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 ai.,

Respondents.

On Writ of Certiorari to the United States

Court of Appeals for the Fourth Circuit

BRIEF OF THE STATES OF OKLAHOMA, ALABAMA,

GEORGIA, NEBRASKA, SOUTH CAROLINA, AND WEST

VIRGINIA, AS AMICI CURIAE SUPPORTING PETITIONERS

E. Scott Pruitr

ATTORNEY GENERAL OF OKLAHOMA

Patrick R. Wyrick

SOLICITOR GENERAL OF OKLAHOMA

Counsel of Record

313 NE 21st Street

Oklahoma City, OK 73105

(405) 521-3921

Patrick.wyrick@oag.ok.gov

Counsel for Amici Curiae

December 29, 2014

(additional counsel listed on inside cover)

Becker Gallagher Cincinnati, OH - Washington, D.C. - 800.890.5001

i

TABLE OF CONTENTS

TABLE OF AUTHORITIES

INTEREST OF AMICI CURIAE

SUMMARY OF THE ARGUMENT

ARGUMENT

I.

Il.

III.

IV

Congress’s conditioning the availability of the

ACA’s tax credits is consistent with

Congress’s long-running practice of

conditioning federal dollars on State

implementation of federal programs.

In making their Exchange-establishing

decisions, the States were well aware that

the plain text of Section 36B conditioned the

availability of tax credits on States

establishing exchanges.

If the IRS Rule is upheld, the States will be

harmed by having an intrusion into a matter

of traditional state concern absent a clear

statement from Congress that it intended

that intrusion.

The IRS’s supposed “textual” justification for

its rule raises serious political accountability

concerns.

CONCLUSION

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15

16

19

21

ll

TABLE OF AUTHORITIES

CASES

Alden v. Maine,

527 U.S. 706(1999) .. ... ... on

Atascadero State Hosp. v. Scanlon,

473 U.S. 234 (1985) ae

Bond v. United States,

131 S.Ct. 2355 (2011) . Save . Ig

Gregory v. Ashcroft,

501 U.S. 452 (1991) ; : 4,17,18

Guardians Ass’n v. Civil Serv. Comm’n " New York,

463 U.S. 582 (1983) . a a

National Federation of Independent Business v.

Sebelius,

132 S.Ct. 2566 (2012) _.. 6, 19, 20

New York v. United States,

505 U.S. 144 (1992) 19, 20

Oklahoma, ex rel. E. Scott Pruitt v. Burwell et al.,

No. 14-586 (November 18, 2014) joe

Printz v. United States,

521 U.S. 898 (1997) 2.3, 19

Wilburn Boat Co. v. Fireman’s Fund Ins. Co.,

348 U.S. 310 (1958) ... ; 17

STATUTES AND LEGISLATIVE MATERIAL

20 U.S.C. § 6301 tans a 7,8

26 U.S.C. § 36B .... “as - 15

iii

42 U.S.C. §§ 651-669b

42 U.S.C. § 651 .

42 U.S.C. § 654

42 U.S.C. § 658a(b)(4)

42 U.S.C. § 658a(b)(5)(B)

Clean Air Act, 42 U.S.C. § 7401 et seq.

42 U.S.C. § 7410(a)(1) .....

42 U.S.C. § 7410(c)(1)

Employer Health Insurance Purchasing Group

OKLA. STAT. tit. 36, § 4521 (2011) .

Health Care and Education Reconciliation Ac

2010, Pub. L. No. 111-152, 124 Stat. 1029

Life, Accident and Health Insurance Broker

OKLA. STAT. tit. 36 ........

§ 1462 (2011)

§ 3642 (2011) .

McCarran-Ferguson Act of 1945, Pub. L. No. 79

59 Stat. 33 (codified at 15 U.S.C. § 1011) .

No Child Left Behind Act of 2001, Pub. L. No. 1]

110, 115 Stat. 1425

20 U.S.C. §6301.....

20 U.S.C. § 6301(5)

20 U.S.C. § 6311(a)-(b)

20 U.S.C. §6311(h) .

ie i m~ w

iv

20 U.S.C.$6842%aM1)... . Tora ce

20 U.S.C. § 6842(bX4)(A)-(B) ... .. . .. 2. 2 8

Occupational Safety and Health Act, Pub. L. 91-

596, 84 Stat. 1590 (1970) (codified as amended

at 29 U.S.C. §§ 651-678 et seg.). . .. . . 18

oR ee eee ee 13

SOUSBL.§GCNEHME) .. . 0s teens <i

ok ee | ee re ce mac. we

Oklahoma Life and Health Insurance Guarantee

Association Act, OKLA. STAT. tit. 36, . 2021

a ae er 17

Ce, ee. OE. BA, Bee on i ace et BD

OKLA. STAT. tit. 56, § 1009.2 , “9 . 18

eae: Gs Oe, WO PU 6 ee ce ee we

Patient Protection and Affordable Care Act, Pub. L.

