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

No. 14-114

In the

Supreme Court of the Anited States

DAVID KING, ET AL.,

Petitioners,

Vv.

SYLVIA BURWELL, SECRETARY OF HEALTH

AND HUMAN SERVICES, ET AL.,

Respondents.

On Writ of Certiorari to the United States

Court of Appeals for the Fourth Circuit

BRIEF OF AMICI CURIAE SENATORS JOHN CORNYN,

TED CRUZ, ORRIN HATCH, MIKE LEE, ROB

PORTMAN, AND MARCO RUBIO; AND

REPRESENTATIVES MARSHA BLACKBURN, DAVE

CAMP, RANDY HULTGREN, DARRELL ISSA, PETE

OLSON, JOE PITTS, PET=R J. ROSKAM, PAUL RYAN,

AND FRED UPTON IN SUPPORT OF PETITIONERS

MICHAEL E. ROSMAN CHARLES J. COOPER

CENTER FOR INDIVIDUAL Counsel of Record

RIGHTS DAVID H. THOMPSON

1233 20th Street, N.W. HOWARD C. NIELSON, JR.

Suite 300 PETER A. PATTERSON

Washington, D.C. 20036 JOHN D. OHLENDORF

COOPER & KIRK, PLLC

CARRIE SEVERINO 1523 New Hampshire

THE JUDICIAL EDUCATION Avenue, N.W.

PROJECT Washington, D.C. 20036

722 12th Street, N.W. (202) 220-9600

Fourth Floor ccooper@cooperkirk.com

Washington, D.C. 20005

Counsel for Amici Curiae

l

TABLE OF CONTENTS

Page

ey RP Ta Ning. i yy | - Sees ill

INTEREST OF AMICI CURIAE .......................... ]

SUMMARY OF ARGUMENT ........000..............:0000 3

SIRNA PARE Rat Si LS sim RM 8 dB eR 5

. Congress Has Not Granted the IRS Any

Authority To Extend Premium Subsidies

to Health Plans Offered Through an Ex-

change Established by the Federal Gov-

I inasscscesepnsindnnrbnasessacacesausecumasusesasations 5

a. The Plain Text of the ACA Demon-

strates that Premium Subsidies Are

Available Only Through an Ex-

change Established by a State ........ 5

b. The IRS’s Expansive Intervretation

of the ACA’s Subsidy Provision Vio-

lates the Separation of Powers by

Unraveling the Specific Compro-

mises Crafted by Congress in Favor

of an Interpretation Foreclosed by

CG I WR aisinsncccncaccctienssensans 10

c. The ACA Should Not Be _ Inter-

preted To Delegate to the Executive

a Decision with Such Broad-Rang-

ing Consequences in So Cryptic a

PIN, 6 aac cats i sasaaw onde dina sakewennaies 22

|

II. |The IRS's Regulation Was Not the Product

of the Reasoned Decisionmaking Required

Be I RI i ctiintettdiincedeantiodesoncnceres 30

I ade isichetiviaddltedsits ines shiabecnchuiatamnsiniiodepins 33

inl

TABLE OF AUTHORITIES

Page

CASES

Action Alliance of Senior Citizens of Greater

Phila. v. Sullivan,

De ae FE ee CUR RUPE eciicesisvccinstavseveseences 3

Artuz v. Bennett,

Be, MN acai sepnisctdaitenenanneiabhrcmewcana 16

Barnhart v. Sigmon Coal Co..,

Be EI, Ce CE isiiecciicsectnsdecancionsntdubesanesdoa 15

Bond v. United States,

ee 8 | eee ee 10

Bowsher v. Synar,

ee re, ee cntcanttniscnncctsdepeienctcmieunteitodees 10

Chevron, USA, Inc. v. NRDC,

ig a ER cee oreeer ne passim

City of Arlington v. FCC,

Be er is ne HE pticcinticnnintesesavscceiccncbuetesiaes 22

Clinton v. City of New York,

Be iG Se FE cisreidin cocina xecitesesacesadndeenecehaess 10, 12

D. Ginsberg & Sons v. Popkin,

Se ee 6 NE scicinadsicnoctasmntisésdehseecenenexectess 18

Exxon Mobil Corp. v. Allapattah Seruvs., Inc.,

i I sci siceseantondwievgcceninivertansnanannes 30

FDA v. Brown & Williamson Tobacco Corp.,

tk Bf 4. 3. Sav me

Gonzales v. Oregon,

eG SII vciicesevanicveczuasoesackcopscconetutivwes 22

lV

TABLE OF AUTHORITIES — Continued

Halbig v. Burwell,

758 F.3d 390 (D.C. Cir. 2014).................. 3, 8, 9, 18

Hollingsworth v. Perry,

Fe ls es Se III ss ccrctincciornscstiepnmicccatescousbons 7

King v. Burwell,

758 F.3d 358 (4th Cir. 2014)................02..000. passim

Kloekner v. Solis,

es ie ee I sie eesenectnssovsesvensatanwssvcinens 29

Lamie v. United States Tr.,

a Se ID ceisicvnscccsscancenccpectsanivancstisiun 29, 30

Los Angeles Cnty. v. Davis,

ee ecb nincicrnciccctencsisencenionsncmaocecs 3

Morales v. Trans World Airlines, Inc.,

Bes re eI iciercaiciswcdectianeovninenntasacvanniesive 18

Motor Vehicle Mfrs. Ass’n of U.S., Inc. v.

State Farm Mut. Auto. Ins. Co.,

Os ee ei ccectitctevcvoteciccengtansscasccetsnnscacm 30

National Fed’n of Indep. Bus. v. Sebelius,

i, Ge, Se CD tensienmrsnsstueincessucscncvonsseeenss 29

NLBB v. Noel Canning,

ks Ck CN vivincctecatecdensinecicakeustcesesseses 10

OPM v. Richmond,

ee, Re We incicnbvacnscecresnccessesssesubentnisnens 24

Pension Benefit Guar. Corp. v. LTV Corp.,

Pg RD a eee eae 23

Printz v. United States,

hos Gea eueeneorre 7

Vv

TABLE OF AUTHORITIES — Continued

RadLAX Gateway Hotel, LLC v.

Amalgamated Bank,

I i i a a is 16

Ragsdale v. Wolverine World Wide, Inc.,

535 U.S. 81 (2002)

Rodriguez v. United States,

Se EP: Se A aces cinta scence deicct ila 15, 18

Schuette v. Coalition To Defend Affirmative Ac-

tion, Integration & Immigrant Rights & Fight

for Equality by Any Means Necessary

(BAMN),

Ne Wh Sas BI GE rai ches stisantucinrccnndscreciios 9, 10

TVA v. Hill,

ee ec Pee CID wai tai cciciiaciseusecbaeatrienadnabde 11

United States v. Locke,

re Ee re id aos beth ietctceeadidatie 20

United States v. Standard Oil Co.,

Se en i a he 23

Utility Air Regulatory Grp. v. EPA,

Ie hs Ge TET CN ods kaise vncddenicenicessccl 12, 20, 23

Youngstown Sheet & Tube Co. v. Sawyer,

I Gea Wee CI cicrekccteinceceecs chaste Dcvnicanentendas 10

CONSTITUTIONAL & STATUTORY PROVISIONS,

REGULATIONS, AND RULES

Ree A OF cnbabicnicscrcccsansedeinesieens 23

Se, Ge is BO Oe spssa pied aicdieasccoeeisacotcoummis 10

v1

TABLE OF AUTHORITIES ~- Continued

5 U.S.C.

IR treet oir co asnaea So esupasta inickicuanreeees 30

ec Sel BET lea RO 30

AINA ANIL. bsicncausnsceeacanpeniscsaiessaecumdovuncrss i passim

42 U.S.C.

ON a ccincasaniccinctsnsnsonsnesiitoucosoesec 8,9

1 BAR Ra Sinn ee aera E ae ne 6

RA ig lt EER CC 8,9

0 RR OSS PER a 6, 8, 9,15

2 TG a I a ee 8

OL BER RRC sen AT a Ae ee ae 25

I i NID vccssscosesicssonssdcccesesvsconsinssnnenven 11

Be eo crcekracenickcncemansksiscsnidbecsbsnsvencese 11

WN oo sisiricicesnssainsisensccesicsiansonsocs 19

I ET iad ici hel cedvunannniasdcisiinbantesievobdunben 19

DSS aS EA LECT eceae ce ee IN e 19

ye VS SUM Ct Salle SER ee Oe 19

PR es Ry SEINE wacisceteasincbbddseidsinwineitsinenensanecseoesan ]

