# Amicus Curiae Brief — King v. Burwell, 135 S. Ct. 475 (2014) (No. 14-114)

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 2014

## Text

No. 14-114

ri a ee

IN THE
Supreme Court of the United States

DAVID KING; DOUGLAS HURST;
BRENDA LEVY, ROSE LUCK,

Petitioners,
V

SYLVIA MATHEWS BURWELL, as U.S. Secretary of
Health and Human Services; UNITED STATES
DEPARTMENT OF HEALTH AND HUMAN SERVICES;
JACOB LEW, as U.S. Secretary of the Treasury;
UNITED STATES DEPARTMENT OF THE TREASURY;
INTERNAL REVENUE SERVICE; and JOHN KOSKINEN,
as Commissioner of Internal Revenue,
Respondents.

ON A WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT

BRIEF OF AMICI CURIAE
ADMINISTRATIVE & CONSTITUTIONAL LAW PROFESSORS
IN SUPPORT OF PETITIONERS

ROBERT A. DESTRO

Counsel of Record
MARSHALL J. BREGER
3600 John McCormack Road, N.E.
Washington, D.C. 20064
(202) 905-6064
robertdestro@outlook.com

Attorneys for Amici Curiae

TABLE OF CONTENTS

Il. THE IRS RULE VIOLATES THE
APPROPRIATIONS CLAUSE OF ARTICLE I. ................. 6

A.
B.

C.

D.

PPACA is an Appropriations Act. .................

The IRS has no Statutory Authority “To

Lay ... Taxes” or “To Allow” Credits. ............

The IRS Rule is a “Revision” of Section

36B not an “Interpretation” ...........................

The IRS Rule is Unconstitutional

Il. VOIDING THE IRS REGULATION DOES NOT
LEAD TO ABSURD RESULTS OR TO

FRUSTRATION OF CONGRESSIONAL DESIGN
A.

Congress Authorized and Encouraged the
States and the District of Columbia to
Create Fiftv-One (51), Independent

“American Health Benefit Exchanges” .........

Congress Sought to Partner with the
States to Create, Finance, and Sustain a
Vast Social, Economic, and Medical

III ceikovuccicsiscsussannosnniidintiicaminibcdmabidiaaie:
. The Text of PPACA Presupposes

“Voluntary” Participation by the States
as the Primary Means by which to Create
Viable, State-specific Insurance Pools

Large Enough to Cover the Uninsured.........

1. Medicaid Expansion: Insuring the
MEINE <<a; nuhadicdeniiedeandeieemiakendtinsadbinds buiece

senbi 6

_ 7

om 5 |

ss

2. Expanding the Pool: Subsidies and
Mandates in “American Health Benefit

E. The Legal Fiction that the Federal
Government “Acts on Behalf of the State”
Violates PPACA and other Federal Laws........ 28

F. There is no “Ambiguity” in the Tax

Credit “Allowed” by Congress ...............cc0cceeee+ 32
Ill. CHEVRON DEFERENCE IS INAPPROPRIATE IN
it anes aeasaseueuaes 34

A. Under Chevron, the Court Decides, as a
Matter of Law, whether there is

Te SER eR eens dae 35
B. Congress has directly addressed the
precise question at issue in this case............... 35

1. Respondents’ Claim for Chevron
Deference is Overbroad. ..................cccceeeceeeese 36

2. IRS Discretion under Chevron is
Congruent with its Authority to
Administer the Tax Laws...............cccccceeceeee es 37

CIT vialnivintsiuaeanandehign sauiseaiiueieccubiadduindecniniee 40

nl

TABLE OF AUTHORITIES

Cases
Austin v. United States, 155 U. S. 417 (1894) ......... 13
Cincinnati Soap Co. v. United States, 301 U. S. 308

(EOE TENE PE DIET 34
Doe v. Matthews, 420 F. Supp. 865 (D. N. J. 1976) .16
Hart v. United States, 118 U. S. 62 (1868) .............. 13
Iselin v. United States, 270 U.S. 245, 251 (1926) ....33
Knote v. United States, 95 U. S. 149 (1877)............. 13
MetroPCS Cal., LLC v. FCC, 644 F.3d 410 (D.C. Cir.

BREE TO ciennansasnnicdsnnnensiaheerombsnnennenenpuentiaendsiaieanen 32
Michigan v. Bay Mills Indian Community, 134 S.Ct.

BI acon cuinsccceanencnsidaonecqpsicsivpaepuciansaesnubesaieabanibiatnies 34
Nat'l Fed'n of Indep. Bus. v. Sebelius, 132 S.Ct. 2566

SI cs ns coussnisissdceneidiiniiapnaisaalaiastabmsinneiiaaarbs 4, 12, 22, 25
Office of Pers. Mgmt. v. Richmond, 496 U.S. 414,

427. 1110S. Ct. 2465, 2473 (1990).................... 14,17
Pension Benefit Guar. Corp. v. LTV Corp., 496 U.S.

RR WE Sah es te Peete Reda a a SOE RE asa SES 32
Reeside v. Walker, 52 U. S. (11 How.) 623 (1850)...13.

14, 15
Skinner v. Mid-America Pipeline Co., 490 U.S. 212

CRI << casintisseespaencbicieisietamcqebsineedisienioncenniinbenoninremmanationan 8
South Dakota v. Dole, 483 U.S. 203 (1987).............. 24
Spaulding v. Douglas Aircraft Co., Inc., 60 F. Supp.

Oe Th i ieaeade 16
Stitzel-Weller Distillery v. Wickard, 118 F. 2d 19

(aR ier reba hs SE Che ise wer: 16

United States v. Lovett, 328 U. S. 303 (1946)...13, 16,
17

Utility Air Regulatory Grp. v. EPA, 124 S.Ct. 2427
GED vecsnccisccsivessecscccsescviicevnssvcnssscrswecacsctesstaceossepnsnees 32

lV

Youngstown Sheet & Tube Co. v. Sawyer, 343 U.S.

coc heat RITES SOR SATE TER 2
Statutes
26 U.S.C. § eae a age Nee aed Rr 36
26 U.S.C. § NE one YE Sk 3
26 U.S.C. § 4980H(a-b) oo... cococcccceceeeeeceseeecc 11
26 U.S.C. § 6201 (2014) o.oo. oeccccccocecccceeceeee cee. 35
Ln eae 36
GB WIG. § BIBI. .ocsesccnesesesevevceseveceesesesseeees...... 22, 25
42 USC § 18051 (2012) ooo. 18, 19, 25

TN siisiciienidhciiatiphntnisaedecinasaysilisadenetrdnpesmiies oo. passim
PPACA §§ 1501(C-D) (codified as amended at 42
GP ©) BOE SUID vsnaccessnscnseincsnesnsivbisisinsiascsee. 23
PPACA §§ 2001(a-b), codified as amended at 42
reise SAU COI ccc ciossicisceiniclonsiceisssecsneeseccsc.: 22
Pub.L. No. 112-240, 126 Stat. 2313. §642 (January 2,
PUR telinicasntbitinaadasiehacentinidocobsibiersmmbitemsinesies aise ic 31
Pub.L. No. 112-56, 125 Stat. 111 (2011)... 31
Pub.L. No. 112-9, 125 Stat. 36 (2011)..........000..0....... 31
NN MER Rioidinnecc cs passim
nL _, BEELER aCe aan ane ee 32, 33
Section 1321(c)(1)(A-B), 42 U.S.C. §18041(c)(1)(A-B)
TN Pa isiutninndauiitamnbiiecdipintsnvnnssnuiitsnisaemiaens ot 26

