No.

14-114
IN THE

Supreme Court of the United States

DAVID KING; DOUGLAS HURST;
BRENDA LEVY; and ROSE LUCK,

Petitioners,

v.
SYLVIA MATHEWS BURWELL, as U.S. Secretary of
Health and Human Services; UNITED STATES
DEPARTMENT OF HEALTH AND HUMAN SERVICES; JACOB
LEW, as U.S. Secretary of the Treasury; UNITED
STATES DEPARTMENT OF THE TREASURY; INTERNAL
REVENUE SERVICE; and JOHN KOSKINEN, as
Commissioner of Internal Revenue,
Respondents.
On Writ Of Certiorari
To The United States Court Of Appeals
For The Fourth Circuit
REPLY BRIEF
MICHAEL A. CARVIN
Counsel of Record
YAAKOV M. ROTH
JONATHAN BERRY
JONES DAY
51 Louisiana Ave., NW
Washington, DC 20001
(202) 879-3939
macarvin@jonesday.com
Counsel for Petitioners

TABLE OF CONTENTS
Page

TABLE OF AUTHORITIES. ..................................... ii

I.

II.

THE ACA CLEARLY AND

REASONABLY LIMITS 36B
SUBSIDIES TO EXCHANGES
ESTABLISHED BY THE STATE. .................. 2
A.

An Exchange Established by
HHS Is Not Established by the
State, Either in Reality or as a
Term of Art. ........................................ 2

B.

No Other Provision Extends

Subsidies to HHS Exchanges or
Requires Ignoring 36B. ...................... 7

C.

Far from Being Absurd, 36Bs

Plain Text Advances Reasonable
Purposes. ............................................. 13

THE IRS IS NOT ENTITLED TO

DEFERENCE. ............................................... 22

ii
TABLE OF AUTHORITIES
Page(s)
CASES
Alaska Airlines, Inc. v. Brock,
480 U.S. 678 (1987) .............................................. 19
Barnhart v. Sigmon Coal Co.,
534 U.S. 438 (2002) .............................................. 14
Chevron U.S.A. Inc. v. NRDC, Inc.,
467 U.S. 837 (1984) .............................................. 22
City of Arlington v. FCC,
133 S.Ct. 1863 (2013) ........................................... 22
Dept of Homeland Sec. v. MacLean,
135 S.Ct. 913 (2015) ............................................... 5
Engine Mfrs. Assn v. EPA,
88 F.3d 1075 (D.C. Cir. 1996) .............................. 13
Lamie v. United States Tr.,
540 U.S. 526 (2004) .............................................. 14
Mohamad v. Palestinian Auth.,
132 S.Ct. 1702 (2012) ............................................. 2
Natl Fedn of Indep. Bus. v. Sebelius,
132 S.Ct. 2566 (2012) ............................... 15, 19, 20
Pennhurst State School & Hospital v.
Halderman,
451 U.S. 1 (1981) .................................................. 21

iii
TABLE OF AUTHORITIES
(continued)

Page(s)

Pub. Citizen v. Dept of Justice,

491 U.S. 440 (1989) ............................................. 13
Standard Oil v. United States,
221 U.S. 1 (1911) .................................................... 2
Steward Mach. Co. v. Davis,
301 U.S. 548 (1937) .............................................. 23
United States v. Irvine,
511 U.S. 224 (1994) .............................................. 23
United States v. Stewart,
311 U.S. 60 (1940) ................................................ 22
Util. Air Regulatory Group v. EPA,
134 S.Ct. 2427 (2014) ........................................... 22
STATUTES
26 U.S.C. 35 ...................................................... 15, 23
26 U.S.C. 36B.................................................. passim
26 U.S.C. 5000A...................................................... 20
42 U.S.C. 300gg-2 ................................................... 21
42 U.S.C. 1396a ................................................ 11, 21
42 U.S.C. 1396w-3(b) .............................................. 12
42 U.S.C. 1397ee(d) ................................................ 12

iv
TABLE OF AUTHORITIES
(continued)

Page(s)