re he ramcnintes 1

OTHER

3 JOSEPH STORY, COMMENTARIES ON THE CONSTI-

TUTION OF THE UNITED STATES

I I aaa erga cacuaipnupine bata danmoccausassin 24

Vil

TABLE OF AUTHORITIES ~ Continued

7 THE WORKS OF ALEXANDER HAMILTON (John C.

Papeniibems O06... TBD sscsiasecsviccccuneedccdaee 23

AMY BURKE ET AL., PREMIUM AFFORDABILITY,

COMPETITION, AND CHOICE IN THE HEALTH IN-

SURANCE MARKETPLACE, 2014 (ASPE Re-

search Brief) (June 18, 2014),

httpclin0. SOOMRER occiccvncssesscerssspexsucaasnmlae 24

ASPE, HEALTH INSURANCE MARKETPLACE: SUM.

MARY ENROLLMENT REPORT FOR THE INITIAL

ANNUAL OPEN ENROLLMENT PERIOD (Issue

Brief) (May 1, 2014), http://goo.g/qmr9Ph ..... 27

ASPE, How MANY INDIVIDUALS MIGHT HAVE

MARKETPLACE COVERAGE AFTER THE 2015

OPEN ENROLLMENT PERIOD? (Issue Brief)

(Nov. 10, 2014), http://goo.g/NqDegui.............. 25

Audio: Jonathan Gruber at Jewish Community

Center of San Francisco (Jan. 10, 2012),

JCCSF.ORG, http://goo.gl/Vebg4v ................... 14

Carrie Budoff Brown, Nelson: National Exchange

a Dealbreaker, POLITICO (Jan. 25, 2010, 7:59

PM), httn-/igqo0.gi/BloeHy «0.00605 s005scsssnecevssescenes 12

Catherine Rampell, Academic Built Case for

Mandate in Health Care Law, N.Y. TIMES,

Mar. 29, 2012, http://goo.gV/zht5UU ................ 12

CBO, AN UPDATE TO THE BUDGET AND ECONOMIC

OUTLOOK: 2014 TO 2024 (Aug. 2014),

http://goo.gl//MEAKUZ..................cccesesseeeeeeees 26, 27

Vill

TABLE OF AUTHORITIES -— Continued

CBO, UPDATED ESTIMATES OF THE EFFECTS OF

THE INSURANCE COVERAGE PROVISIONS OF THE

AFFORDABLE CARE ACT, APRIL 2014,

IEE soos ccccccanssesccsecsecccorsceseesoss 25, 26

Daniel B. Rodriguez & Barry R. Weingast, The

Paradox of Expansionist Statutory Interpreta-

tions, 101 Nw. U. L. REV. 1207 (2007)............. 21

Interview with United States Senator Ben Nel-

son by LifeSiteNews.com (Jan. 26, 2010), see

a ccunsiinonsesina 13

John F. Manning, The Absurdity Doctrine,

116 HARV. L. REV. 2387 (2003) ........................ 16

JONATHAN GRUBER, HEALTH CARE REFORM:

WHAT IT Is, WuHy ITS NECESSARY, How IT

WorksS, A Note About the Author (2011)......... 13

Jonathan Gruber, Written Testimony Before the

H. Comm. on Oversight & Gov't Reform (Dec.

9, 2014), av ilable at http://goo.gl/eiOPax ...... 15

Open Enrollment Week 4: December 6-December

12, 2014, HHS.cov (Dec. 16, 2014),

II cs csnnsnseinccovssacccensssscsvcesesees 25

STAFF OF H. COMM. ON OVERSIGHT & GOv’T RE-

FORM AND H. COMM. ON WAYS & MEANS, 113TH

CONG., ADMINISTRATION CONDUCTED INADE-

QUATE REVIEW OF KEY ISSUES PRIOR TO EX.

PANDING HEALTH LAW'S TAXES AND SUBS DIES

(Feb. 5, 2014), http://goo.gl/5th

i sadesbuvesavesneoneues 2,3, 31, 32

ix

TABLE OF AUTHORITIES — Continued

UNITED STATES SENATOR TED CRUZ, THE LEGAL

LIMIT: THE OBAMA ADMINISTRATION'S AT-

TEMPTS TO EXPAND FEDERAL POWER—REPORT

No. 2 (Dec. 9, 2013), http://goo.gl/BX5oer ....... 2

Video: Jonathan Gruber at Noblis (Jan. 18,

2012), YOUTUBE.CcoM, http://goo.gl/

RIFT cncccuscepdccintomasnublatenidia ataibenbeedaontaeiie 13, 14, 15

]

INTEREST OF AMICI CURIAE!

Senator John Cornyn is the Senate Republican

Whip. Senator Ted Cruz is the Ranking Member of the

Senate Judiciary Subcommittee on the Constitution,

Civil Rights and Human Rights. Senator Orrin Hatch

is the Ranking Member of the Senate Finance Com-

mittee. Senator Mike Lee is the Ranking Member of

the Senate Judiciary Subcommittee on Antitrust,

Competition Policy, and Consumer Rights. Senator

Rob Portman is the Ranking Member of the Senate

Finance Subcommittee on Fiscal Responsibility and

Economic Growth. Senator Marco Rubio is the Rank-

ing Member of the Senate Foreign Relations Subcom-

mittee on East Asian and Pacific Affairs. Representa-

tive Marsha Blackburn is the Vice Chair of the House

Energy and Commerce Committee. Representative

Dave Camp is the Chairman of the House Ways and

Means Committee. Representative Randy Hultgren is

a member of the House Committees on Financial] Ser-

vices and Science, Space and Technology. Representa-

tive Darrell Issa is the Chairman of the House Over-

sight and Government Reform Committee. Repre-

sentative Pete Olson is the incoming Vice Chair of the

House Energy and Commerce Subcommittee on En-

ergy and Power. Representative Joe Pitts is the Chair-

man of the House Energy and Commerce Subcommit-

tee on Health. Representative Peter J. Roskam is the

| Pursuant to SUP. CT. R. 37.3(a), amici certify that both

parties have given blanket consent to the filing of amicus briefs

in support of either party. Pursuant to SUP. CT. R. 37.6, amici

certify that no counsel for any party authored this brief in whole

or in part, no party or party's counsel made a monetary contribu-

tion to fund its preparation or submission, and no person other

than amici or their counsel] made such a monetary contribution.

2

incoming Chairman of the House Ways and Means

Subcommittee on Oversight. Representative Paul

Ryan is the Chairman of the House Committee on the

Budget. Representative Fred Upton is the Chairman

of the House Committee on Energy and Commerce.

As elected representatives, amici have a power-

ful interest in protecting the liberty of their millions

of constituents. Amici have taken a strong interest in

the implementing regulations of the Patient Protec-

tion and Affordable Care Act (“ACA”) in general and

the regulation at issue in this case in particular. Two

amici were members of the Senate Republican caucus

that originally united against the passage of the ACA.

Another amicus, the Ranking Member of the Senate

Judiciary Subcommittee on the Constitution, Civil

Rights and Human Rights, released a report that out-

lines the current Presidential Administration’s re-

peated attempts to ignore the ACA’s statutory text, in-

cluding by adopting the interpretation at issue in this

case. UNITED STATES SENATOR TED CRUZ, THE LEGAL

LIMIT: THE OBAMA ADMINISTRATION'S ATTEMPTS TO

EXPAND FEDERAL POWER—REPORT NO. 2 (Dec. 9,

2013), http://goo.gl/BX5oer (all websites last visited

Dec. 29, 2014). Two amici are the Chairmen of the

House Ways and Means and the House Oversight and

Government Reform Committees, which produced a

joint report documenting the results of a year-long in-

vestigation that revealed that the Internal Revenue

Service (“IRS”) failed seriously to grapple with the

plain meaning of section 36B before issuing its regu-

lation. STAFF OF H. COMM. ON OVERSIGHT & GOv’T RE-

FORM AND H. COMM. ON WAYS & MEANS, 113TH CONG.,

ADMINISTRATION CONDUCTED INADEQUATE REVIEW OF

KEY ISSUES PRIOR TO EXPANDING HEALTH LAW’S TAXES

3

AND SUBSIDIES (Feb. 5, 2014), http://goo.gl/5thZ4J

(“JOINT REPORT’).