Other Authorities
Congressional Budget Office, “Updated Estimates of
the Effect of the Insurance Coverage Provisions of
the Affordable Care Act, April 2014.” 00.00 ooo....... 2,8
General Accounting Office, Office of th. General
Counsel, “The Augmentation Concept”, 6 GAO-RB
pt. E, §1 (G.A.O.), 2006 WL 6179178 (February,
I hase cae ice a 29
Jim Golden, “Innovating on the Obamacare Data
Platform,” FORBES (July a 2012) at
http://www.forbes.com/sites/jimgolden/2012/07/01/i
nnovating-on-the-obamacare-data-platform/
IS TR, BO I aon coccen svacsneradadecesicatesiideeaes 20
John Cannan, A Legislative History of the Affordable
Care Act: How Legislative Procedure Shapes
Legislative History, 105 LAW LIBRARY J. 131, 159
BN iececsicsdeinn secs etatenasinians cones egaaiareaeusee aciean 40
Joint Staff Report, U.S. House of Representatives,
113% Cong., “Administration Undertook Flawed
Analysis of Key Issues Prior to Expanding Health
Law's Taxes and Subsidies” (Feb. 5, 2014) 4 at
http://oversight.house.gov/wp-
content/uploads/2014/02/IRS-Rule-OGR-WM-Staff-
Report-Final1l.pdf (accessed Dec. 23, 2014).......... 27
Kaiser Commission on Medicaid and the Uninsured,
A Historical Review of How States Have Responded
to the Availability of Federal Funds for Health
Coverage (August 2012) at http://kaiserfamily
foundation.files.wordpress.com/2013/01/8349. pdf
I Bk PII ic ccavnnsaddececnucdabseinentcnicteats 24
Kelly Kennedy, “Analysis of Huge Data Sets will
Reshape Health Care,” USA Today (Nov. 24, 2013)
at http://www.usatoday.com/story/news/nation

vl

/2013/11/24/big-data-health-care/3631211/
II T, 21
Ken Congdon, Editorial, “Obamacare’s Big Data
Opportunity”, HEALTH IT OUTCOMES (May 1, 2013)
at http://www.healthitoutcomes.com/doc/
obamacare-s-big-data-opportunity-0001 (accessed
Is es es os cataeaioencemdeionisindanten 21
Scott Vorse, “Beyond Gruber: How HHS Flip-Flopped
on Federal Exchange Subsidies,” (Competitive
Enterprise Institute WEBMEMO 28, Nov.20, 2014)
at https://cei.org/content/beyond-gruber-how-hhs-
flip-flopped-federal-exchange-subsidies (accessed

ER SAE i els SELES ON SA ABE SA 27
Law Reviews & Treatises
J. Story, 2 COMMENTARIES ON THE CONSTITUTION OF
THE UNITED STATES § 1348 (3d ed. 1858).............. 14

Rena I. Steinzor, Devolution and the Public Health,
24 HARV. ENVTL. L. REV. 351, 383 n. 127 (2000)...25
Ronald D. Rotunda & John E. Nowak, TREATISE ON
CONSTITUTIONAL LAW: SUBSTANCE AND PROCEDURE
(West Pub. Co. 5th ed. 2013), vol. 1, §§ 5.7(a)fiv) &

ee Oe I a iar osccccedesceasosencsonnatbcasen 14
Regulations
Health Insurance Premium Tax Credit, 77 Fed. Reg.

kM kU Ue, 33
Constitutional Provisions
a ccgrvad Salat tad asonnmsenauninnanied 2
BW cee ieaeticidicidassasavconianindslsucenconacoosvievendd 237
Rr oc ecicss chdadieiarenenemesen sbenicumsnein 2, 33

INTEREST OF THE AMICI CURIAE!

The amici curiae are professors of law who teach
in the fields of Administrative Law § and
Constitutional Law, including Separation of Powers.
They include Dr. John S. Baker, Professor Emeritus,
Louisiana State University; Professor Marshall J.
Breger, Columbus School of Law, The Catholic
University of America; Professor Robert J.
Delahunty, University of St. Thomas School of Law:
Professor Antonio F. Perez, Columbus School of Law,
The Catholic University of America: Professor
Ronald D. Rotunda, Doy and Dee Henley Chair and
Distinguished Professor of Jurisprudence, Chapman
University Dale E. Fowler School of Law.

By filing this brief, your Amici curiae wish to
highlight the critical role that this Court plays when
it elaborates, maintains, and _ reinforces. the
separation of powers boundaries that protect the
liberties and voting rights of American citizens. By
their very nature, the s*udy of separation of powers
focuses on the relationship between the law-making
powers of Congress, the powers of the Executive, and
the Judicial Power of the United States at the points
where there may be “concurrent authority, or in

! No counsel for a party authored this brief in whole or in part.
and no such counsel or party made a monetary contribution
intended to fund the preparation or submission of this brief. No
person other than amici curiae or their counsel made a
monetary contribution to its preparation or submission. Letters
from the parties consenting to the filing of this brief are on file
with the clerk. and counsel of record gave each party’s attorney
at least ten davs’ notice of their intent to file this brief.

a

which its distribution is uncertain.” See Youngstown
Sheet & Tube Co. v. Sawyer, 343 U.S. 579, 637 (1952)
(Jackson, J., concurring) (proposing a judicial
approach for defining the boundary between the
President and Congress based on a rigorous analysis
of the applicable statutory frameworks).

SUMMARY OF ARGUMENT

Article I, Section 1 of the Constitution vests “{a]]l
legislative powers herein granted to a Congress of
the United States”. . Three of those exclusive
legislative powers are implicated in this case: “to lay
and collect taxes”, Art. I §8 cl.1; to authorize and
appropriate funds drawn from or owing to the
Treasury, Art. I §9, cl. 7 and “to dispose of and make
all needful rules and regulations respecting ...

property belonging to the United States.” Art. IV §3,
cl. 4.

At issue in this case is the exclusive power of
Congress to determine how over $855 billion in tax
funds will be collected, allocated, and spent. PPACA
includes $726 billion in direct outlays and a
reduction in revenues of $129 billion for the
“premium assistance tax credits” at issue here.
"Patient Protection and Affordable Care Act, Pub L.
111-148, 124 Stat 119, (2010). Congressional Budget
Office, “Updated Estimates of the Effect of the
Insurance Coverage Provisions of the Affordable
Care Act, April 2014”, at9 & n. 14. fhereafter CBO
April 2014 Estimates].

The central issue in this case is the locus of power
to define a taxpayer’s eligibility to participate in the

3

“premium assistance credit amount” calculated
under 26 U.S.C. § 36(B)(b)(2-3), and hence, control
over approximately the approximately $129 billion
the CBO estimates is the cost in revenue foregone as
a result of that credit. This Court must choose:

Either Congress defines eligibility, or the Executive
Branch does.

The Fourth Circuit held that the only reasonable
construction of PPACA is that Congress necessarily
gave the IRS the power to open the Treasury's
funding spigots wide enough to “ensur[e] that this
essential component [the tax credit] exists on a
sufficiently large scale” to fund the national health
insurance subsidy program envisioned by the
Respondents. King v. Burwell, 759 F.3d 358, 375 (4th
Cir. 2014) [hereafter “King”]. Because “Congress’
central purpose in enacting the Act [was] to radically
restructure the American health care market with
‘the most expansive social legislation enacted in
decades|[,]” ... “[Petitioners’] ‘literal reading’ of the
premium tax credits calculation subprovision”
renders the _ entire Congressional scheme
nonsensical. Cf. Maj. Op. at 372.” Id., 759 F.3d at
378-379 (Davis, J. concurring).

Your Amici, by contrast, argue that the eligibility
criteria Congress provided in Section 1311 (42 U.S.C.
§ 18031) for “premium assistance tax credits” are
both clear and tightly-integrated into the fabric of
the cooperative State/federal program that became
PPACA. If the credit is administered as Congress
wrote it, the amounts flowing from the Treasury will
necessarily be smaller than Respondents might
prefer, but only because fewer States exercised the

4

options that Congress gave them in PPACA. This is
neither “absurd” nor “nonsensical”. It’s the law
Congress wrote.

