If the statutory language is plain, courts must enforce it according to its terms. But oftentimes the meaning, or ambiguity, of certain words or phrases may only become evident when placed in context. So when deciding whether the language is plain, courts must read the words in their context and with a view to their place in the overall statutory scheme. The courts' duty, after all, is to construe statutes, not isolated provisions.
Petitioners are four individuals who live in Virginia, which has a Federal Exchange. They do not wish to purchase health insurance. In their view, Virginia's Exchange does not qualify as “an Exchange established by the State under 42 U.S.C.S. § 18031” as set forth in the Affordable Care Act so they should not receive any tax credits. That would make the cost of buying insurance more than eight percent of petitioners' income, exempting them from the Act's coverage requirement. As a result of the IRS Rule, however, petitioners received tax credits made the cost of buying insurance less than eight percent of their income, which would subject them to the Act's coverage requirement. Petitioners challenged the constitutionality of the IRS Rule in Federal District Court. The District Court dismissed the suit, holding that the Act unambiguously made tax credits available to individuals enrolled through a Federal Exchange. The Court of Appeals for the Fourth Circuit affirmed. The Fourth Circuit viewed the Act as ambiguous and deferred to the IRS's interpretation under Chevron U. S. A. Inc. v. Natural Resources Defense Council, Inc., 467 U. S. 837, 104 S. Ct. 2778, 81 L. Ed. 2d 694.
Was the IRS Rule unambiguous in making tax credits available to individuals enrolled through a Federal Exchange?
The Court affirmed the ruling of the Court of Appeals, holding that Chevron deference to the IRS's interpretation was inappropriate where tax credits were a key reform, and the availability of credits on federal exchanges was a question of deep economic and political significance. The phrase "an exchange established by the state under 42 U.S.C.S. § 18031," as set forth in 26 U.S.C.S. § 36B, was ambiguous given the direction to establish federal exchanges when a state opted not to create an exchange and statutory provisions assuming that tax credits were to be available on both types of exchanges. Lastly, the phrase was interpreted to allow tax credits for insurance purchased on any exchange created under the Affordable Care Act as those credits were necessary for the federal exchanges to function like their state exchange counterparts, and to avoid the type of calamitous result that Congress plainly meant to avoid.