SUMMARY OF ARGUMENT

The plain text of the ACA reflects a specific

choice by Congress to make health insurance pre-

mium subsidies available only to those who purchase

insurance from “an Exchange established by the

State.” 26 U.S.C. § 36B(c)(2)(A)G). The IRS flouted

this unambiguous statutory limitation, promulgating

regulations that make subsidies available for insur-

ance purchased not only through exchanges estab-

lished by the States but also through exchanges estab-

lished by the federal government. And the court below

upheld this ultra vires action, straining to find ambi-

guity in a perfectly clear statutory text so that it could

defer to the IRS’s resolution of this purported ambigu-

ity. This was error. As a panel of the Court of Appeals

for the D.C. Circuit rightly concluded, “the ACA un-

ambiguously restricts the section 36B subsidy to in-

surance purchased on Exchanges ‘established by the

State’. .” Halbig v. Burwell, 758 F.3d 390, 394 (D.C.

Cir.), judgment vacated and en banc reh’g granted,

2014 WL 4627181 (D.C. Cir. Sept. 4, 2014). (in grant-

ing en banc review, the D.C. Circuit vacated the

panel’s judgment, not its opinion, and that opinion at

a minimum retains its persuasive value. See, e.g., Los

Angeles Cnty. v. Davis, 440 U.S. 625, 646 n.10 (1979)

(Stewart, J., dissenting); Action Alliance of Senior Cit-

izens of Greater Phila. v. Sullivan, 930 F.2d 77, 83—84

(D.C. Cir. 1991)). Because Congress “has directly spo-

ken to the precise question at issue,” that must be “the

end of the matter.” Chevron, USA, Inc. v. NRDC, 467

U.S. 837, 842 (1984).

4

Deference to the IRS’s erroneous interpretation

of the ACA is particularly unwarranted in this case for

two reasons of special concern to amici. First, the ex-

ecutive branch's decision to rewrite the ACA and ex-

tend premium subsidies beyond State exchanges im-

properly encroaches upon Congress’s lawmaking func-

tion. The statutory text at issue here was the result of

extensive negotiations in the Senate, and the execu-

tive should not be able to accomplish through an ag-

gressive interpretation of the ACA’s purpose what it

could not accomplish in the halls of Congress. Indeed,

the unusual procedural path the ACA traversed on its

way to enactment makes especially inappropriate the

Fourth Circuit’s attempt to “interpret the statute as a

symmetrical and coherent regulatory scheme.” King v.

Burwell, 759 F.3d 358, 369 (4th Cir. 2014) (quoting

FDA v. Brown & Williamson Tobacco Corp., 529 U.S.

120, 132—33 (2000)). Second, the IRS’s erroneous in-

terpretation has immediate, immense, and ongoing

implications for the public purse. If the IRS’s regula-

tion is permitted to stand, projections indicate that it

will result in tens of billions of dollars in unlawful

spending over the next year, and hundreds of billions

over the next decade. Policy choices that affect the

public fisc on this scale are for Congress to make, not

IRS bureaucrats.

Finally, even if the IRS’s regulation extending

premium subsidies to insurance policies purchased on

federal exchanges could pass muster under Chevron,

it still amounts to unlawful agency action that must

be vacated, because the IRS arrived at that regulation

after a procedurally unreasonable process of deci-

sionmaking.

5)

ARGUMENT

I. Congress Has Not Granted the IRS Any

Authority To Extend Premium Subsidies

to Health Plans Offered Through an Ex-

change Established by the Federal Gov-

ernment.

a. The Plain Text of the ACA Demon-

strates that Premium Subsidies Are

Available Only Through an Ex-

change Established by a State.

Because our Constitution grants “all legislative

powers” to Congress, the executive and judicial

branches are bound to “give effect to the unambigu-

ously expressed intent of Congress.” Chevron, USA,

Inc. v. NRDC, 467 U.S. 837, 843 (1984). Thus, when

reviewing an executive agency's construction and im-

plementation of a statute, a court must always begin

by asking “whether Congress has directly spoken to

the precise question at issue.” /d. at 842. And if Con-

gress has directly spoken to the question, that is also

where the analysis must end, for both the courts and

the agency must yield to Congress’s clear directives.

See id. at 842-43,

The precise question at issue here is whether

individuals who purchase health insurance on an ex-

change established by the federal government may be

eligible for tax credits to offset the cost of their premi-

ums. Congress has directly spoken to this question in

the ACA, and the plain text of the statute unambigu-

ously demonstrates that the answer is no.

The ACA provides that an exchange operating

in any particular State may be established either by

the State itself or by the federal government. As an

6

initial matter, section 1311 of the ACA provides that

“{eJach State shall, not later than January 1, 2014, es-

tablish an . Exchange. for the State .. .” 42

U.S.C. § 18031(b)(1). Because Congress does not have

the authority to compel a State to establish an ex-

change, this provision is precatory, not mandatory. In

the event a State does not accept Congress’s invitation

to establish an exchange, section 1321 of the ACA di-

rects the Secretary of Health and Human Services

(“HHS”) to “establish and operate such Exchange

within the State.” Jd. § 18041(c)(1) (emphasis added).

While the ACA expressly provides that ex-

changes may be established by a State or by the fed-

eral government, it also expressly provides that pre-

mium subsidies are available only through an ex-

change established by a State. As relevant here, eligi-

bility for such subsidies is limited to individuals “cov-

ered by a qualified health plan . . . that was enrolled

in through an Exchange established by the State under

section 1311 . ” 26 U.S.C. § 36B(c)(2)(A)Q) (empha-

sis added).

The plain text of the ACA thus demonstrates (a)

that an exchange may be established either by a State

or by the federal government, and (b) that premium

subsidies are available only for plans enrolled in

through an exchange established by a State. The IRS's

attempt to extend this subsidy to insurance purchased

on an exchange established by the federal government

is ultra vires and must be vacated.

While the Fourth Circuit acknowledged that “a

literal reading of the statute undoubtedly accords

more closely” with the understanding that subsidies

are limited to insurance purchased on state-estab-

7

lished exchanges, King, 759 F.3d at 369, it neverthe-

less strained to find an ambiguity in the statute’s

plain text in order to uphold the challenged IRS regu-

lation. According to the Fourth Circuit, section 1321

may be read as directing the federal government to es-

tablish an exchange “on behalf of the state” when the

State elects not to establish an exchange itself. Id.

(emphasis added). ;

But contrary to the Fourth Circuit’s assertion,

the ACA cannot reasonably be read as providing that

“the federal government acts on behalf of the state

when it establishes its own Exchange.” Jd. The notion

that a State’s refusal to establish an exchange demon-

strates that the State intended to appoint the federal

government to act as its agent to establish an ex-

change on the State’s behalf is difficult to take seri-

ously. Cf. Hollingsworth v. Perry, 133 S. Ct. 2652,

2666—67 (2013). To the contrary, a State that declines

to establish an exchange is perforce electing not to

play any part in the implementation and operation of

an exchange, either directly or through the agency of

the federal government. The federal government, of

course, remains free to establish its own exchange to

serve such a State’s citizens. But surely the federal

government cannot appoint itself to serve as an un-

willing State’s agent to establish an exchange on be-

half of the State. Cf. Printz v. United States, 521 U.S.

898, 935 (1997) (holding that “Congress cannot compel

the States to enact or enforce a federal regulatory pro-

gram” or “circumvent that prohibition by conscripting

the State’s officers directly”).

Furthermore, nothing in the ACA supports the

notion that Congress meant to create the legal fiction

that the federal government acts on behalf of a State

when it establishes an exchange. Indeed, Congress

8

elsewhere expressly provided that a United States ter-

ritory that establishes an exchange “shall be treated

as a State” for certain purposes. 42 U.S.C.