If, by contrast, the Respondents are permitted to
administer the tax credit as the IRS rewrote it,
PPACA “as administered” looks a lot more like the
“national” health insurance program that Congress
rejected. The IRS is given authority to administer
the Code, not to rewrite it. So, even if the Fourth
Circuit is correct that there is a “tension” between
what Congress wrote and what Respondents believe
it must have “intended”, the scope of IRS interpretive
authority cannot extend to altering eligibility criteria
for the “premium assistance credit amount”. IRS
authority extends to interpretations in aid of its
power to make “inquiries, determinations, and
assessments” of the taxes Congress “imposes” and
the credits it “allows”

The language and structure of PPACA confirm
that Congress used its power to reduce the federal
share of the costs. It did so by enacting 1) grants to
induce states to create and administer “American
Health Benefit Exchanges”, 2) tax credits and
Medicaid expansion to induce participation by those
who could not otherwise afford to participate in the
Exchanges (the “unable”); 3) “shared responsibility”
tax payments to ensure that “unwilling” individuals
and employers participate; and 4) penalty provisions
to induce States to participate in the Medicaid
expansion. Nat7 Fed’n of Indep. Bus. v. Sebelius, —
U.S. -, 132 S.Ct. 2566, 2614-15 (2012) (Ginsburg,
Breyer, Sotomayor & Kagan, JJ, concurring and
dissenting) (referencing “the large number of U.S.

5

residents who are unable or unwilling to obtain
health insurance.”) [hereafter NFIB].

Your Amici respectfully submit that no provision
of the Internal Revenue Code delegates the power to
grant or withhold tax credits under any
circumstances. For the IRS to arrogate that power to
itself and then claim Chevron deference to that
power-grab violates Congress’ power over the purse
and allocation of monies due and owing the
Treasury. Congress alone has the power to decide
what taxes will be imposed, what credits will be
allowed and for whom, how they will be calculated
and collected, and the uses to which tax revenues
will be put.

6

ARGUMENT

I. THEIRS RULE VIOLATES THE APPROPRIATIONS
CLAUSE OF ARTICLE I.

Article I, Section 9, Clause 7, provides:

No Money shall be drawn from the
Treasury, but in Consequence of
Appropriations made by Law; and a
regular Statement and Account of the
Receipts and Expenditures of all
public Money shall be published from
time to time.

This language is plain and has been faithfully
observed since 1787. Until the IRS unilaterally
decided to extend tax credits to taxpayers ineligible
to receive them, the Appropriations Clause has
governed the conduct of our government and serves
as the clearest of the boundaries between the powers
of the legislative branch and those vested in the
executive and judicial branches.

A. PPACA is an Appropriations Act.

By its own terms, PPACA appropriates money.
Like many other appropriations acts, it says in so
many words what it is appropriating money for and
what it is not appropriating money for. In explicit
terms it says that “there shall be allowed as a credit
against the tax imposed by this subtitle for any
taxable year an amount equal to the premium
assistance credit amount of the taxpayer for the
taxable year.” 26 U.S.C. § 36B(a). It limits eligibility
for that premium assistance credit to taxpayers who
are “enrolled in through an Exchange established by
the State under [section] 1311 of the Patient

7

Protection and Affordable Care Act” 26 U.S.C. §
36B(b)(2).

The IRS response to commentary that its decision
to extend tax credits to Exchanges that were not
“established by the State under [section] 1311” was
illegal concedes that the disputed credits were not
explicitly authorized by this appropriation language:

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 (emphasis added).

B. The IRS has no Statutory Authority “To
Lay ... Taxes” or “To Allow” Credits.

26 U.S.C. § 6201 (2014), embodies’ the
fundamental distinction between the power to “lay
and collect taxes”, which belongs only to Congress.
and the administrative power to “assess” them once
the necessary inquiries and calculations have been

8

made: “The Secretary is authorized and required to
make the inquiries, determinations, and assessments

of all taxes ... imposed by this title ....” (emphasis
added).

The Fourth Circuit “permits the IRS to decide
whether the tax credits [will] be available on federal
Exchanges.” King, 759 F.3d at 373. The IRS justifies
its rule on the theory that “the relevant legislative
history does not demonstrate that Congress intended
to limit the premium tax credit to State Exchanges.”
77 Fed.Reg. at 30,378.

Both the panel and the IRS are asking the wrong
question. The issue is not “whether Congress
intended to limit the premium tax credit to State
Exchanges”, but whether Congress has delegated
power to grant or withhold tax credits to the
Executive Branch here. Your Amici submit that it
has not done so.

By “deferring” to an action that finds no support
in any section of the Internal Revenue Code, the
Fourth Circuit has validated the IRS’ naked
assertion of congressional power to spend the
approximately $36 billion necessary to fund the tax
credits it has authorized. See CBO April 2014
Estimates, supra. Compare, Skinner v. Mid-
America Pipeline Co., 490 U.S. 212, 109 S.Ct. 1726
(1989).

There can be no dispute that the regulation
promulgated by the IRS draws money from the
Treasury, and expands the pool of taxpayers subject
to the individual mandate to include those who are
eligible to participate in the Medicaid expansion. It
thus revises how taxes are collected under PPACA.

9

That it appropriates money “by Law”, however, is a
proposition that must be denied. “By Law” refers to
the legislative power, all of which is vested by Article
I, Section 1, in the Congress. The IRS regulation is
not, of course, an appropriations bill and therefore
cannot constitutionally draw money from the

Treasury, determine from whom taxes will be
collected, or determine how they will be calculated.

C. The IRS Rule is a “Revision” of Section
36B not an “Interpretation”

The position of the Fourth Circuit can be
paraphrased thus:

Congress appropriated the money to
subsidize tax credits payable to citizens
“enrolled in one or more qualified health
plans through an Exchange
established by the State under [section]
1311” It also anticipated that the
States might not cooperate, and so
authorized the Secretary of HHS to
create Exchanges on their behalf.
Because the Executive views the
subsidies as an essential part of the
national program PPACA was intended
to create, “it makes sense to read” the
Act to authorize the tax expenditures,
759 F.3d at 369. and thereby to trigger
the individual and employer mandates
in those States.

The appropriation already made by
Congress for Exchanges “established by
the State under section 1311” now
operates without the _ restrictions

10

embedded in PPACA, funds enrollees
who are not eligible, and imposes the
mandate on citizens whose States
refused to set up Exchanges.

To call the IRS rationale for its rule “an
interpretation” stretches the meaning of the term.
Congress has many ways to expresses its “intent”
concerning the source, amounts, and purposes of
authorized appropriations. Section 1311 of ACA, for
example, explicitly appropriates funds

... to the Secretary, out of any moneys in
the Treasury not otherwise appropriated,
an amount necessary to enable the
Secretary to make awards, not later than
1 year after the date of enactment of this
Act, to States in the amount specified in
paragraph (2) for the uses described in
paragraph (3).

PPACA also withholds Congressional consent by
the use of several exp/icit negatives on expenditures.
E.g., Section 1311 D(S5)(A) (s: “Funding
Limitations.— (A) No Federal Funds For Continued
Operations”); Section 4101(A)(4) (“No funds provided
under a grant awarded under this section shall be
used for expenditures for personnel or to provide
health services.”).

Whether appropriations language is directive or
negative, any actions inconsistent with that
language constitute a drawing from the Treasury. A
directive to spend for a specified purpose cannot be
converted by regulatory “interpretation” into an
authorization to spend for something more or

11

something different. Nor can a refusal to draw be
made into a mandate to draw by “interpreting” the
condition.

Both the IRS and the Fourth Circuit treat the
eligibility criteria for subsidized health care as
simply one element of a Congressional effort to
subsidize as many people as _ possible. The
appropriations language in PPACA, however, is not
“aspirational”; it sets forth in great detail who is
eligible for a tax credit and who is not. Both the IRS
and the Fourth Circuit panel concede that a literal
reading of Section 1311 limits the appropriation that
subsidizes the insurance of eligible individuals. The
literal reading of Section 1311 is confirmed by the
operational details of the employer mandate, which
is enforced by imposing assessable tax payments on
large employers that have at least one employee
enrolled in a plan, offered through an Exchange, for
which “an applicable premium tax credit ... is
allowed or paid.” See 26 U.S.C. § 4980H{(a-b).
Congress imposed an extremely burdensome tax not
only to recoup its expenditures, but also to ensure
compliance with the mandate itself.