No. 111-148, 124 Stat. 119, as amended by

the “Health Care and Education Reconciliation

Act of 2010,” Pub. L. No. 111-152, 124 Stat.

1029. a ew esate es arr

§ 36B : ee le ean ee passim

§ 1311 . 1,15

§1321 _—. ‘hese ee ee i ee eR ee

42 U.S.C. § 1396a(gg) . Se .. 15

ee es Or a eo hs a Ce ee

42 U.S.C. § 1397aa(b) ; : oi ew

42US.C.§18031 . . .. ae 1,15

42 U.S.C. § 18031(a) , 15

42 U.S.C. § 18031(b)(1) (ACA § 1311(b)(1)) .. 2

42 U.S.C. § 18041 ae -- - I

42US.C.§1804l({c) .. . , . 15

Personal Responsibility and Work Opportunity

Reconciliation Act of 1996, Pub. L. 104-193, 110

Stat. 2105 (1996) , 11

Supplemental Nutrition Assistance Program, 7

U.S.C. § 2013 : 11

Telecommunications Act of 1996 (codified

hs fd a er: +

47US.C.§252(eX1) « «wt. e - 2

47 U.S.C. § 252(e)(5) ie ees eae 12

The Children’s Health Insurance Program

Reauthorization Act of 2009, Pub. L. No. 111-3,

123 Stat. 8 (“CHIP”) 8,9, 10

42U.S.C.§1397aa(b) .. . ee -

42 U.S.C. § 1397bb : a

42 U.S.C. § 1397ee(aX(3) . ar 9

42 U.S.C. § 1397ffla)Q1) 9

The Wholesome Meat Act, Pub. L. No. 90-201, 81

Stat. 584 (1967) (codified as amended at 21

U.S.C. §§ 601-695). ; i a

21 U.S.C. § 661(a) ee NT ees

21US.C.§66l(c)(1) . .. . . ne 13

Title 36 of the Oklahoma Statutes .. . ee ee

OTHER AUTHORITIES

156 CONG. REC. H2201-01 (statement of Rep.

Burgess) . ace es . 6

156 CONG. REC. S1821-06 (statement of Sen.

SE, occa a ck. Mb U Heth E Bbhe ce KE Os 5

156 CONG. REC. $1821-06 statement of Sen.

Murkowski) ... . ee a . 5

165 CONG. REC. $1923-08 (statement of Sen.

ee oe ' 7 5,6

165 CONG. REC. S1923-08 (statement of Sen.

Feingold) ..... co ance ae 6

Stephen Q. Cornman, Nat’! Ctr. for Educ. Statistics,

U.S. Dep’t of Educ., NCES 2013-307, Revenues

and Expenditures for Public Elementary and

Secondary School Districts: School Year 2009-10

(Fiscal Year 2010) (2013) (available at

http://nces.ed.gov/pubs2013/2013307.pdf) . . 8

Kate Pickert, Health Reform: Reluctant States

Could Invite a Federal Takeover, Time, Nov. 12,

2010 (available at http://content.time.com/time/

nation/article/0,8599,2030932,00.html) 5

vl

Carmen Solomon-Fears, Cong. Research Serv., RL

34203, Child Support Enforcement Program

Incentive Payments: Background and Policy

Issues (2013) (available at https://www.

fas.org/sgp/crs/misc/RL34203.pdf) . 10, 11

The Federalist No. 45, at 293(J. Madison) .. 20

U.S. Census Bureau, Population Distribution and

Change, 2010 Census Brief (2011) (available at

http://www.census.gov/prod/cen2010/

briefs/c2010br-01.pdf) 11

U.S. Government Accountability Office, GAO-14-40,

Children’s Health Insurance, Information on

Coverage of Services, Costs to Consumers, and

Access to Care in CHIP and Other Sources of

Insurance 40 (Nov. 2013) (available at

http://www.gao.gov/assets/660/659180.pdf) 9

]

INTEREST OF AMICI CURIAE

Amici States Oklahoma’, Alabama, Georgia,

Nebraska, South Carolina, and West Virginia have a

direct stake in the outcome of this case. Sections 1311

(codified at 42 U.S.C. § 18031) and 1321 (codified at 42

U.S.C. § 18041) of the “Patient Protection and

Affordable Care Act,” Pub. L. No. 111-148, 124 Stat.

119, as amended by the “Health Care and Education

Reconciliation Act of 2010,” Pub. L. No. 111-152, 124

Stat. 1029 (collectively, the “Act” or “ACA”), allow

States to choose to establish an “American Health

Benefit Exchange” (an “Exchange”) to facilitate

execution of the Act’s key provisions. If a State elects

not to establish an Exchange under Section 1311,

Section 1321 authorizes the Secretary of Health and

Human Services instead to establish a federal

Exchange to operate in that State.