§ 18043(a)(1). Congress could have used similar lan-

guage if it intended an exchange established by the

federal government to be treated as an exchange es-

tablished by a State, but it did not.

Nor do the statutory provisions cited by the

Fourth Circuit indicate that Congress deemed the fed-

eral government to be acting on the State’s behalf

when establishing an exchange. The ACA, to be sure,

defines the term “Exchange” to mean “an American

Health Benefit Exchange established under section

[1311},” 42 U.S.C. § 300gg-91(d)(21)—1.e., the section

inviting States to establish their own exchanges. And

section 1321 directs the federal government to “estab-

lish and operate such Exchange within the State” if

the State does not. Jd. § 18041(c)(1)(B)Gi)AD (empha-

sis added). But these provisions at most provide that

federal exchanges should be deemed “Exchanges es-

tablished under section 1311”; they in no way suggest

that federal exchanges are to be deemed to have been

established under section 1311 on behalf of the State.

See Halbig, 758 F.3d at 399-400.

The Fourth Circuit also erred in interpreting

section 1311(d)(1)’s directive that “[a]n Exchange

shall be a governmental agency or nonprofit entity

that is established by a State,” 42 U.S.C.

§ 18031(d)(1), as definitional, i.e., as “narrowing the

definition of ‘Exchange’ to encompass only state-cre-

ated Exchanges.” King, 759 F.3d at 369. Section

1311(d)(1) is operational, not definitional. As Halbig

correctly reasoned, it and “[t]he other provisions of

section 1311(d) are operational requirements, setting

forth what Exchanges must (or, in some cases, may)

9

do. Read in keeping with that theme, (d)(1) would

simply require that an Exchange operate as either a

governmental agency or nonprofit entity.” Halbig, 758

F.3d at 400 (footnote and citation omitted). Further-

more, Congress elsewhere expressly defined the term

“Exchange,” see 42 U.S.C. § 300gg-91(d)(21), making

even less plausible the Fourth Circuit’s suggestion

that section 1311(d) is a second, implicit definition of

the term. See Halbig, 758 F.3d at 400-01. Finally, sec-

tion 1311(d)({1) is directed at the States, and it natu-

rally requires a State-established exchange to “be a

governmental agency or nonprofit entity that is estab-

lished by a State.” 42 U.S.C. § 18031(d)(1). Section

1321, by contrast, is directed at the federal govern-

ment, and it requires the federal government to estab-

lish and operate an exchange “directly or through

agreement with a_ not-for-profit entity,” id. §

18041(c)(1); it says nothing to suggest these activities

are to be deemed to be the actions of a State. In sum,

as Halbig concluded, “[t]he premise that (d)(1) is defi-

nitional .. does not survive examination of (d)(1)’s

context and the ACA’s structure.” 758 F.3d at 400.

Accordingly, the text of section 36B is perfectly

clear, and the Fourth Circuit erred by concluding oth-

erwise. Moreover, by straining to disregard the clear

limits that Congress imposed when it enacted section

36B, the court below failed to pay heed to Congress's

constitutionally-prescribed legislative supremacy.

10

b. The IRS’s Expansive Interpretation

of the ACA’s Subsidy Provision Vio-

lates the Separation of Powers by

Unraveling the Specific Compro-

mises Crafted by Congress in Favor

of an Interpretation Foreclosed by

the Statutory Text.

B; The Constitution vests Congress with

the authority to make laws, and it imposes upon the

President the duty to “take Care that the Laws be

faithfully executed.” U.S. ConsT. art. II, § 3. This divi-

sion of authority is not “merely an end unto itself.”

Bond v. United States, 134 S. Ct. 2077, 2091 (2014).

Rather, “the constitutional structure of our Govern-

ment is designed first and foremost not to look after

the interests of the respective branches, but to protect

individual liberty.” NLRB v. Noel Canning, 134 S. Ct.

2550, 2593 (2014) (Scalia, J., concurring in judgment)

(brackets and quotation marks omitted). In fact, “[s]o

convinced were the Framers that liberty of the person

inheres in structure that at first they did not consider

a Bill of Rights necessary.” Clinton v. City of New

York, 524 U.S. 417, 450 (1998) (Kennedy, J., concur-

ring). As relevant here, “the Constitution diffuses

power the better to secure liberty.” Youngstown Sheet

& Tube Co. v. Sawyer, 343 U.S. 579, 635 (1952) (Jack-

son, J., concurring). This diffusion of power reflects

the founding generation’s belief “that checks and bal-

ances were the foundation of a structure of govern-

ment that would protect liberty.” Bowsher v. Synar,

478 U.S. 714, 722 (1986).

Adhering to the Constitution’s allocation of

powers takes on special importance in a case, such as

this one, that involves issues subject to deep and abid-

11

ing policy disagreement. Recognizing that a free citi-

zenry would often find themselves in reasonable disa-

greement over “difficult question[s} of public policy,”

our Constitution invites them “to engage in a rational,

civic discourse in order to determine how best to form

a consensus to shape the destiny of the Nation and its

people.” Schuette v. Coalition To Defend Affirmative

Action, Integration & Immigrant Rights & Fight for

Equality by Any Means Necessary (BAMN), 134 S. Ct.

1623, 1637 (2014). But the Constitution is equally

clear that when federal legislation is at issue, the com-

promises on these difficult policy questions are to be

hammered out by the People’s representatives in the

halls of Congress—not by unaccountable officials in

agency corridors. Under our constitutional system, af-

ter all, it is “the exclusive province of the Congress not

only to formulate legislative policies and mandate pro-

grams and projects, but also to establish their relative

priority for the Nation.” TVA v. Hill, 437 U.S. 153, 194

(1978).

The IRS’s decision to extend premium subsidies

to health plans available on exchanges established by

the federal government flouts these settled limits; it

rewrites the law and encroaches on Congress's consti-

tutional authority. Again, the ACA by its terms re-

stricts premium subsidies to individuals “covered by a

qualified health plan that was enrolled in through

an Exchange established by the State ” 26 U.S.C.

§ 36B(c)(2)(A)(i). The IRS’s regulation, by contrast,

makes subsidies available “regardless of whether the

Exchange is established and operated by a State .

or by HHS.” 45 C.F.R. § 155.20; 26 C.F.R. § 1.36B-1(k).

The executive branch, in other words, effectively has

struck the words “established by the State” from sec-

tion 36B, thus amending it to read that subsidies are

12

available to individuals “covered by a qualified health

plan... that was enrolled in through an Exchange es-

tablshed-bytheState. .” But as this Court has em-

phasized, “[t]here is no provision in the Constitution

that authorizes the President ....to amend. _ stat-

utes.” Clinton, 524 U.S. at 438; see also Utility Air

Regulatory Grp. v. EPA, 134 S. Ct. 2427, 2446 (2014)

(“The power of executing the laws. . does not include

a power to revise clear statutory terms that turn out

not to work in practice.”).

4 The IRS’s decision to strike out the ex-

press limitations Congress placed in section 36B is all

the more troubling in light of the evidence that the

very provision the IRS has sought to rewrite was the

product of a deliberate compromise that was crucial to

the passage of any health care reform legislation. The

relative roles that would be played under the Act by

the States and the federal government were highly

controversial and hotly contested. The ACA’s support-

ers did not have the votes to establish a single-payer

system or even to take what many feared to be a sig-

nificant first step towards such a system: the estab-

lishment of a national exchange providing federal sub-

sidies to low-income participants.

For example, supporters of healthcare legisla-

tion needed 60 votes in the Senate to overcome a fili-

buster, and because there was not a single vote to

spare, compromise within the Democratic caucus was

necessary to ensure passage of any bill. Senator Ben

Nelson, essential to the 60-vote majority, made clear

his objection to a federal exchange, describing it as a

“dealbreaker” because it would “start us down the

road of. .asingle-payer plan.” Carrie Budoff Brown,

Nelson: National Exchange a Dealbreaker, POLITICO

(Jan. 25, 2010, 7:59 PM), http://goo.gl/BloeHy. Senator

13

Nelson was ultimately able to leverage his opposition

to “scrub| ] dozens of . . . things out of it that federal-

ized the bill.” Interview with United States Senator

Ben Nelson by LifeSiteNews.com (Jan. 26, 2010), see

http://goo.gl/2fD Y1J. Like much of the ACA’s drafting,

those changes were made behind closed doors, and it

is not known which amendments were inserted for

what reason. What is known is that the statutory lan-

guage that emerged was the product of lengthy nego-

tiations.