D. The IRS Rule is Unconstitvtional

As written, PPACA authorizes taxation of
individuals and businesses as well as_ the
expenditure of money if, and only if, their elected
representatives agree to participate in the State-
federal experiment that is PPACA. The IRS rule at
issue here is constitutionally defective in three ways:
1) it appropriates 2ud directs the flow of federal
money without authorization; 2) it imposes taxes

12

that are not authorized by law; and 3) it seeks to
validate regulatory authority not granted by law.

In NFIB, supra, this Court confirmed that the
validity of PPACA’s individual and employer
mandates rests on Congress’ power to tax and spend.
It follows inexorably from this holding that the
manner in which Congress employed those powers in
Sections 1311 and 26 U.S.C. § 4980H(a)-(b) is the
source of whatever “assessment” and regulatory
powers the IRS claims in this case.

The Fourth Circuit’s resort to “Chevron
deference” in an appropriations case is singularly
inappropriate. The inviolable and exclusive power of
the purse is one that touches on everything that
Congress does. To tamper with that exclusive power
is to tamper with the very essence of constitutional,
representative government. Unless Congress is
simply to become a mere bookkeeper or ATM
machine for the Executive Branch, this Court should
reaffirm that such delegation must “explicitly
reflect[] Congress’ intention.” Mid-America Pipeline,
supra, 109 S.Ct. at 1734,

So clearly has this principle been understood that
some of the harshest language ever used to describe
a violation of the separation of powers has been used
with respect to the problem we see here: judicial
deference to an unconstitutional assertion of the
appropriations power reserved for Congress.

In Federalist, No. 68, James Madison emphasized
the scope of the appropriations power:

The House of Representatives cannot
only refuse, but they alone can prapose

13

the supplies requisite for the support
of government. They, in a word, hold
the purse- ... This power over the
purse may, in fact, be regarded as the
most complete and effectual weapon
with which any constitution can arm
the immediate representatives of the
people, for obtaining a redress of every
grievance, and for carrying into effect
every just and salutary measure.”

THE FEDERALIST No. 58 at 380 (Modern Library ed.)
(J. Madison). In FEDERALIST, No. 78, Hamilton was
equally adamant:

The legislature not only commands the
purse but prescribes the rules by
which the duties and rights of every
citizen are to be regulated. The
judiciary, on the contrary, has no
influence over the sword or the purse;
no direction either of the strength or of
the wealth of the society, and can take
no active resolution whatever.

Id. at 504.

Whenever the issue has been raised, this Court
has concluded that an appropriation by Congress is
required before moneys may be drawn from the
federal Treasury. Knote v. United States, 95 U. S.
149 (1877); Austin v. United States, 155 U. S. 417
(1894); Hart v. United States, 118 U. S. 62 (1868):
Reeside v. Walker, 52 U. S. (11 How.) 623 (1850). See
also Cincinnati Soap Co. v. United States, 301 UV. S.
308 (1937); United States v. Lovett, 328 U. S. 303
(1946). See also Ronald D. Rotunda & John E.

14

Nowak, TREATISE ON CONSTITUTIONAL LAW:
SUBSTANCE AND PROCEDURE (West Pub. Co. 5th ed.
2013), vol. 1, §§ 5.7(a)(iv) & 7.6(b), and vol. 6, §23.8

The object is apparent upon the slightest
examination. It is to secure regularity,
punctuality, and fidelity, in the disbursements
of the public money. As all the taxes raised
from the people, as well as revenues arising
from other sources, are to be applied to the
discharge of the expenses, and debts, and
other engagements of the government, it is
highly proper, that congress should possess
the power to decide how and when any money
should be applied for these purposes. If it were
otherwise, the executive would possess an
unbounded power over the public purse of the
nation; and might apply all its moneyed
resources at his pleasure. The power to control
and direct the appropriations, constitutes a
most useful and salutary check upon profusion
and extravagance, as well as upon corrupt
influence and public peculation....

J. Story, 2 COMMENTARIES ON THE CONSTITUTION OF
THE UNITED STATES § 1348 (3d ed. 1858), quoted in
Office of Pers. Mgmt. v. Richmond, 496 U.S. 414, 427,
110 S. Ct. 2465, 2473 (1990).

In Reeside v. Walker, supra, the estate of James
Reeside sought and won a set-off of its claims agains?
those of the United States. The jury found that the
government was, in fact, indebted in the amount of
$188,496.06. In an attempt “[t]o save future expense
and litigation in [the] case, with a view to obtain[ing]

15

the desired judgment” this Court articulated the
clear and unambiguous rule that a court may not
order or authorize the Treasury to pay out
unappropriated moneys:

No officer, however high, not even the
President, much less a secretary of the
treasury or treasurer is empowered to pay
debts of the United States generally, when
presented to them. ... It is a well-known
constitutional provision, that no money can be
taken or drawn from the treasury except
under an appropriation by congress. See
Constitution, Art. I, § 9, I Stats. at Large, 15.

However much money may be in the treasury
at any one time, not a dollar of it can be used
in the payment of any thing not thus
previously sanctioned. Any other course would

give to the fiscal officers a most dangerous
discretion.

Hence. the petitioner should have presented
her claim on the United States to congress,
and prayed for an appropriation to pay it. ...
But without such an appropriation it cannot
and should not be paid by the treasury,
whether the claim is by a verdict or judgment,
or without either, and no mandamus or other
remedy lies against any officer of the treasury
department, in a case situated like this, where
no appropriation to pay it has been made. 52
U. S. (11 How.) 626-28 (emphasis by the
Court).

16

Thus, even in the face of a binding obligation,
judgment, or unconstitutional withholding, no court
may order the funds to be paid where payment is not
authorized by Congress. Stitzel-Weller Distillery v.
Wickard, 118 F. 2d 19 (1941); Collins v. United
States, 15 Ct. Cl. 22 (1878); Doe v. Matthews, 420 F.
Supp. 865 (D. N. J. 1976). See also Cincinnati Soap
Co. v. United States, 301 U. S. 308 (1937); Spaulding
v. Douglas Aircraft Co., Inc., 60 F. Supp. 985 (S. D.
Cal. 1945).

Nor may a court modify a condition attached to
an appropriation. United States v. Lovett, supra, was
a challenge to an appropriations measure that
provided that certain named government employees
not be paid their salaries unless Congress confirmed
their continued employment. The three named
individuals continued to work despite the limitation
and sued for their compensation. The Court of
Claims held that the claimants were entitled to their
money, but did not entertain the illusion that it could
order the Treasury to pay, or the Congress to
appropriate:

Congress, by enacting Section 304, did not
foreclose itself from thereafter appropriating
for the payment of these salaries. Congress
even now may appropriate, and authorize a
selected disbursing agency to pay them.
Claimse.therefor, presented to Congress, may
be satisfied by-a._snpropriation to pay them,
as claims. Judgments, rétewered here, may be
satisfied by any appropriation outorabich the
judgments may be by Act of Congréss,;
payable.”

17

Lovett v. United States, 66 F. Supp. 142, 147 (Ct. Cl.
1945) affirmed on other grounds, United States v.
Lovett, 328 U. S. 303 (1946). (emphasis supplied).
This Court affirmed, but held the salary prohibition
an unconstitutional bill of attainder, but made no
order to appropriate or pay the funds.

In Office of Personnel Management v. Richmond,
496 U.S. 414, 424, 110 S.Ct. 2465, 2471 (1990), this
Court rejected a federal retiree’s claim for benefits
because “...Congress has appropriated no money for
the payment of the benefits respondent seeks, and
the Constitution prohibits that any money ‘be drawn

from the Treasury to pay them.” Jd, 496 U.S. at 424,
110 S.Ct. at 2471.