If a State elects to establish its own Exchange, the

federal government will make “advance payments” of

premium tax credits to insurance companies on behalf

of some of the State’s residents to subsidize health

insurance enrollment through the _ state-created

Exchange. Under the plain language of Section 36B of

the ACA, however, such tax subsidies are not available

to individuals who live in States that have chosen not

to establish an Exchange. Significantly, the federal

' Oklahoma has filed with this Court a Petition for Writ of

Certiorari, asking this Court to review a decision of the United

States District Court for the Eastern District of Oklahoma

concerning the validity of the IRS Rule from a State’s perspective,

alongside this case. See Pet. for a Writ of Cert., Oklahoma, ex rel.

E. Scott Pruitt v. Burwell et al., No. 14-586 (November 18, 2014).

2

government's payment of a subsidy—for even a single

employee—triggers costly obligations for employers

within that State (including the States themselves) as

a result of application of the so-called “large employer

mandate,” placing such States at a competitive

disadvantage in employment.

Amici States have predicated decisions regarding

establishment of Exchanges on the implementation of

the ACA and its incentives as Congress wrote them,

only to have those expectations unsettled by an

interpretation of that law that cannot be squared with

the plain text of the statute.

SUMMARY OF THE ARGUMENT

I. There is nothing absurd or even unusual

about the plain text of Section 36B of the ACA.

Congress drafted the ACA like it does most other

cooperative federalism legislation—with a variety of

incentives offered to States willing to assume the

burden of implementing the federal program. Indeed,

Congress routinely enacts legislation that withholds, or

limits the availability of, federal benefits to citizens of

those States that choose not to implement federal

policy and sacrifices the uniform implementation of

important national goals in an effort to secure States’

implementation of a law.

With regard to the ACA, the incentives were

necessary because the ACA provides that “[e]lach State

shall establish an American Health Benefit

Exchange .. for the State.” ACA § 1311(b)1), 42

U.S.C. § 18031(bX(1). But in recognition of the core

principle of federalism that the federal government

cannot command States to act on its behalf, see Printz

3

vu. United States, 521 U.S. 898, 935 (1997), the Act

acknowledges that a State may decline to establish an

Exchange.

Because Congress desired (and needed) state

cooperation with implementation of the ACA, it had no

choice but to entice the States to implement the Act,

and Section 36B’s conditioning of tax credits was the

primary means of doing so. Therefore, the IRS's

insistence that the overriding policy goals of the Act

require that Section 36B be rewritten by agency rule is

completely at odds with Congress's equally-important

policy goal of ensuring state cooperation in

administering the Act.

II. Congress’s conditioning of the tax credits

came as no surprise to the States. First, and as

explained above, such incentivizing is the norm in

cooperative federalism programs. Second, the plain text

of Section 36B plainly described the incentive, and

other sections of the Act plainly describe the

consequences of declining to accept the incentive. And

third, even if any States failed to read and understand

Section 36B, well-publicized litigation had been

initiated prior to the date on which the States had to

make their Exchange decision, so the States were on

notice that the IRS Rule was of questionable legality.

The bottom line is that there is no merit to the

argument that the IRS Rule must be upheld in order to

prevent unfair surprise to the States. States are

constantly aware of their options under federal

programs and how participation, or non-participation,

in federal programs will affect their residents. Here,

Amici States and others relied on the plain language of

Section 36B to evaluate their options and based their

4

decision to set up a state Exchange on several factors,

one of which was the availability of Section 36B’s tax

subsidies and the resulting effect on the applicability of

the large employer mandate. Concluding that the

States were somehow unaware of the effects their

decisions would have is not only contrary to the facts

but would also improperly impose unprecedented

burdens on States that relied on the plain meaning of

the ACA’s language in electing not to participate in the

federal program.

Ill. In promulgating its rule, the IRS ignored the

longstanding presumption—legislatively established by

Congress in the McCarran-Ferguson Act of 1945, Pub.

L. No. 79-15, 59 Stat. 33 (codified at 15 U.S.C.

§ 1011) that health insurance regulation is a matter

of traditional state control. Because that is so, to

regulate in this area Congress must specifically and

unambiguously state its intent to do so. See Gregory v.

Ashcroft, 501 U.S. 452, 460-461 (1991). Absent such a

“clear statement,” a Court must adopt a reading of the

challenged statute that leads to the least amount of

federal incursion. The IRS’s Rule results in the ACA’s

large employer mandate overriding state insurance

laws in over three dozen states. Thus, upholding the

IRS’s interpretation of Section 36B will result in harm

to the States by altering the balance of power between

the federal government and the States without the

requisite clear statement from Congress that it

intended that result.