42 U.S.C. 7410(c) .................................................... 21

42 U.S.C. 18031 (ACA 1311) ....................... passim
42 U.S.C. 18032 (ACA 1312) ................... 5, 6, 9, 10
42 U.S.C. 18041(c) (ACA 1321) ................... passim
42 U.S.C. 18043(a) (ACA 1323) ............... 3, 4, 5, 19
42 U.S.C. 18051(e) (ACA 1331) ........................... 10
ACA 2001(a) ............................................................ 21
Pub. L. No. 111-152, 124 Stat. 1035 ........................... 9
OTHER AUTHORITIES
45 C.F.R. 155.305(a) .................................................... 9
155 Cong. Rec. S10452 (Oct. 15, 2009) ..................... 19
155 Cong. Rec. S12543 (Dec. 6, 2009) ....................... 18
155 Cong. Rec. S12651 (Dec. 8, 2009) ....................... 19
156 Cong. Rec. S1137 (Mar. 4, 2010) ........................ 19
156 Cong. Rec. H2207 (Mar. 22, 2010) ..................... 18
Stephanie Armour, Up to Six Million
Households Facing Penalty for
Skipping Health Insurance, WALL
ST. J., Jan. 28, 2015 ............................................. 20

v
TABLE OF AUTHORITIES
(continued)

Page(s)

Financial Assistance for Health Care

Act, S. 3137, 94th Cong. (1976) ........................... 16
Jonathan Gruber, Written Testimony
Before House Comm. on Oversight &
Govt Reform (Dec. 9, 2014) ................................. 17
Health Reform Briefing (Mar. 17, 1993) ................... 16
Health Security Act, H.R. 3600, 103d
Cong. (1994) ......................................................... 16
H.R. 3962, 111th Cong. (2009) .............................. 4, 17
H.R. Rep. No. 111-443 (2010).................................... 19
David D. Kirkpatrick, At State Level,
Health Lobby Fights Change, N.Y.
TIMES, Dec. 29, 2009 ............................................ 18
National Healthcare Act, H.R. 14017,
93d Cong. (1974) .................................................. 16
Robert Pear, U.S. Officials Brace for
Huge Task of Operating Health
Exchanges, N.Y. TIMES, Aug. 4, 2012 .................. 18
Robert Pear, White House Seeks To
Limit Health Laws Tax Troubles,
N.Y. TIMES, Feb. 1, 2015 ...................................... 20
S. Rep. No. 111-89 (2009) .......................................... 18

The Governments theory is that when the ACA

limited subsidies to Exchanges established by the
State, it actually expanded them to Exchanges
established by HHS, because the former is a term
of art that includes the latter. But the Government
explains neither why Congress would adopt a term
of art contrary to its plain English meaning nor how
the Act transforms A into B without ever saying
so in text (or even legislative history). These failures
are amplified when the Act is read as a whole, since
Congress elsewhere used broader formulations that
do encompass both HHS and state Exchanges, and
expressly equated territories with states. There is
thus no basis in law, common sense, or any part of
the ACA for the extraordinary notion that Congress
went out of its way to limit Exchange in 36B with
the qualifier established by the State, but secretly
meant to include those established by HHS.
That ends this case, because it is undisputed that
36Bs plain text is not objectively absurd. Yet the
Government contends that this text should be
disregarded because it produces bad policy effects,
and so Congress must not have subjectively meant it.
But it is irrelevant whether Congress subjectively
intended to impose the condition; all that matters is
that it objectively and reasonably did so. Moreover,
the trumpeted negative effects stem not from 36Bs
plain language, but from the IRSs rewriting of that
language to eliminate states incentive to establish
Exchanges, predictably causing two-thirds to opt out.
Anyway, the Government cites nothing, in legislative
history or elsewhere, supporting the notion that
Congress did not intend what its enacted language
unambiguously saidnor rebuts the considerable
contrary evidence.

2
I.

THE ACA CLEARLY AND REASONABLY

LIMITS 36B SUBSIDIES TO EXCHANGES
ESTABLISHED BY THE STATE.

