Decided: July 22, 2014
The Fourth Circuit affirmed the district court, and held that the applicable Affordable Care Act (the “ACA”) statutory language is ambiguous and subject to multiple interpretations; applying deference to the IRS’s determination, the Court upheld the rule as a permissible exercise of the agency’s discretion.
Section 1401 of the Affordable Care Act (the “ACA”) provides for tax credits for eligible taxpayers purchasing insurance “through an Exchange established by the State under [ACA Section 1311].” ACA Section 1311 directs the states to establish health insurance exchanges, but does not refer to federally facilitated exchanges. Under ACA Section 1321, the federal government will “establish and operate” an exchange in a state that does not create one. The IRS authorized tax credits for insurance purchased on Exchanges from both the state and those federally facilitated.
Appellees contended that the IRS’s interpretation is contrary to the language of the statute, which, Appellees asserted, authorizes tax credits only for individuals who purchase insurance on state-run Exchanges.
In its reasoning, the Fourth Circuit relied on a test set out in Chevron U.S.A. v. NRDC. The Chevron test determines whether agency action is within the scope of the agency’s authority, and has two prongs:
First, has Congress “directly spoken to the precise question at issue? If the intent of Congress is clear, that is the end of the analysis; for the court as well as the agency must give effect to the unambiguously expressed intent of Congress.”
Second, “if the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency’s answer is based on a permissible construction of the statute.”
In addressing the first prong, the Fourth Circuit determined that the ACA contained ambiguity, and moved to the second prong. The Court then reasoned that the IRS Rule should be upheld because the standard of review was highly deferential with a presumption in favor of finding the agency action valid.