IV. The IRS's bizarre insistence that HHS has

“stepped into the shoes” of those States that declined to

establish an Exchange and has instead established “an

Exchange established by the State” on those States’

3)

“behalf,” raises the very sort of political accountability

concerns that this Court has repeatedly warned against

and leads to confusion in the populace as to which

sovereign should be held responsible for problems

arising out of this newly-federalized regulatory regime.

Because of that confusion, the IRS’s interpretation of

Section 36B is inherently unreasonable.

ARGUMENT

I. Congress’s conditioning the availability of

the ACA’s tax credits is consistent with

Congress’s long-running practice of

conditioning federal dollars on State

implementation of federal programs.

One of the overarching purposes of the ACA is to

increase participation in the health insurance

market—no one disputes that. Congress correctly

recognized, however, that the key to accomplishing that

goal was getting State cooperation in implementing the

Act. Thus, Congress built an equally-important purpose

into the structure of the ACA: to have the States lead

implementation and management of the new

healthcare system.”

* As the Secretary of Health and Human Services herself

recognized, “[ijt all starts with the assumption that states take the

lead.” Kate Pickert, Health Reform: Reluctant States Could Invite

a Federal Takeover, Time, Nov. 12, 2010 (available at

http://content.time.com/time/nation/article/0,8599,2030932,00.ht

ml). See also 156 CONG. REC. 81821-06 (statement of Sen. Conrad)

(“This health care reform .. . creates State-based health exchanges

for individuals and smal] businesses.”), id. (statement of Sen.

Murkowski) (“[T]he health care bill that is now law creates these

State exchanges where all non-Medicaid and Medicare individuals

will go to purchase their health insurance.”); 165 CONG. REC.

6

In so doing, Congress was simply doing what it

often does when attempting to engage in cooperative

federalism. Indeed, an examination of other legislation

reveals that the statutory mechanisms employed by the

ACA to entice States to take the lead are commonplace.

As with other social welfare programs, Congress

intended the ACA to benefit lower income citizens

across the nation—here, by reducing healthcare costs.

But the ACA also clearly reflects Congress’s separate

objective that—in keeping with all major social welfare

legislation enacted since the New Deal—States should

have principal responsibility for implementing the

ACA's provisions, including the establishment of

Exchanges. Congress could not constitutionally “order

States to regulate according to its instructions,”

National Federation of Independent Business v.

Sebelius, 132 S.Ct. 2566, 2608 (2012), and it thus

encouraged States to implement federal policy by

offering tax subsidies only to those citizens of the

States that had set up Exchanges. Other provisions of

the ACA reflect similar efforts to influence States’

policy choices. See 42 U.S.C. § 1396c (providing that

payment of Medicaid funding to States may be

conditioned on compliance with federal requirements).

$1923-08 (statement of Sen. Baucus) (“The bill also provides for

State-based exchanges.”); id. (statement of Sen. Feingold) (“[O]ver

the next 4 years, States will prepare to set up health insurance

exchanges for individuals and small businesses to purchase more

affordable health insurance.”); 156 CONG. REC. H2201-01

(statement of Rep. Burgess) (“Now, you have heard that several

States around the country are looking at, I believe it’s up to 37...

somehow exempting their State from participating in this new

Federal legislation, and that also means that they may not set up

the State-based exchange that the bill, the Senate bill, calls for.”).

7

Offering tax credits only to States who have chosen

to take on the burden of establishing Exchanges is

simply the natural consequence of this familiar

legislative approach. In this regard, the ACA is on all

fours with a host of federal social welfare programs

that are directed at providing assistance to citizens

nationwide but that nevertheless condition the federal

assistance actually available to citizens on whether, or

the extent to which, their State has chosen to

implement federal policy. Such laws reflect Congress's

recognition of a self-evident proposition: the measures

needed to incentivize State implementation of federal

social welfare legislation may mean that policy will not

be uniformly implemented across the United States

and that citizens of different States may receive

varying levels of federal assistance. Simply put,

Congress does this all the time.

For example, the stated purpose of the No Child

Left Behind Act of 2001, Pub. L. No. 107-110, 115 Stat.

1425 (codified as amended primarily in scattered

sections of 20 U.S.C.) (“NCLB”), is to “ensure that ail

children have a fair, equal, and significant opportunity

to obtain a high-quality education.” 20 U.S.C. § 6301

(emphasis added). To accomplish this purpose,

Congress intended to “distributle] and _ target/|)

resources sufficiently to make a difference to.

schools where needs are greatest.” Jd. § 6301(5). But

the NCLB conditions this federal educational

funding—and thus the benefits available to the

children that live in a State—on the State’s compliance

with and implementation of federal policy. To receive

funding under the NCLB, a State must submit a

detailed plan to the Secretary of Education that

provides for statewide academic standards, academic

8

assessments, and academic accountability, id.