Section 36Bs text is unambiguous and consistent

with the rest of the ACA, and concededly is not
objectively absurd. It therefore controls.
A. An Exchange Established by HHS Is Not
Established by the State, Either in Reality
or as a Term of Art.
Compelled to admit that subsidies are limited to
Exchanges established by the State and that HHS
is not a State, the Government invokes a deus ex
machina: Exchange established by the State, it
claims, is a term of art that includes an Exchange
established by HHS. (Govt.Br.20-23.)
1. It would certainly be convenient, for an
agency seeking to rewrite a statute, if an English
phrase can become a term of art on the Governments
mere say-so. It cannot. Departure from ordinary
meaning is appropriate only if Congress invoked a
phrase with a well-known meaning at common law
or in the law of this country. Standard Oil v.
United States, 221 U.S. 1, 59 (1911). Of course,
established by the State has no such well-known
meaning distinct from its plain-English one.
2. The Governments argument is thus that this
phrase is a term of art only in this Act. But before
concluding that Congress intended the opposite of
what it said, there must at least be some indication
in the text, i.e., an expres[s] defin[ition] or objective
absurdity that would arise from any other reading.
Mohamad v. Palestinian Auth., 132 S.Ct. 1702, 1707
(2012). Notwithstanding the Governments efforts,
[t]here are no such indications in the ACA. Id.

3
Its principal argument is that 1321 provides
flexibility, by furnish[ing] alternative means for
states to fulfil[l] 1311s requirement to establish
Exchangesnamely, by using HHS as a surrogate.
(Govt.Br.20, 22.) The Act, however, says exactly the
opposite: HHS must act upon a states [f]ailure to
establish an Exchange. 42 U.S.C. 18041(c). A
failure to establish the Exchange obviously does
not fulfil[l] the requirement to establish it; and
an Exchange established by the State does not
paradoxically result even when a state exercises its
flexibility not to establish it. If anything, 1321
therefore refutes the claim that an HHS Exchange is
established by the State. (And, even if HHS could
somehow serve as surrogate for an unwilling state,
36B does not authorize subsidies for Exchanges
established by surrogates of the State.)
The word such in 1321 cannot fill this gaping
hole. (Govt.Br.22.) [S]uch Exchange clarifies what
HHS is establishing; it does not alter the reality that
HHS, not the state, is establishing it. Further, plain
text and common sense refute the notion that such
Exchange necessarily connotes an Exchange where
subsidies are available. (Govt.Br.24.) In describing
a territorial Exchange, the ACA likewise crossreferences 1311 and refers to such an Exchange,
42 U.S.C. 18043(a)(1), but the Government admits
that subsidies are not available on such Exchanges.
(Govt.Br.23 n.7.) Whether established by the state,
HHS, or a territory, the Exchange itself is the same;
the only difference is that consumers who buy on
state-established Exchanges will (sometimes) be
reimbursed by Treasury under 36B. The latter
distinction controls only the IRSs expenditures, not
HHSs operation of the Exchange. If a law told the

4
Transportation Secretary to build such highway if
a state fails to, the highway is identical even if the
states failure decreases its federal highway funds.
Nor does the Acts definition of Exchange help.
The Government says that 1321 instructs HHS to
establish an Exchange; Exchange is defined as
one established under 1311; and 1311 directs
states to establish Exchanges, so this somehow
means that an HHS Exchange is established by the
State. (Govt.Br.23.) That is pure sophistry: Under
1321 and in reality, it is the Secretary who
establishes the HHS Exchangenot the state that
fail[ed] to. 42 U.S.C. 18041(c). Accordingly, even
if 1321 directly told HHS to establish an Exchange
under 1311, it would nonetheless be established
by HHS, not the state. In other words, a crossreference to 1311 in the fallback provision cannot
mean that, in the fallback scenario, the state is still
establishing an Exchange, as the fallback provisions
premise is the opposite. And, as the Government
does not dispute, any doubt over whether HHS
Exchanges are 1311 Exchanges is irrelevant,
since 36B further limits subsidies to Exchanges
established by the State under section 1311.
3. It is particularly clear that established by
the State has its ordinary meaning under the Act
because, when the ACA Congress wanted to depart
from normal usage, it did so directly and expressly.
42 U.S.C. 18043(a)(1) (territory that establishes
Exchange shall be treated as a State); H.R. 3962,
308(e), 111th Cong. (2009) (national Exchange in
House bill shall be deemed to include state-run
Exchanges if states opt in). Again, the Government
offers no hint why the Act did not apply the same

5
direct approach in 1321. While Congress was not
required to use petitioners preferred formulations
(Govt.Br.23 n.7), it had to use some formulation if it
wanted to substitute a term of art for the ordinary
meaning of established by the State. Comparing
the direct formulations Congress used elsewhere in
the same Act (and its drafts) with the roundabout
cross-references, leaps of logic, and question-begging
assertions offered here further exposes the
Governments term of art theory as merely a post
hoc invention to defend its policy preference.1
Moreover, had Congress intended Exchange
established by the State as a term of art referring
to all Exchanges, it would have used that phrase
consistently. Yet the ACA often refers to Exchange
standing alone, and also uses broader formulations
such as Exchange established under this Act. 42
U.S.C. 18032(d)(3)(D)(i)(II). On the Governments
view, all of these mean the same thing as Exchange
established by the State. But construing these
disparate phrases to mean the same thing is to
abandon all pretense at precise communication.
Dept of Homeland Sec. v. MacLean, 135 S.Ct. 913,
920 (2015).