What is more, statements by Professor Jona-

than Gruber support the inference drawn from the

statute’s plain text that Congress limited the availa-

bility of subsidies to encourage the States to establish

their own exchanges. According to press reports, “Mr.

Gruber helped the administration put together the

basic principles of the [health care] proposal,” and the

White House thereafter “lent him to Capito] Hill to

help Congressional staff members draft the specifics

of the legislation.” Catherine Rampell, Academic Buil’

Case for Mandate in Health Care Law, N.Y. TIMES,

Mar. 29, 2012, http://goo.gl/zht5UU. A book written by

Professor Gruber confirms that he “consulted exten-

sively with the Obama administration and Congress

during the development of the Affordable Care Act.”

JONATHAN GRUBER, HEALTH CARE REFORM: WHAT IT

Is, WHY IT’S NECESSARY, How IT WorKS, A Note About

the Author (2011).

Speaking in January 2012, Professor Gruber

emphasized:

[{I]f you’re a state and you don’t set up an Ex-

change, that means your citizens don't get their

tax credits. But your citizens still pay the taxes

14

that support this bill. So you're essentially say-

ing to your citizens, you’re going to pay all the

taxes to help all the other states in the country.

I hope that that’s a blatant enough political re-

ality that states will get their act together and

realize there are billions of dollars at stake here

in setting up these Exchanges, and that they'll

do it.

Video: Jonathan Gruber at Noblis, at 32:00 (Jan. 18,

2012), YOUTUBE.COM, http://goo.g/QRFnL4 (empha-

ses added) (hereinafter “Gruber at Noblis”).

During another speech in January 2012, Pro-

fessor Gruber, in discussing threats to the ACA, ex-

pressly tied this feature of the Act to political compro-

mise regarding the role of the States:

Through a political compromise, the decision

was made that states should play a critical role

in running these health insurance exchanges.

I guess I’m enough of a believer in democ-

racy to think that when the voters in states see

that by not setting up an exchange the politi-

cians of a state are costing state residents hun-

dreds and millions and billions of dollars, that

they'll eventually throw the guys out. But I

don’t know that for sure. And that is really the

ultimate threat, is, will . people understand

that, gee, if your governor doesn't set up an ex-

change, you're losing hundreds of millions of

dollars of tax credits to be delivered to your citi-

zens.

Audio: Jonathan Gruber at Jewish Community Cen-

ter of San Francisco, at 32:55 (Jan. 10, 2012),

JCCSF.orG, http://goo.gl/Vebg4v (emphases added).

15

In recent testimony before the House Commit-

tee on Oversight and Government Reform, Professor

Gruber has attempted to disavow these earlier state-

ments about “the availability of tax credits in states

that did not set up their own health insurance ex-

changes,” suggesting that “[t]he point I believe I was

making was about the possibility that the federal gov-

ernment, for whatever reason, might not create a fed-

eral exchange,” in which event “the only way that

states could guarantee that their citizens would re-

ceive tax credits would be to set up their own ex-

changes.” Jonathan Gruber, Written Testimony Be-

fore the H. Comm. on Oversight & Government Re-

form 2 (Dec. 9, 2014), available at http://goo.gl/ei0 Pax.

But this post-hoc and self-serving attempt to rechar-

acterize his interpretation of the ACA rings hollow,

since the ACA by law requires the federal government

to establish an exchange in those States that fail to set

up their own. 42 U.S.C. § 18041(c)(1). Indeed, only sec-

onds before describing, in his January 18 remarks,

how the failure of a State to “set up an Exchange

means your citizens don’t get their tax credits,” Pro-

fessor Gruber expressly acknowledged that “in the law

it says that if the states don’t provide [health insur-

ance exchanges], the federal backstop will.” Gruber at

Noblis, at 31:48, http://goo.g/hAVNCKk.

3. The history of the ACA’s drafting and en-

actment is a “story of legislative battle among interest

groups, Congress, and the President. . Its delicate

crafting reflected a compromise amidst highly inter-

ested parties attempting to pull the provisions in dif-

ferent directions. As such, a change in any individual

provision could have unraveled the whole.” Barnhart

v. Sigmon Coal Co., 534 U.S. 438, 461 (2002) (citation

omitted). In circumstances like these, this Court has

16

long reminded those on both sides of a controversial

issue that “[d]issatisfaction . is often the cost of leg-

islative compromise,” and that to ignore a provision’s

unambiguous meaning could undo a negotiated politi-

cal compromise that was critical to passage. /d.; see

also Artuz v. Bennett, 531 U.S. 4, 10 (2000) (“We hold

as we do because respondent’s view seems to us the

only permissible interpretation of the text—which

may, for all we know, have slighted policy concerns on

one or the other side of the issue as part of the legisla-

tive compromise that enabled the law to be enacted.”);

John F. Manning, The Absurdity Doctrine, 116 HARV.

L. REV. 2387, 2417 (2003) (“The reality is that a stat-

utory turn of phrase, however awkward its results,

may well reflect an unrecorded compromise or the

need to craft language broadly or narrowly to clear the

varied veto gates encountered along the way to enact-

ment.”).

The IRS, and those who would support its in-

terpretation of section 36B, advance two broad types

of justifications for disregarding the clear terms of

that section, both of which fail to respect “the legisla-

tive compromise that enabled the law to be enacted.”

Artuz, 531 U.S. at 10. First, the Government in its

brief before the Fourth Circuit emphasized that “[t]he

purpose of the Affordable Care Act is to increase the

number of Americans covered by health insurance and

decrease the cost of health care,” and that interpreting

section 36B according to its plain text “runs counter to

this central purpose of the ACA.” Appellee’s Br. at 31,

35, King, No. 14-1158 (4th Cir. 2014), Doc. 33 (“Gov't

CA4 Br.”) (citations and quotation marks omitted).

But, of course, “no legislation pursues its purposes at

all costs.” Rodriguez v. United States, 480 U.S. 522,

17

525-526 (1987) (per curiam). Any “anxiety to effectu-

ate the congressional! purpose” behind enacting a stat-

ute “must take care not to extend the scope of the stat-

ute beyond the point where Congress indicated it

would stop.” Brown & Williamson, 529 U.S. at 161.

Here, Congress plainly indicated that the availability

of premium subsidies would stop at State exchanges

and not extend to exchanges established by the federal

government. The executive branch, and the courts, are

required to honor that choice.

Recognizing that this Court does not “simplisti-

cally . assume that whatever furthers the statute’s

primary objective must be the law,” Rodriguez, 480

U.S. at 526, the Government attempts to dress up this

discredited form of statutory interpretation in more

fashionable garb. Beyond advancing the “central pur-

pose of the ACA,” its interpretation of section 36B is

justified, the Government says, by the principle that

“statutory construction is a holistic endeavor” that

“look[{s] to the provisions of the whole law, and to its

object and policy.” Gov't CA4 Br. at 13 (citations omit-

ted). The Government thus seeks to take a respected

canon of interpretation—“that the words of a statute

must be read in their context,” Brown & Williamson,

529 U.S. at 132—and convert it into a license to un-

settle the meaning of a clear statutory text that

speaks directly to the question at issue by roving

through the ACA’s myriad provisions, looking for

snippets of text that might somehow be seen as

vaguely on point. But this dramatically misunder-

stands the role of context in statutory interpretation.

