Under the ACA, an exchange is either established and administered by a state or, as a default, by the federal government. The ACA provides that the tax credits “shall be allowed” for any “applicable taxpayer,” but only if the taxpayer has enrolled in an insurance plan through “an Exchange established by the State under [42 U.S.C. §18031].” In 2012, the IRS issued a regulation interpreting this provision, stating that the tax credits are available to individuals regardless of whether the exchange is established and operated by a state or the federal government.

In a sharp dissent, Justice Scalia disagreed with Chief Justice Roberts’s majority opinion, stating, “Words no longer have meaning if an Exchange that is not established by a State is ‘established by the State.’” King v. Burwell, No. 14–114, Supreme Court of the United States (June 25, 2015).Background The ACA, under 42 U. S. C. §18031(b)(1), requires that every state operate an “Exchange,” which is a health insurance marketplace, usually online, allowing individual consumers to compare and purchase insurance plans. The ACA, pursuant to §18041(c)(1), also requires the federal government to establish an Exchange if a state does not.

Unlike the Court's prior ruling upholding the ACA's "individual mandate," King v. Burwell did not involve a constitutional question, but rather a question of statutory interpretation. Petitioners argued that the ACA statute directs that tax credits are only available for consumers who purchase their insurance through "an Exchange established by the State under [42 U.S.C. §18031] of the law." Accordingly, the petitioners contended that the Federal Exchanges (established pursuant to a different section of the ACA) operating in states that did not set up their own Exchanges does not qualify as "an Exchange established by the State under [§18031]," so consumers in such states should not receive any tax credits.

[14] The PPACA sought to establish federal network adequacy standards. See 42 U.S.C. § 18031(c) (requiring qualified health plans in the Marketplace to “ensure a sufficient choice of providers” and “provide information to enrollees and prospective enrollees on the availability of in-network and [OON] providers”). Many states, including New Jersey, have their own network adequacy provisions.

(Sixteen states and the District of Columbia have established their own exchanges, while thirty-four have opted to use exchanges established by HHS.) With respect to the tax credits, a provision of the Act encoded at §36B of the Internal Revenue Code states that tax credits "shall be allowed" for any "applicable taxpayer," but only if the taxpayer has enrolled in an insurance plan through "an Exchange established by the State under [42 U.S.C. §18031]." A separate IRS regulation interprets the language of § 36B to allow tax credits "whether the Exchange is established and operated by a State . . . or by HHS."

Unfortunately, the exceptions it makes are to established rules of statutory construction. While the outcome that follows from these exceptions may spare the Court criticism from some quarters, they open the Court to reproach for embracing a decisional style sufficiently malleable to diminish the judiciary’s standing as a support for the rule of law—a dose of which was delivered promptly in Justice Scalia’s opinion for the three dissenting members of the Court.The essential issue in the case is whether an ACA reference to exchanges “established by the State under Section 1311” (codified at 42 USC § 18031) should be read to include exchanges established and operated by the Secretary of Health and Human Services (federal exchanges) under a different ACA Section (Section 1321, now § 18041). On one point, the majority opinion by Chief Justice John Roberts delivers a notable statement of how the Court views its doctrine of deferring to agencies on construing ambiguous legal terms.

30,377, 30,378 (2012). Section 1311 of the ACA, codified at 42 U.S.C. §18031, requires each State, no later than January 1, 2014, to establish an “American Health Benefit Exchange” that “facilitates the purchase of qualified health plans,” and meets certain statutory requirements. Such State-established exchanges are referred to as “State Exchanges.”

Consider this excerpt from Chief’s opinion for the Court inKing(from page 20 of the slip opinion):Petitioners' arguments about the plain meaning of Section 36B are strong. But while the meaning of the phrase "an Exchange established by the State under [42 U. S. C. §18031]" may seem plain "when viewed in isolation," such a reading turns out to be "untenable in light of [the statute] as a whole." Department of Revenue of Ore. v. ACF Industries, Inc., 510 U. S. 332, 343 (1994).

Therefore, the Supreme Court looked to the broader structure of the Act to determine what the Act’s provision related to the tax credit meant. The Supreme Court said: The upshot of all this is that the phrase “an Exchange established by the State under 42 USC 18031” is properly viewed as ambiguous. The phrase may be limited in its reach to State Exchanges.

The opinion states: “Petitioners’ arguments about the plain meaning of Section 36B are strong. But while the meaning of the phrase ‘an Exchange established by the State under [42 U.S. C. §18031]’ may seem plain ‘when viewed in isolation,’ such a reading turns out to be ‘untenable in light of [the statute] as a whole.’ Department of Revenue of Ore. v. ACF Industries, Inc., 510 U. S. 332, 343 (1994).