Today, in a 6-3 ruling, the Supreme Court upheld the federal regulation that makes subsidies available to eligible individuals who purchase health insurance on a “federally-facilitated Exchange” (as in Florida and Texas) as well as those who purchase health insurance on a "state-based Exchange" (as in Kentucky and New Mexico). The ruling represents a significant victory for proponents of health care reform under the Affordable Care Act (ACA).

As those in the health care sector are well aware, in King v. Burwell, the challengers argued that only those who purchase health insurance on a state-established Exchange may receive the subsidies. Had their argument carried the day, the subsidies would have ceased for more than six million residents of the 34 states with a federally-facilitated Exchange.  With health insurance suddenly unaffordable to them, most of these individuals were projected to immediately drop coverage. In addition to millions of newly uninsured individuals, adverse selection concerns were anticipated, with only those who were sick or injured expected to maintain or obtain coverage. Health insurance markets were projected to destabilize as a result.

Moreover, there were serious questions about whether, politically and practically, a solution could be devised. Many were skeptical that, at the federal level, there would be a legislative fix. At the state level, few states with a federally-facilitated Exchange were expected to be willing and able to quickly establish their own Exchange. Such considerations are now moot.

In an opinion authored by Chief Justice Roberts, the Court held that, while the text of the statute is ambiguous, its context and structure make clear that Congress intended for the subsidies to be available regardless of whether an Exchange is state-established or federally-facilitated. In doing so, the Court acknowledged the “inartful drafting” of the statute, but stated that “we ‘must do our best, bearing in mind the fundamental canon of statutory construction that the words of a statute must be read in their context and with a view to their place in the overall statutory scheme.’”

The Court began by rejecting the familiar Chevron analytical framework which focuses on the propriety of an agency’s interpretation of a statute. It found that the “deep ‘economic and political significance’” of the subsidies presented an “extraordinary case” in which Congress did not intend to delegate authority to interpret the statute to the agency. Thus, it was for the Court to interpret the statute.

The Court then found that, despite the “strong” arguments presented by the challengers, the text of the statute is ambiguous. In support of its finding, the Court observed that the statute provides that, where a state does not establish an Exchange, the federal government must establish “such Exchange,” i.e., an “equivalent” Exchange. The Court further noted that a literal reading of the statutory text would mean that there could be no individuals qualified to purchase health insurance on a federally-facilitated Exchange, which it found would be “odd indeed.” The Court also looked to the fact that, by statute, the term “Exchange” is defined by reference to the statutory provision under which a state establishes an Exchange.

Given the textual ambiguity, the Court then turned to the “broader structure” of the statute to determine its meaning. Here, the Court focused on the adverse selection concerns described above. It recognized that “[t]he combination of no tax credits and an ineffective coverage requirement could well push a State’s individual insurance market into a death spiral.” In light of such concerns, it concluded that “[i]t is implausible that Congress meant the Act to operate in this manner.”

The Court also looked to the statutory structure itself: “[I]n petitioners’ view, Congress made the viability of the entire Affordable Care Act turn on the ultimate ancillary provision: a sub-sub-sub section of the Tax Code. We doubt that is what Congress meant to do . . . . It would not have used such a winding path of connect-the-dots provisions about the amount of the credit.”

For these reasons, despite its “wariness” in doing so, the Court held that “the context and structure of the Act compel us to depart from what would otherwise be the most natural reading of the pertinent statutory phrase.” Ending on a pragmatic note, the Court observed: “Congress passed the Affordable Care Act to improve health insurance markets, not destroy them. If at all possible, we must interpret the Act in a way that is consistent with the former, and avoids the latter.”

Justice Scalia, joined by Justices Thomas and Alito, dissented.

While today’s ruling eliminates an existential threat to health care reform, some uncertainties remain. For example, on the litigation front, the House of Representatives continues its challenge to the availability of funds to help individuals afford out-of-pocket expenses associated with health insurance purchased on an Exchange. And, on the regulatory front, policy and compliance considerations continue to evolve on topics ranging from Medicaid eligibility expansions to state innovation waivers, from enforcement in premium stabilization programs to enforcement against qualified health plans, and from quality improvement initiatives to payment and delivery system reform more generally.