In the present case, Respondents argue this Court
should “defer” to their understanding = of
Congressional intent regarding this appropriation.
The Appropriations Clause, Art. I §7, cl. 9, requires
more: namely, an explicit authorization to “allow” the
tax credit authorized in Section 1311 to purchasers
in the federal exchange.

Il. VOIDING THE IRS REGULATION DOES NOT
LEAD TO ABSURD RESULTS OR TO FRUSTRATION
OF CONGRESSIONAL DESIGN

The Fourth Circuit deferred to the IRS because it
agreed that “the economic framework supporting the
Act would crumble if the credits were unavailable on
federal Exchanges”. It worried that “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. King,

18

759 F.3d at 375. It held that Petitioners’ “literal”
construction of Section 1311 would cause “the broad

policy goals of the statute” to be frustrated and
“render{] the entire Congressional scheme
nonsensical.” Jd., 759 F.3d at 373 (panel opinion);
378 (Davis, J., concurring).

A. Congress Authorized and Encouraged the
States and the District of Columbia to
Create Fifty-One (51), Independent
“American Health Benefit Exchanges”

PPACA envisions a health insurance market
where the federal government provides baseline
coverage and access standards, startup grants for
State Exchanges and substantial subsidies for
taxpayers who cannot afford health insurance. The
States, in turn, create and sustain a federally-
approved Exchange in which their citizens can shop,
provide for its long-term financing, regulate the local
insurance market and, most importantly for present
purposes, share the costs of subsidies for the poor.
See, e.g., Section 1332(a)(3) (42 U.S.C. § 18052(a)(3)
(providing for “pass through of funds” directly to the
State in cases where, “due to the structure of the
State plan, individuals and small employers in the
State would not qualify for the premium tax credits,
cost-sharing reductions, or small business credits
under sections 36B of the Internal Revenue Code of
1986)”(emphasis added).

In keeping with the adage that “all politics is
local”, so too are the Exchanges. Citizens cannot
purchase “qualified health plans” interstate unless
their States have entered into a regional compact.
See PPACA §§ 1311(b)(1-2),(f); 1331(c)(3)(A);

19

1333(a)(1-3). See Patient Protection and Affordable
Care Act, Pub L. 111-148, §§1311(b)(1-2),(), 124 Stat
119, 173-74 (2010) (codified as amended at 42 U.S.C.
§ 18031 (2012)).

At least for now, the economics of each “American
Health Benefits Exchange” turn on the extent to
which each State’s “unable” and “unwilling” citizens
participate in its Exchange, the health and

demographics of the State’s population and its
medical costs.

Each “American Health Benefits Exchange”
stands on its own feet. Each looks inward as it
carries out Congress’ command that “/ejJach State
shall seek to coordinate the administration of, and
provision of benefits under, its program under this
section with the State Medicaid program under title
XIX of the Social Security Act, the State child health
plan under title XXI of such Act, and other State-
administered health programs to maximize the
efficiency of such programs and to improve the
continuity of care.” PPACA §1331(c)(4) (codified as
amended at 42 USC § 18051 (2012)). (emphasis
added). :

Thus, even if the “American Health Benefits
Exchanges” created by 15 States and the District of
Columbia are the only ones operating in the
foreseeable future, nothing that the other 35 States
do will affect their operational success or failure.

20

B. Congress Sought to Partner with the States
to Create, Finance, and Sustain a Vast

Social, Economic, and Medical Experiment
In operation, PPACA is an ongoing social and
economic experiment. “It is one of the happy
incidents of the federal system that a _ single
courageous State may, if its citizens choose, serve as
a laboratory; and try novel social and economic
experiments without risk to the rest of the country.”
New State Ice Co. v. Liebmann, 285 U.S. 262, 311

(Brandeis & Stone, JJ . dissenting).

It is far too early for anyone — especially a federal
judge — to speculate about the impact that the
operations of the 16 operational, State-created
Exchanges will have on a future Congress and the
legislatures of the remaining 35 States. All we know
for certain is that each “American Health Benefits
Exchange” sits on its own bottom. The operations of
each Exchange will generate exabytes of valuable
economic, social, demographic, and medical data that
must be reported to the Secretary on a regular basis.
See, e.g., Sections 1002 (establishing certain data
collection mechanisms); 1502 (individual coverage
reports); 3015 (establishing a nationwide data
collection framework). See generally. e.g., Jim
Golden, “Innovating on the Obamacare Data
Platform,” FORBES (July 1, 2012) at
http://www.forbes.com/sites/jimgolden/2012/07/01/inn
ovating-on-the-obamacare-data-platform/ (accessed
Dec. 19, 2014); Ken Congdon, Editorial,
“Obamacare’s Big Data Opportunity”, HEALTH IT
OUTCOMES (May 1, 2013) at = http://www.
healthitoutcomes.com/doc/obamacare-s-big-data-

21

opportunity-0001 (accessed Dec. 20, 2014); Kelly
Kennedy, “Analysis of Huge Data Sets will Reshape
Health Care,” USA Today (Nov. 24, 2013) at
http://www.usatoday.com/story/news/nation/2013/11/
24/big-data-health-care/3631211/ (acvessed Dec. 21,
2014).

C. The Text of PPACA Presupposes
“Voluntary” Participation by the States as
the Primary Means by which to Create
Viable, State-specific Insurance Pools Large
Enough to Cover the Uninsured.

PPACA is structured as a tax and transfer
payments program for a reason. A program of “near-
universal” health insurance requires both voluntary
and involuntary transfers of vast sums of money.
PPACA thus has three key components: 1) Medicaid
expansion to cover those unable to pay for insurance
and penalties for States that were unwilling to
participate in the proposed expansion; 2) individual
and employer mandates for those who can afford
insurance, but who would be unwilling to participate
in the absence of a mandate; and 3) federal and state
subsidies to reduce startup costs and premiums for
lower-income participants.

1. Medicaid Expansion: Insuring’ the
“Unable”

One of the main political problems Congress faced
was how to finance an effort designed to create
“near-universal” coverage. The first component of
that effort was Medicaid expansion. Its goal was
twofold: 1) to ensure that Medicaid (itself a
cooperative State/federal program) offered the
“minimum essential coverage”; and 2) to extend

22

coverage to persons at or below 133% of the federal
poverty line. PPACA §§ 2001(a-b), codified as
amended at 42 U.S.C. § 1396a (2012). Although
States were given the “option” to participate,
Congress was so concerned that they expand both
eligibility and minimum essential services that it
threatened them with the loss of all Medicaid
funding as the condition for non-participation. 42
U.S.C. § 1398c, held unconstitutional as applied in
NFIB, 132 S.Ct. at 2607.

2. Expanding the Pool: Subsidies and
Mandates in “American Health Benefit
Exchanges”

An “American Health Benefit Exchange’ is “a
governmental agency or nonprofit entity that is
established by a State” that makes “available
qualified health plans to qualified individuals and
qualified employers” PPACA §§ 1311 (b, d). Like the
federal Exchange contemplated under Section
1321lic) and the State-operated Exchanges operating
before January 1, 2010 referenced in Section 1321(e),
an Exchange is also a “mechanism, including an
Internet website, through which a resident of any, or
small business in, State may identify affordable
health insurance coverage options in that State”.
Whether created by a State or the Secretary, an
Exchange “shall, to the extent practicable, provide
ways for residents of, and small businesses in, any
State to receive information on” a detailed list of
coverage options. PPACA §§1103(a)(1-2), 1311(d)(3).

This is where the similarities end. An Exchange
“created by the State under Section 1311” is also a
cost- and power-allocation mechanism. Without this

23

distribution of power and fiscal responsibility, there
would be no basis on which to justify the use of the
word “Affordable” in the title of PPACA.

a. Cost-sharing & reduction requirements

Section 1311 is, at bottom, a massive attempt to
induce the States and those who are unwilling to
participate in the individual or group markets to
share the cost of near-universal health insurance.
See PPACA §§ 1501(C-D) (codified as amended at 42
USC § 18091 (2012)) (individual and employer
mandates).