The Government also objects that 1323 is inapt because

that state-territory equivalence serves a different function.
(Govt.Br.23 n.7.) So what? When Congress wanted to treat
territories as states for one purpose, it knew how to say so and
did not treat a cross-reference to 1311 or the word such as
sufficient. 42 U.S.C. 18043(a)(1). Yet Congress did not do the
same when it sought, supposedly, to treat HHS as a state for
another purpose.

6
4. Finally, perhaps the most glaring problem
with the Governments term of art theory is: Why?
Why would Congress say Exchange established by
the State when fewer words would better convey its
supposed intent without the confusion arising from a
counterintuitive term of art?
The Governments effort to explain is laughably
unpersuasive. Congress had to use this phrase, it
argues, because of style and grammar, to identify
the Exchange in a particular State. (Govt.Br.33.)
That is, because the same sentence of 36B begins
by authorizing subsidies for plans in the individual
market within a State, its subsequent reference to
an Exchange had to make clear that it was referring
to the Exchange in the specific State mentioned, not
some other Exchange. (Govt.Br.33-34.) Established
by the State was supposedly how it did so.
If anything, however, 36Bs switch from within
a State to established by the State confirms that
the latter restrictive formulation means what it says.
Had Congress merely wanted to refer back to the
specific State mentioned earlier, it would have just
changed the article from a to thespecifying the
Exchange within the State. That would have
avoided any (unlikely) confusion over which state
was intended, and clearly swept in HHS Exchanges.
It is also what Congress did elsewhere. 42 U.S.C.
18032(e)(1) (authorizing a State to allow brokers
to enroll people through an Exchange in the State).
By contrast, 36B focuses on who established the
Exchange in the state.
Moreover, the Governments explanation only
applies to one of 36Bs uses of established by the
State. The Act uses the same phrase to limit the

7
definition of a coverage month triggering a subsidy.
26 U.S.C. 36B(c)(2)(A)(i). That definition does not
previously refer to a State, and Congress therefore
had no need to identify a previously referenced state.
B. No Other Provision Extends Subsidies to
HHS Exchanges or Requires Ignoring 36B.
Unable to explain 36Bs text, the Government
urges reading the whole statute. (Govt.Br.20.) But
reading the ACA cover-to-cover reveals no authority
to subsidize HHS Exchanges. To the contrary, as
noted, other provisions confirm that HHS Exchanges
are not established by the State. Nor is departure
from 36Bs plain text required to avoid creating any
anomalies elsewhere. The supposed anomalies are
unrelated to 36B, and anyway do not exist.
1. The Government suggests that the only limit
on subsidy recipients is the income range in 36Bs
definition of applicable taxpayer. (Govt.Br.19.)
But an applicable taxpayer is who is eligible, not
what purchases are subsidized; there are far more
limits on an eligible purchase than ones income. For
example, if an applicable taxpayer buys coverage
but not through an Exchange, there is no subsidy.
Indeed, even if an applicable taxpayer does buy
coverage on an Exchange, he obtains no subsidy if he
was eligible for employer coverage or Medicaid. All
these limits arise from 36Bs definition of coverage
month, which further requires coverage through an
Exchange established by the State.
26 U.S.C.
36B(c)(2)(A) (emphasis added).
It is thus hardly astonishing that this complex
and technical statute limits subsidies to state-run
Exchanges in technical subclauses defining those
subsidies. (Govt.Br.18, 20.) These subclauses are