§ 6311(a)-(b), and must submit detailed annual state

“report cards,” id. § 6311(h). States may also receive

special funding under NCLB—for example, for teaching

children with limited English proficiency—if they agree

to monitor educational subunits for compliance with

federal educational goals and to sanction those

subunits for noncompliance (with sanctions including

firing teachers, changing curricula, or withholding

funds). See, e.g., id. § 6842(a)(1), (b)(4){A)-(B).

As a result of these and other federal funding

mechanisms, the amount of federal educational funding

distributed, on a per-pupil basis, differs substantially

across different States and school districts depending

on the extent to which the particular State has elected

to implement the federal policies. For example,

according to the Department of Education’s 2010

statistics for the 100 largest public elementary and

secondary school districts in the United States, Utah’s

Jordan School District received approximately $36.5

million in federal revenue (around $750 per pupil),

whereas Georgia’s Atlanta Public Schools received

approximately $102.6 million (or $2100 per pupil). See

Stephen Q. Cornman, Nat’ Ctr. for Educ. Statistics,

U.S. Dep’t of Educ., NCES 2013-307, Revenues and

Expenditures for Public Elementary and Secondary

School Districts: School Year 2009-10 (Fiscal Year

2010) 10 (2013) (available at

http://nces.ed.gov/pubs2013/2013307.pdf).

The Children’s Health Insurance Program

Reauthorization Act of 2009, Pub. L. No. 111-3, 123

Stat. 8 (“CHIP”), is likewise directed at assisting

children across the United States. CHIP’s purpose is

9

“to provide dependable and stable funding for

children’s health insurance under. the Social

Security Act in order to enroll ali six million uninsured

children who are eligible, but not enrolled, for

coverage.” Pub. L. No. 111-3, § 2, 123 Stat. 8, 10.

Children are eligible for these benefits, however, only

if they live in States that have chosen to submit “child

health plans,” 42 U.S.C. § 1397aa(b), which must

comply with numerous federally determined

requirements relating to eligibility and care metrics,

see id. § 1397bb. States must receive federal approval

of proposed plans as a condition of funding. /d.

§ 1397ff(a)(1). CHIP provides States with “performance

bonus awards” to offset enrollment costs resulting from

enrollment and retention efforts. Id. § 1397ee(a)(3).

Again, as a result of States’ differing choices

regarding their implementation of this program,

federally funded services available to citizens may vary

‘n numerous respects depending on their location. For

example, in Colorado, higher-income enrollees in CHIP

(at 150-200 percent of the federal poverty level) must

make a $30 co-payment for an emergency care visit,

whereas enrollees at that income level in Illinois pay

only $5. See U.S. Government Accountability Office,

GAO-14-40, Children’s Health Insurance, Information

on Coverage of Services, Costs to Consumers, and

Access to Care in CHIP and Other Sources of Insurance

40, 43 (Nov 9013) (available at

http Jiwrww_.gao.gov/assets/660/659 180. pdf). Habilitative

outpatient services are not covered by CHIP plans in

Utah or Kansas but are covered to varying extents in

Colorado (40 visits), Illinois (no limits), and New York

(six weeks of physical and occupational therapy, no

limit on speech therapy). Id. at 13.

10

Similarly, Congress’s child support enforcement

program, see generally 42 U.S.C. §§ 651-669b, is

designed to assist “all children” across the nation by

securing financial support from noncustodial parents.

Id. §651. But again, depending on the States in which

they reside, not all children necessarily benefit equally

from this program. The amount of assistance afforded

under the program depends on (among other things) an

“incentive payment” made by the federal government

to the State. To qualify for such payments, States

must first establish a compliant plan for child and

spousal support that meets extensive federal guidelines

as to staffing, statewide applicability, paternity

establishment services, and more. ZJd. § 654. Plans

complying with detailed federal requirements may then

qualify for federal assistance based on state

performance levels in various categories (e.g., paternity

establishment, support orders, arrearage payments,

and cost-effectiveness), id. § 658a(b)(4), and on whether

that State has met data quality standards, td.

§ 658a(b)(5)(B).

States with higher performance levels receive

greater incentive payments, and correspondingly enjoy

greater funding for services to establish paternity,

locate noncustodial parents, and enforce child support

orders. Thus, as with the NCLB and CHIP, children

residing in States that receive more federal funding

may receive greater benefits than those living in States

that receive less. For example, both Texas and Ohio

received roughly similar amounts of federal incentive

payments in fiscal year 2010 (approximately $33.8 and

$32.2 million, respectively), see Carmen Solomon-

Fears, Cong. Research Serv., RL 34203, Child Support

Enforcement Program Incentive Payments:

11

Background and Policy Issues (2013) (available at

https://www.fas.org/sgp/crs/misc/RL34203.pdf), even

though the population of Texas is more than twice that

of Ohio, see U.S. Census Bureau, Population

Distribution and Change, 2010 Census Brief (2011)

(available at http://www.census.gov/prod/cen2010/

briefs/c2010br-01.pdf) (population of Texas is 25.1

million, while population of Ohio is 11.5 million).*

Each of these federal programs conditions

availability of federal assistance on State

implementation of federal policy. Each have a general

purpose of helping a specific population of individuals.