Section 1101, for example, conditions a State’s
eligibility to participate in the temporary, federal
high-risk pool: “To be eligible to enter into a contract
with the Secretary under this subsection, a State
shall agree not to reduce the annual amount the State
expended for the operation of one or more State high
risk pools during the year preceding the year in
which such contract is entered into.” Section
1101(b)(3) (codified as amended at 42 U.S.C. § 18001
(2012)) (emphasis added).

Section 1311(d)(3)(B)(i) expressly permits States
to “require that a qualified health plan offered in
such State offer benefits in addition to the essential
health benefits specified under section 1302(b)”, but
requires that any State electing to do so “defray the
cost of any additional benefits described in clause
(i).” Section 1311(d)(3)(B)Gi) (codified as amended at
42 U.S.C. § 18031 (2012)).

Section 1311(d)(5) embodies the same fiscal line-
drawing: “In establishing an Exchange under this
section. the State shall ensure that such Exchange is

24

self-sustaining beginning on January 1, 2015,
including allowing the Exchange to charge
assessments or user fees to participating health
insurance issuers, or to otherwise generate funding,
to support its operations.”

Congress had a very good reason for making
American Health Benefits Exchanges “created by the
State under Section1311” the only “Exchange” on
which to obtain subsidized health insurance: The
States that create them bear a substantial share of
program and administrative costs.

It is not at all unusual for the federal government
to provide carrots (and sticks) to incentivize State
participation in mew domestic programs or
regulatory efforts. See, e.g., South Dakota v. Dole,
483 U.S. 203 (1987) (grant of federal highway funds
contingent on setting 21 as drinking age). The
original Medicaid program was opened to State
participation in 1965, but seventeen (17) years
elapsed before all the States signed on. Kaiser
Commission on Medicaid and the Uninsured, A
Historical Review of How States Have Responded to
the Availability of Federal Funds for Health Coverage
(August 2012) at http://kaiserfamilyfoundation.files.
wordpress.com/2013/01/8349.pdf (accessed Dec. 12,
2014).

Even when States have been required to respond,
some took years. “The 1987 amendments to Clean
Water Act required states to establish quantitative
Water Quality Criteria for several dozen toxic
pollutants .... Both EPA and the states were slow to
respond to this mandate, and it took until 1992 for
EPA to certify that 43 states had met these

25

obligations and to promulgate federal standards for
the 14 remaining states.” Rena I. Steinzor,
Devolution and the Public Health, 24 HARV. ENVTL.
L. REV. 351, 383 n. 127 (2000) (citations omitted).

b. Power-allocation

The text and structure of PPACA also bear
witness to congressional efforts to ensure that both
willing and unwilling States would participate in its
efforts to restructure the State insurance markets.

There are commands and “offers that cannot be
refused”. Compare, e.g., Section 1311(b,d), 42 U.S.C.
§ 18031(b,d) (2014) (“Each State shall, not later than
January 1, 2014, establish an American Health
Benefit Exchange ... for the State”) w7th 42 U.S.C. §
1398c (providing for loss of all Medicaid funding as
the condition for non-participation), held
unconstitutional as applied in NFIB, 132 S.Ct. at
2607.

PPACA expressly preempts some State laws and
preserves the validity of others. Compare, e.g.,
Sections 1001(e)(minimum federal standard for
summaries of benefits) and 4206(d)(rule_ of
construction for “State or local law” dealing with
nutrient content disclosures) with, e.g., Sections
1303(c)(1) (preserving State abortion laws);
1311(d)(preserving State laws “that do[] not prevent
the application of the provisions of this title”);
2709(h) (preserving additional State standards
governing clinical trials). Sections 1311(f)(1) and
1331(c)(3)(B) permit State-created exchanges to
operate interstate or regionally if “each State in
which such Exchange operates permits such
operation”, and Sections 13111(f)(3)(A-B) permit

26

States to sub-contract with qualified entities “to
carry out 1 or more responsibilities of the Exchange.”

Congress also drew careful lines that deal
specifically with the situation presented here. When
a State either does not “elect” to create an “xchange
under Section 1311(b), 42 U.S.C. § 18031(b) , or fails
to meet federal requirements, the Secretary is indeed
authorized to “establish and operate such Exchange
within the State”. Section 1321(c)(1)(A-B), 42 U.S.C.
§18041(c)(1)(A-B) (2014). Her authority in that
context is expressly limited by Section 2736(b) of the
Public Health Services Act, 42 U.S.C. § 300gg-22(b),
which allows her to regulate the conduct of health
insurers “relatling] to the issuance, sale, renewal,
and offering of health insurance coverage in
connection with group health plans or individual
health insurance coverage in such State.”

D. Changing the Rules after the Fact

Contemporaneous agency interpretations of
PPACA also confirm that the Secretary’s authority is
limited to sunning the market-making = and
administrative aspects of an Exchange.

PPACA was signed into law on March 23, 2010.
Respondents HHS and IRS circulated numerous,
contemporaneous, internal memoranda about
implementation. Correspondence referring subsidies
for plans purchased through a federal Exchange
begins to appear in March 2011, when “IRS and
Treasury personnel noticed the lack of statutory
language authorizing tax credits in _ federal
exchanges.” Joint Staff Report, U.S. House of
Representatives, 113 Cong., “Administration
Undertook Flawed Analysis of Key Issues Prior to

27

Expanding Health Law’s Taxes and Subsidies” (Feb.
5, 2014) 4 at http://oversight.house.gov/wp-
content/uploads/2014/02/IRS-Rule-OGR-WM-°Staff-
Report-Finall.pdf (accessed Dec. 23, 2014) [hereafter
Joint Staff Report).

It was not until November, 2011 that HHS began
to eliminate references to subsidies and State-
operated Exchanges in the “Boilerplate Cooperative
Agreement” prepared by HHS. Indeed Mark Mazur,
Assistant Secretary of the Treasury for Tax Policy
admitted in a letter to House Oversight and
Investigations Committee Chair Daryl Issa that he
“never saw any analysis of the issue prior to Mav
2012.” Joint Staff Report, supra, at 6 at
http://oversight.house.gov/wp-content/uploads/20 1 4/
02/IRS-Rule-OGR-WM-°Staff-Report-Final1.pdf
(accessed Dec. 23, 2014).

Among. other significant’ indicators’ that
Respondents understood that subsidies are not
legally available on the federal Exchange is that
Respondents did not contract for a health care
calculator on HEALTHCARE.GOV until well into
May, 2012. If Respondents really believed that
subsidies would be available, they omitted the
essential tool that participants need to sign up for
subsidies. See Scott Vorse, “Beyond Gruber: How
HHS Flip-Flopped on Federal Exchange Subsidies.”
(Competitive Enterprise Institute WEBMEMO 28,
Nov.20, 2014) at https://cei.org/content/beyond-
gruber-how-hhs-flip-flopped-federal-exchange-
subsidies (accessed Dec. 21, 2014).

This is the problem that the Respondents tried to
“fix” with the regulation at issue here. It is also why

28

the IRS regulation does far more than “mak[e ...]
rules to fill any gap left, implicitly or explicitly, by
Congress” in PPACA. Chevron U.S.A. Inc. v. Natural
Resources Defense Council, Inc., 467 U.S. 837, 843,
104 S.Ct. 2778 (1984).

It is thus fair to assert that the IRS rule at issue
here is not simply a matter of tax administration
designed to fill “gaps” in the Internal Revenue Code
like those in Mayo. Rather, this rule changes a
fundamental feature of a massive tax statute, opens
the Treasury for unappropriated and unauthorized
tax expenditures, and changes the legal obligations
of individuals and employers residing in states that
did not establish their own Exchanges.

In short, Respondents have rewritten the law in a
manner fundamentally at odds with the cooperative
federal-state relationships on which the economics
and politics of PPACA rests. Ur. ier Chevron, this is
fatal.