While this Court has rightly emphasized the

importance of interpreting the words of a statute in

context, it has also insisted that where there is a pro-

vision specifically addressing the interpretive point in

18

question, that provision’s clear terms prevail over

“general [language] in the same or another statute

which otherwise might be controlling.” D. Ginsberg &

Sons v. Popkin, 285 U.S. 204, 208 (1932); see also

RadLAX Gateway Hotel, LLC v. Amalgamated Bank,

132 S. Ct. 2065, 2071—72 (2012) (“Here, clause (ii) is a

detailed provision that spells out the requirements for

selling collateral free of liens, while clause (iii) is a

broadly worded provision that says nothing about

such a sale. The general/specific canon explains that

the general language of clause (iii), although broad

enough to include it, will not be held to apply to a mat-

ter specifically dealt with in clause (ii).” (quotation

marks omitted)); Morales v. Trans World Airlines,

Inc., 504 U.S. 374, 384 (1992) (“[I]t is a commonplace

of statutory construction that the specific governs the

general. . .”). The IRS’s “holistic” interpretation

would forsake the clear meaning of the only provision

that directly answers the question whether subsidies

are available for insurance purchased on federally es-

tablished exchanges—section 36B—in favor of a flatly

contrary answer that is built on nothing more solid

than inferences from a grab-bag of other, tangentially

related provisions of the ACA—provisions that do not

in fact conflict with a proper interpretation of section

36B. See Halbig, 758 F.3d at 402—06. Section 36B, to

be sure, must be read in context; but in the IRS's

hands, it has become buried in it.

Straining, as both the Government and the

court below do, to read section 36B in a way that is

“harmonious” with the rest of the ACA is especially

inappropriate given the particular way in which this

legislation was enacted. The House passed its version

of the healthcare legislation on November 7, 2009, and

the Senate followed suit with its own very different

19

bill on December 24. At the time, the Senate version

was thought to be little more than a placeholder—one

chamber’s opening bid in bicameral negotiations that

were expected to shape the law’s fina] content. But af-

ter supporters of the healthcare legislation unexpect-

edly lost their filibuster-proof Senate majority, they

decided to-change course and enact the Senate’s bill

into law as is, making only limited revisions that were

possible through the budget reconciliation process by

majority vote in the Senate. With the Act’s supporters

having thus enacted into law what amounted to a pre-

liminary draft that they could not readily amend, it is

hardly surprising that the Act’s text does not entirely

cohere as a unified and carefully calibrated whole. To

name only two of the most jarring examples, the Act

contains three section 1563’s and amends section 2721

of the Public Health Service Act twice to say two dif-

ferent things. See ACA § 1563 (expressing “the sense

of the Senate”); id. § 10107 (redesignating ACA § 1562

as § 1563 and creating a third § 1563); id. §

1562(a)(2)(A), (c)(12). Such mistakes evidence a bill

stitched together from disparate sources that had not

yet been reconciled and that could never be reconciled

once further amendments became politically infeasi-

ble. In light of the ACA’s unique procedural history

and patent inconsistencies, it would be a fool’s errand

to attempt to harmonize the Act’s 2400 pages of text.

4. By ignoring the clear, specific policy

choices made by Congress, the IRS’s forced interpre-

tation of the ACA dishonors the legislative branch’s

constitutionally assigned role; and by signaling that

the precise terms of the legislative bargains struck by

Congress may not be faithfully carried out by agencies

or by courts, the IRS’s freewheeling “holistic” method

20

of interpretation makes future compromises less val-

uable, and future comprehensive legislation that

much less likely.

“{Djeference to the supremacy of the Legisla-

ture, as well as recognition that Congressmen typi-

cally vote on the language of a bill, generally requires

[the assumption] that the legislative purpose is ex-

pressed by the ordinary meaning of the words used.”

United States v. Locke, 471 U.S. 84, 95 (1985) (quota-

tion marks omitted). Because a bill as massive and

controversial as the ACA reflects many competing pol-

icy considerations and legislative compromises, it is

particularly important to hew closely to the statutory

text of such a law rather than trying to force it to fit

any single overarching policy goal. The IRS’s interpre-

tation of section 36B ignores all of this. More funda-

mentally, the Administration’s attempt to upset the

legislative compromise embodied in the unambiguous

text of the ACA would effectively strike a new and dif-

ferent compromise, one the Congress demonstrably

could not and did not pass itself. To cast aside the com-

promise that resulted in the unambiguous language of

section 36B in the name of the Act’s purported pur-

poses would effectively amend the Act by handing its

most enthusiastic supporters a victory that they were

unable to achieve through the political process. But

“{djeciding what competing values will or will not be

sacrificed to the achievement of a particular objective

is the very essence of legislative choice,” Rodriguez,

480 U.S. at 526, and it is to Congress, not the IRS, that

the Constitution grants legislative power. Cf. Utility

Air Regulatory Grp., 134 S. Ct. at 2444 (“An agency

has no power to ‘tailor’ legislation to bureaucratic pol-

icy goals by rewriting unambiguous statutory

terms.”).

21

Moreover, the IRS’s revisionary interpretation

threatens to make future legislation on controversial]

issues more difficult. The most ardent supporters of a

piece of legislation as sweeping and controversial as

the ACA are rarely sufficiently numerous to pass the

legislation on their own. To attract enough votes to

achieve passage, they frequently have to compromise

over the scope of “key term[s] in an important piece of

legislation,” “choosing a middle ground” that has the

support of enough votes to clear the necessary proce-

dural hurdles. Ragsdale v. Wolverine World Wide,

Inc., 535 U.S. 81, 93-94 (2002). But these compro-

mises—the ones that enable divisive legislation like

the ACA to be passed at all—are possible only because

the legislators on the fence have some degree of confi-

dence that the terms of the bargain they strike will be

honored, by the courts if not the executive branch. By

disrespecting the precise terms of a legislative com-

promise based on notions of expansive congressional

purpose or vague inferences from distantiy related,

surrounding provisions, a result-driven interpretation

like the one pressed by the Government and adopted

by the court below makes these types of political bar-

gains less reliable to the pivotal legislators, and major

legislation concomitantly more difficult to enact. See

Daniel B. Rodriguez & Barry R. Weingast, The Para-

dox of Expansionist Statutory Interpretations, 101 Nw.

U. L. REv. 1207, 1255 (2007) (concluding that when

courts “set aside finely crafted legislative compro-

mises in favor of expansionary readings,” this “has a

feedback effect on the legislature by making new leg-

islation less likely”). In an era when Congress is often

criticized for its inability to forge consensus and enact

major legislation, the judiciary should take special

22

care not to upset the legislative compromises that en-

abled the passage of laws that come before it.

c. The ACA Should Not Be Interpreted

To Delegate to the Executive a Deci-

sion with Such Broad-Ranging Con-

sequences in So Cryptic a Fashion.

1. Because the plain text of section 36B

clearly forecloses the IRS’s regulation—and because

the IRS's and the Fourth Circuit’s attempts to justify

their disregard for the plain meaning of the text fail—

Congress has “directly spoken to the precise question

at issue,” and this Court “must give effect to the un-

ambiguously expressed intent of Congress.” Chevron,

467 U.S. at 842-43. Though the Fourth Circuit con-

cluded otherwise, it did so only to find the text of the

statute ambiguous, conceding that “[i]f Congress did

in fact intend to make the tax credits available to con-

sumers on both state and federal Exchanges, it would

have been easy to write in broader language, as it did

in other places in the statute.” King, 759 F.3d at 368.

But even granting that the text of section 36B is am-

biguous—which it is not—the IRS’s interpretation

still cannot stand. That is so because “the Judiciary

defers to the Executive on what the law is” only if “the

Legislative Branch has in fact delegated lawmaking

power to an agency within the Executive Branch,” City

of Arlington v. FCC, 133 S. Ct. 1863, 1886 (2013) (Rob-

erts, C.J., dissenting), and “[t]he importance of the is-

sue” presented by this case to Congress’s legislative

authority over the Nation’s finances “makes the

oblique form of the claimed delegation all the more

suspect.” Gonzales v. Oregon, 546 U.S. 243, 267

(2006).

23

“Deference under Chevron to an agency’s con-

struction of a statute that it administers 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). Here, the

IRS's purported exercise of gap-filling authority opens

the door to hundreds of billions of dollars of additional

government spending. But this Court “expect[s] Con-

gress to speak clearly if it wishes to assign to an

agency decisions of vast economic and political signif-

icance.” Utility Air Regulatory Grp., 134 S. Ct. at 2444

(quotation marks omitted). And this expectation that

Congress speak clearly should be heightened when, as

here, the agency does not have any particular exper-

tise in the subject-matter in question, because “prac-

tical agency expertise is one of the principal justifica-

tions behind Chevron deference.” Pension Benefit

Guar. Corp. v. LTV Corp., 496 U.S. 633, 651-52

(1990). In sum, “Congress could not have intended to

delegate a decision of such economic and political sig-

nificance” as the one at issue in this case “to an agency

in so cryptic a fashion.” Brown & Williamson, 529 U.S.

at 160.