But that purpose of helping a general population does

not override or detract from the equally-important

policy and purpose of having the State implement these

programs. Like these other legislative frameworks, the

ACA reflects Congress’s judgment that certain federal

programs are best implemented at the State level and

its recognition that, as a result of States’ different

choices, it is possible that not all U.S. citizens will

receive equal benefits under such federal! programs. As

it has with numerous other social welfare programs,

* Other federal statutes similarly condition the availability or

amount of federal subsidies that a citizen may receive on their

State’s implementation of federal policy. See, eg., Personal

Responsibility and Work Opportunity Reconciliation Act of 1996,

Pub. L. 104-193, 110 Stat. 2105 (1996) (granting support for direct

cash assistance to needy families contingent on a State’s

maintenance of certain funding levels and establishment of work

requirements); Supplemental Nutrition Assistance Program, 7

U.S.C. § 2013 (authorizing issuance of allotment to eligible

households in a State, provided States request such benefits and

do not collect local sales tax on foods purchased with program

benefits).

12

Congress conditioned the benefits that would be

available to a State’s citizens under the ACA on their

State’s decision to implement federal prerogatives.

There is nothing absurd—nor even unusual—about

that result.

To the contrary, the ACA exemplifies what has

become the legislative norm since the Supreme Court

made clear that the Constitution does not permit

federal commandeering of State governments. Congress

now drafts laws that contemplate that the States will

be the default and preferred implementers of federal

policy but provide for a federal “fallback” option,

whereby the federal government will step in and

operate a program should a State decline to do so or fail

to implement it successfully.

To cite but a few examples of such laws, the Clean

Air Act, 42 U.S.C. § 7401 et seqg., contemplates that

States will submit to the Environmental Protection

Agency (“EPA”) for approval plans that implement

national air quality standards. See id. § 7410(a)(1). But

the law provides that the EPA will step in and

promulgate a federal implementation plan if the State

does not submit a plan or the State’s plan is not

acceptable. Id. § 7410(c)(1).

Likewise, the Telecommunications Act of 1996

(codified throughout 47 U.S.C.) contemplates that State

public utility commissions will review and approve

interconnection agreements between an incumbent

carrier and competing local exchange carriers, see 47

U.S.C. § 252(e)(1), but provides that the Federal

Communications Commis:ion will assume

responsibility for resolving these matters should the

State commission fail to act, see id. § 252(e)(5). The

13

Wholesome Meat Act, Pub. L. No. 90-201, 81 Stat. 584

(1967) (codified as amended at 21 U.S.C. §§ 601-695),

provides that a State may receive federal funding and

implement programs to protect the public from

consuming unwholesome meat, see id. § 661(a), but

authorizes the Secretary of the United States

Agriculture Department to take action if the State’s

program is inadequate, see id. § 661(c)(1).

Similarly, the Occupational Safety and Health Act,

Pub. L. 91-596, 84 Stat. 1590 (1970) (codified as

amended at 29 U.S.C. §§ 651-678 et seq.), authorizes

States to assume responsibility for the development

and enforcement of occupational safety and health

standards, see id. § 667(b), and authorizes federal

grants to assist States in implementing such plans, see

id. § 672(a). However, the Secretary of the Department

of Labor has responsibility for implementing federal

policy if a State’s plan fails to comply with the

applicable requirements. See id. § 667(d)-(f).

While all of these statutes, like the ACA,

contemplate that the federal government will step in

and act directly should a State fail to implement

federal law adequately, or simply choose not to act,

none of them contemplates what the IRS did here~— i.e.,

the imposition on non-participating States of burdens

that under the statute they would have assumed only

if they had chosen to participate in the federal

legislative scheme. As with all of the legislative

frameworks discussed above, the ACA affords States

certain benefits if they choose to implement federal

law. Some citizens receive federal tax credits, a State

may receive federal grant money to establish an

Exchange, and a State will have some flexibility to

14

decide how its Exchange will operate. But a State’s

implementation of an Exchange also entails burdens,

as the availability of tax subsidies extends the

individual mandate to many otherwise-exempt

individuals and triggers costly tax obligations for the

State’s employers.

Statutes like the ACA are designed to give States a

choice, in view of the benefits and burdens that come

with implementation of federal policy, to participate in

a federal program or to decide against doing so. Cf.

Guardians Ass’n v. Civil Serv. Comm’n of New York,

463 U.S. 582, 596-97 (1983) (plurality opinion) (“[T]he

receipt of federal funds under typical Spending Clause

legislatior is a consensual matter: the State or other

grantee weighs the benefits and burdens before

accepting the funds and agreeing to comply with the

conditions attached to their receipt.. [S]tatutes must

respect the privilege of the recipient of federal funds to

withdraw and terminate its receipt of federal money

rather than assume the further obligations and duties

that a court has declared are necessary for

compliance.”).