E. The Legal Fiction that the Federal
Government “Acts on Behalf of the siate”
Violates PPACA and other Federal Laws.

By holding that “the federal government acts on
behalf of the state when it establishes its own
Exchange”, King, 759 F.3d at 369 (emphasis added),
the Fourth Circuit created what it thought was a
useful legal fiction. There is nothing in PPACA,
however, that authorizes Respondents to serve as
fiduciaries “on behalf of” the States that do not
create Exchanges, or authorizes them to serve “in the
shoes of the non-participating States. Under
Chevron, this is fatal.

29

This fiction also creates two _ possibilities
expressly forbidden by federal law. The first is a
situation in which the federal government would
assume, in perpetuity, the entire range of costs that
would be incurred during the operations of an
“Exchange created by a State under Section 1311”.

Although Section 1311(a)(3) provides for renewable
federal assistance “for activities (including planning

activities) related to establishing an American
Health Benefit Exchange” (emphasis added), Section
1311(d)(5) confirms that “no federal funds for
continued operations” are either authorized or
appropriated “for continued operations”

The Fourth Circuit also implicitly authorizes the
Secretary to embark on a course of conduct that
would illegally “augment [HHS] appropriations.” By
“charg[ing] assessments or user fees to participating
health insurance issuers, [or] otherwise generat[ing]
funding, to support its operations’, the Secretary
would acquire funding source outside congressional
control. See General Accounting Office, Office of the
General Counsel, “The Augmentation Concept”, 6
GAO-RB pt. E, §1 (G.A.O.), 2006 WL 6179178
(February, 2006) (“As a general proposition, an
agency may not augment its appropriations from
outside sources without specific statutory authority

Restated, the objective of the rule against
augmentation of appropriations is to prevent a
government agency from undercutting’ the
congressional power of the purse by circuitously

exceeding the amount Congress has appropriated for
that activity.”).

30

If State law permits, States or the non-profit
organization they establish to run the Exchange can
make money on operations. Nothing in PPACA
prohibits that result. A State can “offer benefits in
addition to the essential health benefits specified

under section 1302(b)” if it pays for them with its
own money.

The Secretary, however, can do neither of these
things. Federal money is controlled by Congress.
There is nothing in PPACA that authorizes the
federal government to “offer benefits in addition to
the essential health benefits specified under section
1302(b)”, or to impose their cost on the States in
which federal exchanges operate under Section 1321.

The more natural reading of Sections 1311 and
1321(c) — and the reading most consistent with the
“plain language” requirement of Section 1311(e)? — is
that when a State fails to set up an “American
Health Benefits Exchange” or fails to win approval of
the Exchange that it has created, the Secretary must
set up a federal exchange within the boundaries of
that State. Her authority, however, would be limited

2 Sect on 1311(e)(3)(B) is not directly applicable here, but it
does :-yuire an “American Health Benefits Exchange” (i.e. one
“estabiuehed by the State”) to use “plain language” in its
dealings with the public. “Plain language” is defined as
“language that the intended audience, including individuals
with limited English proficiency, can readily understand and
use because that language is concise, well-organized, and
follows other best practices of plain language writing.” The IRS
and Fourth Circuit would have done well to follow this
approach when interpreting PPACA.

31

to creating and regulating a marketplace “through
which a resident of any. or small business in, State
may identify affordable health insurance coverage
optious in that State” that are consistent with
PPACA, and “provid[ing] ways for residents of, and
small businesses in. [that] State to receive
information” on the options available to them in that
State’s market, Medicaid, Social Security, high-risk
pools (if any), and other possible purchasing or
entitlement options. PPACA = §§1103(a)(1-2),
1311(d)(3). Lest there be any doubt about the limits
on that authority, it is resolved by the reference in
Section 1321(c)(2) to Section 2736(b) of the Public
Health Services Act, 42 U.S.C. § 300gg-22(b), which
limits that power to oversight of “the issuance, sale.
renewal, and offering of health insurance coverage in
connection with group health plans or individual
health insurance coverage in such State.”

Only Congress can “fix” problems such as these.
It has done so in the past’. and should this Court
invalidate the IRS rule, Congress will undoubtedly
respond.

3 Some were technical corrections. see, e.g., Health Care and
Education Reconciliation Act of 2010, Pub.L. No. 111—152, 124
Stat. 1029 (2010), while others were financially unworkable.
See, e.g., Pub.L. No. 112—240, 126 Stat. 2313, §642 (January 2,
2013) (repealing the “CLASS Act”, PPACA §§8001-8002, and
rescinding related spending authority); Pub.L. No. 112-9, 125
Stat. 36 (2011) (repealing the “1099 Mandate”): Pub.L. No. 112-
56, 125 Stat. 111 (2011) (repealing withholding requirement
and amending 26 U.S.C. §36B to change the calculation of
adjusted gross income for determining eligibility for certain
programs).

32

As this Court observed in Rodriguez v. United
States, 480 U.S. 522, 525-26 (1987) (per curiam):
“Deciding what competing values will or will not be
sacrificed to the achievement of a particular objective
is the very essence of legislative choice—and it
frustrates rather than effectuates legislative intent
simplistically to assume that whatever furthers the
statute's primary objective must be the law.” Accord,
Pension Benefit Guar. Corp. v. LTV Corp., 496 U.S.
633, 646-47 (1990); MetroPCS Cal., LLC v. FCC, 644
F.3d 410, 414 (D.C. Cir. 2011). Certainly “an agency
has no power to “tailor legislation to bureaucratic
policy goals by rewriting unambiguous statutory
terms.” Utility Air Regulatory Grp. v. EPA, 124 S.Ct.
2427, 2445 (2014).

F. There is no “Ambiguity” in the Tax Credit
“Allowed” by Congress

The Fourth Circuit found an “internal tension”
between the text of Sections 1311 and 1321 because
“denying tax credits to individuals shopping on
federal Exchanges would throw a debilitating wrench
into the Act’s internal economic machinery.” King,
759 F.3d at 373-374. It then relied on this “tension”
to suggest that Congress must have delegated power
to confer eligibility for the credit on the IRS: “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.” King, 759 F.3d at 369 (emphasis added);
id., 759 F.3d at 377 (Davis, J., concurring) (“the

33

contingency provision” in Section 1321(c) supports
the IRS interpretation).

There is no tension.

A “tension” arises between Sections 1311 and
1321 if, and only if, one assumes that federal tax
credits must be available to persons “enrolled in one
or more qualified health plans through an Exchange
established [by the United States] under ... 1321 of
the Affordable Care Act.” 26 C.F.R. § 1.36B—1(k).
While Amici can understand the political reasons
why Respondents made that assumption, Sections
1311 and Section 1321 do not support it.

From our perspective, Respondents’ claims raise
two fundamental questions:

1) Can expanding the eligibility criteria of a tax
credit validly be characterized as an “interstitial
matter” of tax administration? and

2) Assuming that the IRS regulation can be so
characterized, is the agency's “interpretation”
consistent with the Internal Revenue Code. and
“the language, purpose, and structure of section
36B and the Affordable Care Act as a whole”?
Health Insurance Premium Tax Credit, 77 Fed.
Reg. 30,377, 30,377 (May 23, 2012)

Your Amici respectfully submit that the answer
to both questions is “no.” Because the IRS regulation
rewrites the statute, we conclude this section with
Justice Brandeis’ warning in Iselin v. United States,
270 U.S. 245, 251 (1926): “What the government asks
is not a construction of a statute, but, in effect, an
enlargement of it by the court, so that what was
omitted, presumably by inadvertence, may be

34

included within its scope. To supply omissions
transcends the judicial function.” Accord, Michigan
uv. Bay Mills Indian Community, 134 S.Ct. 2024,
2034 (2014) (“This Court has no roving license, in
even ordinary cases of statutory interpretation, to
disregard clear language simply on the view that ...
Congress ‘must have intended’ something broader.”).