:. The Constitution assigns Congress to be

“the custodian of the national purse.” United States v.

Standard Oil Co., 332 U.S. 301, 314 (1947). The Con-

stitution thus establishes that “no money can be ex-

pended, but for an object, to an extent, and out of a

fund, which the laws have prescribed.” 7 THE WORKS

OF ALEXANDER HAMILTON 532 (John C. Hamilton ed.,

1851) (emphases omitted). See U.S. CONST. art. I, § 9,

cl. 7. Like the separation of powers generally, this

structural provision of the Constitution is intended to

secure liberty.

24

{{jt is highly proper, that congress should pos-

sess the power to decide, how and when any

money should be applied for [the engagements

of the government]. If it were otherwise, the ex-

ecutive would possess an unbounded power

over the public purse of the nation; and might

apply all its monied resources at his pleasure.

3 JOSEPH STORY, COMMENTARIES ON THE CONSTITU-

TION OF THE UNITED STATES § 1342 (1st ed. 1833). The

Constitution thus seeks “to assure that public funds

will be spent according to the letter of the difficult

judgments reached by Congress as to the common good

” OPM v. Richmond, 496 U.S. 414, 428 (1990) (em-

phases added).

In June of 2014, the Office of the Assistant Sec-

retary for Planning and Evaluation (““ASPE”) of HHS

released a report that provides some insight into the

magnitude of unlawful spending that is occurring as a

result of the IRS regulation at issue here. See AMY

BURKE ET AL., PREMIUM AFFORDABILITY, COMPETITION,

AND CHOICE IN THE HEALTH INSURANCE MARKETPLACE,

2014 (ASPE Research Brief) (June 18, 2014),

http://goo.gl/e9zgzh. HHS reported that more than 5.4

million people enrolled in health plans through ex-

changes established by the federal government during

the initial open enrollment period. Jd. at 3. Of the in-

dividuals who enrolled through a federal exchange,

87% selected a plan with premium tax credits, with an

average tax credit of $264 per month. Jd. at 5. These

figures indicate that the government is spending over

$1.2 billion unlawfully each and every month on pre-

mium subsidies. (5.4 million enrollees x .87 with cred-

its X $264 average credit per month = $1,240,272,000

per month.)

25

A more recent HHS report indicates that as of

October 2014 roughly 84 percent of those who enrolled

through both the federal and state marketplaces dur-

ing the first open enrollment period were “effectuated”

enrollees—i.e., “were enrolled and paying for health

coverage.” See ASPE, HOW MANY INDIVIDUALS MIGHT

HAVE MARKETPLACE COVERAGE AFTER THE 2015 OPEN

ENROLLMENT PERIOD? 1 & n.3 (Issue Brief) (Nov. 10,

2014), http://goo.gl/NqDgui. This report does not indi-

cate, however, what percentage of those who failed to

effectuate coverage enrolled through the federal mar-

ketplace, or how many of them were eligible for pre-

mium tax credits. Assuming that the rate of attrition

was the same across both categories, and that the av-

erage credit amount was not affected, the amount of

unlawful spending would still exceed $1 billion per

month (1,240,272,000 x .84 effectuation rate =

$1,041,828,480). And the number of individuals re-

ceiving subsidies is poised to increase—indeed, HHS

has reported that through the first four weeks of open

enrollment for 2015 over one million new consumers

have enrolled in plans through the federally operated

exchange. See Open Enrollment Week 4: December 6-

December 12, 2014, HHS.Gov (Dec. 16, 2014),

http://goo.g/W EKf4u.

In all events, the figures discussed above un-

derstate the fiscal effects of the IRS’s regulation, both

because the number of individuals enrolling in plans

through exchanges is expected to increase and be-

cause they do not include cost-sharing subsidies avail-

able to a subset of individuals receiving premium sub-

sidies. See 42 U.S.C. § 18071(f)(2). A Congressional

Budget Office (“CBO”) report helps to fill out the pic-

ture. See CBO, UPDATED ESTIMATES OF THE EFFECTS

26

OF THE INSURANCE COVERAGE PROVISIONS OF THE AF.-

FORDABLE CARE ACT, APRIL 2014, http://goo.gl/iEeXOb.

The CBO

anticipate[s] that coverage through the ex-

changes will increase substantially over time as

more people respond to subsidies and to penal-

ties for failure to obtain coverage. Coverage

through the exchanges is projected to increase

to an average of 13 million people in 2015, 24

million in 2016, and 25 million in each year be-

tween 2017 and 2024. Roughly three-quarters

of those enrollees are expected to receive ex-

change subsidies.

Id. at 6. The cost of these subsidies is expected to be

steep. In fiscal year 2015 alone (beginning October 1,

2014), the CBO projects outlays of $23 billion for pre-

mium subsidies and $7 billion for cost-sharing subsi-

dies, along with a $5 billion reduction in tax revenue

as a result of premium subsidies, for a total budgetary

effect of $35 billion. Jd. at 10 tbl.3. This number in-

creases to $74 billion in 2016, $93 billion in 2017, and

$101 billion in 2018. Jd. All told, outlays and reduc-

tions in revenue from premium tax credits and cost-

sharing subsidies are projected to amount to over

$1 trillion over the next 10 years. Id. These costs are

expected to be a major driver of the federal deficit.

Over the next 10 years, the CBO forecasts that “an-

nual outlays are projected to grow, on net, by $2.3 tril-

lion, reflecting an average annual increase of 5.2 per-

cent,” due in large part to “the aging of the population,

the expansion of federal subsidies for health insur-

ance, [and] rising health care costs per beneficiary,”

and resulting in “persistent and growing deficits.”

27

CBO, AN UPDATE TO THE BUDGET AND ECONOMIC OUT-

LOOK: 2014 TO 2024, at 2-3 (Aug. 2014),

http://goo.g /MEAKLZ.

The totals described in the previous paragraph

are for all exchanges, not just exchanges established

by the federal government. But if present circum-

stances persist, it can be expected that a majority of

these costs will be incurred for plans enrolled in

through federal exchanges. HHS’s figures indicate

that over two-thirds of individuals enrolling in health

plans through exchanges have done so through a fed-

eral exchange. See ASPE, HEALTH INSURANCE MAR.

KETPLACE: SUMMARY ENROLLMENT REPORT FOR THE IN.

ITIAL ANNUAL OPEN ENROLLMENT PERIOD 4 tbl.1 (Issue

Brief) (May 1, 2014), http://goo.gl/qgmr9Ph (noting ap-

proximately 5.4 million federal exchange enrollees out

of approximately 8 million total exchange enrollees).

In sum, the IRS’s decision to extend subsidies

to federal exchanges has serious implications for Con-

gress’s legislative authority and this Nation’s fi-

nances. Again, it is doubtful that “Congress [would]

have intended to delegate a decision of such economic

and political significance to an agency in so cryptic a

fashion.” Brown & Williamson, 529 U.S. at 160. As the

text of the ACA demonstrates, “Congress is more

likely to have focused upon, and answered, major

questions” such as the one at issue here, “while leav-

ing interstitial matters to answer themselves in the

course of the statute’s daily administration.” Jd. at 159

(quoting Stephen Breyer, Judicial Review of Ques-

tions of Law and Policy, 38 ADMIN. L. REV. 363, 370

(1986)).

3. Of course, it is not necessarily the case

that long-term federal spending will decrease if the

28

IRS’s regulation is vacated. States facing the loss of

billions of dollars for their citizens would face a very

different set of incentives than they do now, and it is

entirely possible that many will reconsider their deci-

sions not to establish their own exchanges. But even

if every State were to establish its own exchange, va-

catur of the IRS’s regulation would put a halt to the

massive amount of illegal spending that is occurring

now. And it would also mean that the States, rather

than the federal government, would take the lead in

establishing exchanges. That result would plainly be

in keeping with the ACA’s structure, which exhorts

States to establish their own exchanges and directs

the federal government to step in only if States fail to

do so.