In sum, the IRS’s rule denies States the right to

make the tradeoff expressly contemplated by the ACA,

and it does so based on the faulty premise that

Congress could not have intended such a tradeoff. As

shown above, Congress regularly and routinely offers

States such tradeoffs. Thus, there is no absurdity that

results from reading Section 36B to mean what it

plainly says.

15

Il In making their Exchange-establishing

decisions, the States were well aware that

the plain text of Section 36B conditioned

the availability of tax credits on States

establishing exchanges.

Congress’s attempt at enticing States to set up state

Exchanges had four components. First, Congress

threatened to implement Exchanges directly in States

that refused to participate. 42 U.S.C. § 18041(c).

Second, Congress offered huge federal grants to States

who agreed to set up Exchanges, 42 U.S.C. § 18031(a),

and did not authorize any funding for HHS to create

federal Exchanges. Third, Congress penalized States

that declined to create their own Exchanges by

prohibiting them from tightening their Medicaid

eligibility standards. See 42 U.S.C. § 1396a(gg)

(requiring maintenance of eligibility standards until

“the Secretary determines that an Exchange

established by the State under section [1311 of the

ACA) is fully operational”). Fourth, and most

importantly, Congress authorized tax credits to the

residents of States who purchase health insurance

through a_ state-established Exchange, while

withholding those credits from residents of States who

purchase health insurance through a_ federally-

established Exchange. 26 U.S.C. § 36B.

As explained above, these sort of incentives are

commonplace in cooperative federalism. As a result, the

States are well-equipped for parsing through the

various pros and cons of cooperating with federal

prerogatives and they did just that in deciding whether

to set up an Exchange. To be sure, the States were

aware that the IRS was claiming that tax credits would

16

be available regardless of the States’ decisions, but the

States (1) could read the plain text of Section 36B and

see that it conditioned the subsidies, and (2) were

aware of the many arguments—including those made

by the State of Oklahoma in litigation some two

months prior to the exchange-establishing deadline

imposed by HHS—that the IRS Rule was contrary to

Congress’s intent.

Simply put, there is no merit to the argument that

the IRS Rule must be upheld in order to prevent unfair

surprise to the States. States are constantly aware of

their options under federal programs and how

participation, or non-participation, in federal programs

will affect their residents. To conclude otherwise would

be not only contrary to the facts but would also

improperly impose unprecedented burdens on States

that relied on the plain meaning of the ACA’s language

in electing not to participate in this federal program.

Ul. Ifthe IRS Rule is upheld, the States will be

harmed by having an intrusion into a

matter of traditional state concern absent

a clear statement from Congress that it

intended that intrusion.

Because the effect of the IRS’s interpretation of

Section 36B is to impose the large employer mandate in

a majority of the States, despite those States having

declined to establish an exchange, the IRS's

interpretation of Section 36B violates the canon that “if

Congress intends to alter the ‘usual constitutional

balance between the States and the Federal

Government,’ it must make its intention to do so

‘unmistakably clear in the language of the statute.”

17

Gregory, 501 U.S. at 460 (quoting Atascadero State

Hosp. v. Scanlon, 473 U.S. 234, 242 (1985).

Adherence to this clear statement canon is critical

to avoid an upset of the “constitutional balance of

federal and state powers.” Gregory, 501 U.S. at 460.

This canon protects the States’ “substantial sovereign

powers under our constitutional scheme, powers with

which Congress does not readily interfere.” Id. at 460-

61.

Amici States and the federal government haye long

operated under the presumption—legislatively

established by Congress in the McCarran-Ferguson Act

of 1945, 15 U.S.C. § 1011—that health insurance

regulation is a matter of state control. As this Court

observed in the middle of the twentieth century, “[the

control of all types of insurance companies and

contracts has been primarily a state function since the

States came into being.” Wilburn Boat Co. v. Fireman’s

Fund Ins. Co., 348 U.S. 310, 316 (1958).

The State of Oklahoma, for example, has long

comprehensively regulated the health insurance

industry, as illustrated in Title 36 of the Oklahoma

Statutes. See, e.g., Life, Accident and Health Insurance

Broker Act, OKLA. STAT. tit. 36, § 1462 (2011);

Oklahoma Life and Health Insurance Guarantee

Association Act, OKLA. STAT. tit. 36, § 2021 (2011): Life,

Accident and Health Insurance Policy Language

Simplification Act, OKLA. STAT. tit. 36, § 3642 (2011);

18

and Employer Health Insurance Purchasing Group Act,

OKLA. STAT. tit. 36, § 4521 (2011). *

Oklahoma’s extensive regulation of the health

insurance industry is not unique. Most, if not all, states

have similarly comprehensive health insurance

schemes. The effect of the IRS’s interpretation of

Section 36B is to impose the large employer mandate in

a majority of the States, upsetting those statutory

schemes, without the requisite clear statement from

Congress that such is what it intended. See Gregory,

501 U.S. at 460-461. And because there was no

unmistakably clear statement by Congress giving the

IRS the authority to expand the availability of tax

credits to individuals who purchase insurance through

a federal Exchange, this Court must interpret the

statute in the least-federally-invasive way.

