore uncertain at best.
Sylvia Mathews Burwell, Secretary of Health and Human Services, et al.