Indeed, the very strong possibility that States

would establish their own exchanges in reaction to the

unavailability of subsidies for insurance purchased on

a federally established exchange cuts strongly against

the Government’s suggestion that interpreting section

36B according to its clear textual meaning “runs coun-

ter to [the] central purpose of the ACA.” Gov’t CA4 Br.

at 34. It also alleviates the fear expressed by several

amici below that following the clear meaning of sec-

tion 36B would result in millions of Americans losing

their insurance. See, e.g., Brief of Amicus Curiae

America’s Health Insurance Plans 24—34, King v. Bur-

well, 759 F.3d 358 (4th Cir. 2014) (No. 14-1158); Brief

of Amicus Curiae The American Hospital Association

10-13, King v. Burwell, 759 F.3d 358 (4th Cir. 2014)

(No. 14-1158). It is luighly unlikely that all of the af-

fected States would fail to respond to the new political

dynamics that would be created by the vacatur of the

IRS's ultra vires interpretation of section 36B. And,

ultimately, the decision will be made by the people of

29

the States themselves through the selection and re-

tention (or not) of their elected representatives.

Moreover, the IRS’s interpretation of the ACA

is especially specious since it is the very IRS regulation

at issue in this litigation that has created the illusion

that rejection of its interpretation “would effectively

destroy the statute.” King, 759 F.3d at 379 (Davis, J.,

concurring). The availability of subsidies for insur-

ance purchased on the federal exchange seems so crit-

ical to the proper functioning of the ACA only because

most States have declined to establish their own ex-

changes. But as the Fourth Circuit noted, “Congress

did not expect the states to. fail to create and run

their own Exchanges,” id. at 371, having in fact em-

bedded a set of incentives in the ACA designed to en-

courage each State to set up its own exchange or risk

a loss of subsidies to its citizens. It is the IRS’s flawed

interpretation of section 36B that, by shielding the

States from this consequence, has interfered with the

operation of the incentive structure Congress de-

signed. It cannot use the consequences of that flawed

interpretation to bootstrap its own very different solu-

tion, one that Congress specifically rejected. Cf

Kloekner v. Solis, 133 S. Ct. 596, 607 (2012) (holding

that where “[i]t is the Government's own misreading

that creates the need to ‘fix’ ” a statute, the proper

remedy is not to rewrite the statute but to “reject” the

Government’s erroneous interpretation).

But regardless of how the States may react toa

decision vacating the IRS’s regulation, it is emphati-

cally not the role of the IRS—or, needless to say, of

this Court—to “protect the people from the conse-

quences of their political choices.” National Fed’n of

Indep. Bus. v. Sebelius, 132 S. Ct. 2566, 2579 (2012).

There is, after all, “a basic difference between filling a

30

gap left by Congress’ silence and rewriting rules that

Congress has affirmatively and specifically enacted.”

Lamie v. United States Tr., 540 U.S. 526, 538 (2004).

Should the States that have declined to set up ex-

changes fail to respond to the threatened loss of sub-

sidies in the way Congress expected, “it is up to Con-

gress rather than the courts to fix it.” Exxon Mobil

Corp. v. Allapattah Servs., Inc., 545 U.S. 546, 565

(2005).

Il. The IRS’s Regulation Was Not the Product

of the Reasoned Decisionmaking Re-

quired of All Agency Action.

For the foregoing reasons, the IRS’s attempt to

extend premium subsidies through federal exchanges

fails to clear Chevron’s first step. Because the IRS

acted in direct contravention of Congress’s clear stat-

utory directives, its interpretation of section 36B is ul-

tra vires and must be vacated for that reason. But

even if the agency could clear this hurdle, its regula-

tion still fails because it was not “the product of rea-

soned decisionmaking.” Motor Vehicle Mfrs. Ass'n of

U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S.

29, 52 (1983).

The Administrative Procedure Act (“APA”) in-

structs courts to hold unlawful not only those agency

actions that are “in excess of statutory jurisdiction,

authority, or limitations,” 5 U.S.C. § 706(2)(C), but

also those that are “arbitrary, capricious, an abuse of

discretion, or otherwise not in accordance with law,”

id. § 706(2)(A). And it is black-letter administrative

law that administrative action is “arbitrary and capri-

cious” under the APA if an inquiry into “whether the

decision was based 4 a consideration of the relevant

factors” reveals that the challenged action was not

31

“the product of reasoned decisionmaking.” State

‘arm, 463 U.S. at 43, 52 (quotation marks omitted).

The Joint Report prepared by the House Com-

mittees on Ways and Means and Oversight and Gov-

ernment Reform indicates that the IRS’s regulation

was not the product of reasoned decisionmaking:

The Committees’ investigation, which focused

on the rulemaking process and not the merits

of IRS and Treasury’s interpretation, . con-

cluded that neither IRS nor Treasury en-

gaged in reasoned decision-making of this im-

portant issue prior to issuing the final rule that

extended [ACA’s] premium subsidies to federal]

exchanges.

JOINT REPORT 35.

The Joint Report found that “IRS failed to con-

duct a thorough or serious analysis of the issue prior

to the release of the proposed rule” in August 2011. Jd.

at 19 (emphasis omitted). Indeed, “[t]he only written

analysis explaining IRS’s decision to extend [ACA’s]

subsidies to individuals who purchase coverage in fed-

eral exchanges was [a] single memo produced by IRS's

Office of Chief Counsel with a single paragraph with

a single reason to support their interpretation.” /d.

(emphasis omitted). The failure to conduct a thorough

analysis was not the result of ignorance about the

problem. To the contrary, an early draft of the pro-

posed rule “included the language ‘Exchange estab-

lished by the State’ in the section entitled ‘Eligibility

for Premium Tax Credit.’” Jd. at 17 (emphasis added).

And interna] documents reviewed by the committees

indicate that “Treasury officials expressed concern

that there was no direct statutory authority to inter-

pret federal exchanges as an ‘Exchange established by

32

the State.’” Jd. at 18. IRS and Treasury nevertheless

proposed extending premium subsidies to federal ex-

changes.

Numerous commenters opposed the proposed

rule extending premium subsidies to federal ex-

changes as counter to the ACA’s plain text, but “the

Committees learned that neither IRS, nor Treas-

ury, took the issue seriously and that a thorough and

complete review of this important issue was not con-

ducted prior to the Administration’s final rule.” Jd. at

20.

[Njone of the seven IRS and Treasury employ-

ees interviewed by the Committees were aware

of any internal] discussion within IRS or Treas-

ury, prior to the issuance of the final rule, that

making tax credits conditional on state ex-

changes might be an incentive put in the law

for states to create their own exchanges.

Id. at 29 (emphasis omitted). And the employees also

“stated they did not consider the Senate’s preference

for state exchanges during the development of the

rule.” Id. at 32 (emphasis omitted).

In short, “[t]he evidence gathered by the Com-

mittees indicates that neither IRS nor the Treasury

Department conducted a serious or thorough analysis

of the [ACA] statute or the law’s legislative history

with respect to the government’s authority to provide

premium subsidies in exchanges established by the

federal government.” Jd. at 3.

33

CONCLUSION

For the foregoing reasons, the Fourth Circuit's

judgment should be reversed and the IRS rule should

be vacated.

Respectfully submitted,

MICHAEL E. ROSMAN CHARLES J. COOPER

CENTER FOR Counsel of Record

INDIVIDUAL RIGHTS DAVID H. THOMPSON

1233 20th Street, N.W. HOWARD C. NIELSON, JR.

Suite 300 PETER A. PATTERSON

Washington, D.C. JOHN D. OHLENDORF

20036 COOPER & KIRK, PLLC

1523 New Hampshire

CARRIE SEVERINO Avenue, N.W.

THE JUDICIAL Washington, D.C. 20036

EDUCATION PROJECT (202) 220-9600

722 12th Street, N.W. ccooper@cooperkirk.com

Fourth Floor

Washington, D.C.

20005

Counsel for Amici Curiae

December 29, 2014