The IRS’s rule does just the opposite and radically

disrupts a longstanding state function by overriding

the majority of the States’ policy determinations as to

what health insurance its large employers must offer.

As a result, the IRS lacked the authority to promulgate

the rule based on an alleged ambiguity in Section 36B.

* This pervasive state regulation of insurance is also peppered

throughout other titles as well. See OKLA. STAT. tit. 56, § 1009.2

(establishing a voucher program to provide coverage assistance to

children eighteen years of age or younger whose parents are within

eighty-five percent and three hundred percent of the federal

poverty level); OKLA. STAT. tit. 11, § 23-108 (authorizing

municipalities to provide health insurance for its employees);

OKLA. STAT. tit. 70, § 5-117.5 (requiring boards of education in each

schoo! district to provide health insurance plans for the employees

of that district).

19

Rather, only an “unmistakably clear” statement by

Congress in Section 36B could confer that authority.

IV. The IRS’s supposed “textual” justification

for its rule raises serious political

accountability concerns.

The IRS has attempted to justify its rule by arguing

that for those States that declined to establish an

Exchange, the federal government “stepped into the

shoes” of those States and created for those States an

“exchange established by the State.”

Notwithstanding its logical flaws, this defense of the

IRS’s rule is inherently at odds with the concept of

federalism itself, and raises political accountability

problems of the sort this Court has so often decried. See

New York v. United States, 505 U.S. 144, 167-69 (1992)

(discussing political accountability and federalism);

Printz, 521 U.S. at 919-921; Nat'l Fed’n of Indep. Bus.,

132 S.Ct. at 2602-03, 2660-61 (“[Wlhere the federal

Government directs the States to regulate, it may be

state officials who will bear the brunt of public

disapproval, while the federal officials who devised the

regulatory program may remain insulated from the

electoral ramifications of their decision”) (quoting New

York, 505 U.S. at 169.).

The dual-sovereignty nature of our government

relies on the presumption that “freedom is enhanced by

the creation of two governments, not one.” Bond v.

United States, 131 S.Ct. 2355, 2364 (2011) (quoting

Alden v. Maine, 527 U.S. 706, 758 (1999)). An integral

concept in our system of dual sovereignty is that the

“Federal Government may not compel the States to

enact or administer a federal regulatory program.”

20

Nat'l Fed’n of Indep. Bus., 132 S.Ct. at 2601 (quoting

New York, 505 U.S. at 188.). This limitation is in place

to ensure that the “status of the States as independent

sovereigns in our federal system” is not undermined.

Id. The belief that activities that touch on citizens’

daily lives are administered by local officials as opposed

to a “distant federal bureaucracy” also serves to make

sure local officials aren’t unfairly held accountable for

the actions of that “distant federal bureaucracy.” Natl

Fed’n of Indep. Bus., 132 S.Ct. at 2578 (citing The

Federalist No. 45, at 293 (J. Madison)).

Here, the voters in Oklahoma and the other Amici

States are overwhelmingly opposed to implementation

of the ACA. By purporting to step into these States’

shoes and establish “state” exchanges on their behalf,

the federal government seeks to inject confusion into

the populace as to who is to blame for implementation

of the enormously unpopular ACA. For this reason also,

the IRS’s interpretation of Section 36B should be

rejected.

21

CONCLUSION

The judgment of the court of appeals should be

reversed.

Respectfully submitted.

E. SCOTT PRUITT

ATTORNEY GENERAL OF OKLAHOMA

PATRICK R. WYRICK

SOLICITOR GENERAL OF OKLAHOMA

Counsel of Record

313 NE 21st Street

Oklahoma City, OK 73105

(405) 521-3921

Patrick.wyrick@oag.ok.gov

LUTHER STRANGE

Attorney General of Alabama

501 Washington Avenue

Montgomery, AL 36104

SAM OLENS

Attorney General of Georgia

40 Capitol Square, SW

Atlanta, GA 30334

JON BRUNING

Attorney General of Nebraska

2115 State Capitol

Lincoln, NE 68509

22

ALAN WILSON

Attorney General of South Carolina

1000 Assembly Street

Room 519

Columbia, SC 29201

PATRICK MORRISEY

Attorney General of West Virginia

State Capitol

Building 1, Room E-26

Charleston, WV 25305

Counsel for Amici Curiae