III. CHEVRON DEFERENCE IS INAPPROPRIATE IN
THIS CASE

Chevron holds that judicial deference to an
agency interpretation is required only when
“Congress has not directly addressed the precise
question at issue” or if “the statue is silent with
respect to the specific issue.” Chevron, U.S.A. vu
Natural Resources Defense Council, Inc. 467U.S. 837,
843 (1984) While the lower courts have not been
consistent in their understanding of the scope of
Chevron deference, all of the Members of this Court
agree that “United States v. Mead Corp. requires
that, for Chevron deference to apply, the agency
must have received Congressional authority to
determine the particular matter adopted. No one
disputes that.” City of Arlington, Texas v. F.C.C., 133
S.Ct. 1863, 1873-74 (2013). All Members of this
Court also agree that “[t]he agency is due no
deference” when “Congress has left no gap for the
agency to fill.” City of Arlington, 133 S.Ct. at 1875
(Breyer, J., concurring); Id., 133 S.Ct. at 1881
(Roberts, C.J., Kennedy & Alito, JJ., dissenting).

35

A. Under Chevron, the Court Decides, as a
Matter of Law, whether there is Statutory

Ambiguity

The “particular matter at issue” here is eligibility
for the “premium assistance credit”. If Congress has
limited eligibility to taxpayers who enrolled in a
qualified health plan through an Exchange “created
by a State under Section 1311” (42 U.S.C. § 18031)
(emphasis added)”, no further inquiry is needed.
Congress decided.

Because Respondents argued below that PPACA
is ambiguous concerning eligibility, this Court must
decide whether the IRS eligibility rule can validly be
characterized as an “interstitial” legal question that
“t]he Secretary is authorized and required” to
resolve under his authority “to make the inquiries,
determinations, and assessments of all taxes ...
imposed by” the Internal Revenue Code. 26 U.S.C. §
6201 (2014).

If the answer is “no” (and we respectfully submit
that it is), the Court must then ask whether PPACA
delegates Congress’ power to “impose” taxes or to
“allow” credits against taxes otherwise due and
owing the Treasurv of the United States.

B. Congress has directly addressed the
precise question at issue in this case

Congress has allowed the “premium assistance
tax credit” only for taxpayers ...

1) Who are enrolled in a “qualified health plan”
that is

36

2) “offered in the individual market within a
State”, and

3) whose enrollment was “through an Exchange
established by the State under 1311 of the
Patient Protection and Affordable Care Act’.

26 U.S.C. § 36(B)(b)(2)(A) (emphasis added) .

The panel below rejected the “common sense”
proposition that 26 U.S.C. §36B [hereafter § 36B)
means that “the premium credit amount for
individuals purchasing insurance through a federal
Exchange would always be zero.” King, 759 F.3d at
368-69. PPACA “is ambiguous and subject to at least
two different interpretations, id., 759 F.3d at 372,
not because Congress tried and failed to be clear
about its intentions, but rather because “denying tax
credits to individuals shopping on federal Exchanges
would throw a debilitating wrench into the Act’s
internal economic machinery.” King, 759 F.3d at
373-374.

1. Respondents’ Claim for Chevron
Deference is Overbroad.

In Mayo Foundation for Medical Educ. and
Research v. U.S., supra, , the Chief Justice confirmed
that the “principles underlying ... Chevron apply
with full force in the tax context.” Id., 562 U.S. at
5s BAe oe Tie

The Fourth Circuit held that “[wjhat we must
decide is whether the statute permits the IRS to
decide whether the tax credits would be available on
federal Exchanges.” King, 759 F.3d at 373 (emphasis
added). If so, the pane) reasoned, “[ijt is thus
entirely sensible that the IRS would enact the

37

regulations it did, making Chevron deference
appropriate.” Id., King, 759 F.3d at 375.

Your Amici respectfully submit that this is the
wrong question. The Chevron question is: Did
Congress grant the IRS the authority to determine
who is eligible to claim a tax credit under PPACA?

The answer is “No.”

2. IRS Discretion under Chevron is Congruent
with its Authority to Administer the Tax
Laws.

Because Chevron requires the reviewing court to
determine whether Congress granted the IRS
“authority to determine the particular matter at
issue in the particular manner adopted”, City of
Arlington, 133 S.Ct. at 1873-74, the analysis of IRS
authority must begin with the powers granted to the
Secretary of the Treasury. 26 U.S.C. §6201(a) (2014)
provides, in relevant part. that:

The Secretary is authorized and required to
make the inquiries, determinations, and
assessments of all taxes (including interest,
additional amounts, additions to the tax, and
assessable penalties) imposed by this title, ... .
... (emphasis added)

Section 6201 distinguishes between the power to
‘lay and collect taxes”, which belongs only to
Congress, and the administrative power of the IRS to
make the “inquiries, determinations and
“assessments” needed to calculate, assess, and collect
the taxes that Congress has imposed. See 26 U.S.C.
§§6202 (assessment), 6301 (collection) (2014).

38

So too, we submit, should this Court.

In Mayo Foundation, the issue was “whether
doctors who serve as medical residents are properly
viewed as ‘student(s]’ whose service Congress has
exempted from FICA ...”. 131 S.Ct. at 708. Chevron
analysis was applicable — and deference was
warranted — because the “statute does not define the
term, ‘student,’ and does not otherwise attend to the
precise question whether medical residents are
subject to FICA.” Id., 131 S.Ct. at 711. The IRS rule
in question sought to clarify “the ter[m]” “student” as
used in § 3121(b)(10), particularly with respect to
individuals who perform “services that are in the
nature of on the job training.” Mavo, 131 U.S. at 710,
quoting 69 Fed.Reg. 8605 (2004).

Here, there is no such ambiguity. The statute
provides that “there shall be allowed as a credit
against the tax imposed by this subtitle for any
taxable year an amount equal to the premium
assistance credit amount of the taxpayer for the
taxable year.” 26 U.S.C. § 36B(a). It then limits
eligibility for that credit to taxpayers who are
“enrolled in through an Exchange established by the
State under [section] 1311 of the Patient Protection
and Affordable Care Act” 26 U.S.C. § 36B(b)(2).

As noted in Part II(A) above, 16 State Exchanges
are operating and more States will undoubtedly join
the experiment if the 16 are viewed as successful.
This is hardly “nonsensical”. King 759 F.3d at 373
(panel opinion); 378 (Davis, J., concurring). The
Fourth Circuit therefore had no basis to infer
Congressional delegation of interpretive authority to
the Respondents.

39

The IRS was clearly sensitive to the charge that
extending tax credits to Exchanges that were not
“established by the State under [section] 1311” would
exceed its authority under the Internal Revenue
Code as amended by PPACA. It conceded that this
appropriation language does not explicitly authorize
the disputed credits:

The statutory language of section 36B and
other provisions of the Affordable Care Act
support the interpretation that credits are
available to taxpavers who obtain coverage
through a State Exchange, regional
Exchange, subsidiary Exchange, and the
Federally-facilitated Exchange.

77 Fed.Reg. at 30,378 (emphasis added). It therefore
sought refuge in the legislative history:

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.

Id.

The IRS puts the cart before the horse. Even if
we ignore the fact that legislative history of PPACA
is sparse, and forget that many of its important
provisions were compromises’ struck during
“negotiations [that] were held behind closed doors”.

40

John Cannan, A Legis/ative History of the Affordable
Care Act: How Legislative Procedure Shapes
Legislative History, 105 LAW LIBRARY J. 131, 159
(2013), Chevron deference is available if — and only if
— Congress has either explicitly or implicitly given
the IRS power to define the class of taxpayers
eligible for the tax credit.

It has not done so.

CONCLUSION

The IRS claim of interpretive authority to
authorize a tax credit for citizens who live in States
that have refused to establish Exchanges is contrary
to law and unconstitutional.

Respactfully submitted,

Cota, he ha-

Counsel of Record
Marshall J. Breger

Attorneys for Amici Curiae

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0338%3A16. Public record. Not legal advice.