8
the only provisions where subsidies are authorized
and where all other limits on subsidies are found. It
would thus be astonishing had some other provision
limited them. And this limit is far more natural in
the Tax Code than in 1321, which has nothing to do
with the IRS or subsidies.
2. The Government also observes that other
parts of the Act refer to subsidies in the context of
Exchanges without including the established by the
State caveat. (Govt.Br.34.) But, of course, once this
limitation is established in 36B, there is no need to
gratuitously repeat it in every section referring to
subsidies (but not defining or limiting them). This
disparity thus proves Petitioners point: Inclusion of
established by the State in 36B was deliberate,
not rote, meaningless repetition of a term of art.
3. Because the Act requires both state and HHS
Exchanges to report information regarding subsidies,
the Government infers that they must be available
on HHS Exchanges. At the outset, this reporting
requirement refutes the Governments term of art
theory, since Congress did not use its supposed term
of art to subject all Exchanges to the reporting rule.
(Pet.Br.28 & n.3.) Anyway, requiring all Exchanges
to report on information including subsidies hardly
implies subsidies are available on all Exchanges. As
the Government concedes, the reported information
can be put to other uses beyond administering the
credits (Govt.Br. 25, 26 n.9). Reporting thus plainly
serves a reasonable purpose even absent subsidies.
Seeking to undo this concession, the Government
contends, based on the general section heading, that
the one true purpose of reporting is to allow Treasury
to reconcile advance payment of the subsidy with

9
its final value. (Govt.Br.26.) (The reconciliation
language comes from the general heading of 36B(f),
while the reporting rule appears in a subsection with
a subheading Information requirement, 26 U.S.C.
36B(f)(3).) But a section heading cannot change
the fact that the reported information serves
purposes beyond reconciling subsidies. And, to quote
the Government, this Court has recognized that
headings can be especially poor guides to meaning.
Br. for U.S. at 41, Yates v. United States, No. 13-7451
(2014). Here it is an even worse guide than usual,
since the reporting rule was not part of 36B(f) in
the originally enacted ACA. Rather, it was spliced in
later, by HCERA, Pub. L. No. 111-152, 124 Stat.
1035, 1004(c); a pre-existing heading thus cannot
possibly identify its purpose.
Indeed, this
amendment was contained in a HCERA section titled
Income Definitions, proving that headings had little
if any connection to purpose in this last-minute
package.
4. The Government argues that, on Petitioners
reading of 36B, nobody in a state served by an HHS
Exchange would be a qualified individual since
nobody resides in the State that established the
Exchange, 42 U.S.C. 18032(f)(1)(A)(ii), and so HHS
Exchanges will have no customers (Govt.Br. 27-29).
At the threshold, this is a red herring, because it
is unrelated to the differing interpretations of 36B.
Petitioners interpretation does not cause any
qualified individuals problem: If Petitioners prevail
here, the Government obviously will not shut down
HHS Exchanges, as it (yet again) refuses to dispute.
See 45 C.F.R. 155.305(a)(3) (allowing enrollment by
anyone who lives in Exchanges service area).

10
Conversely, the Governments 36B interpretation
does not solve any such problem: It is not making the
reality-defying argument that the state in which
people reside actually establishes the Exchange
when HHS does so (Govt.Br.20). Rather, its theory is
that HHS establishes Exchanges as a surrogate for
states. (Id.) Thus, even under its view of 36B, no
one resides in the State that established the
Exchange, only in the State [where HHS has]
established the Exchange [as the states surrogate.]
Thus, if a plain-meaning reading of the qualifiedindividual definition actually did absurdly preclude
enrollment on HHS Exchanges, the definition would
need to be revised regardless of which interpretation
of 36B is adopted (and any such revision could not
be imported into the non-absurd 36B anyway).
In any case, such a plain-meaning interpretation
does not empty out HHS Exchanges. As previously
explained, the residency limit is with respect to an
Exchange. 42 U.S.C. 18032(f)(1)(A). Thus, it does
not apply to HHS Exchanges because Exchange,
when it stands alone, is construed in accord with its
context and the definition of Exchange to refer only
to state Exchanges. (HHS can apply an analogous
residency limit by regulation. (Pet.Br.48 & n.6.))
Far from contradict[ing] the [Acts] definition of
Exchange (Govt.Br.52), this precisely reflects its
language. Moreover and in any event, enrollment is
not restricted to qualified individuals. (Pet.Br.4950.) The Act never equates (Govt.Br.52) eligibility
to enroll with qualified status; it actually treats
them separately, referring to those who are neither
qualified nor eligible, 42 U.S.C. 18032(f)(3)
(illegal aliens), as well as those who are both
qualified and eligible, id. 18051(e) (individuals

11
covered by state basic health program). (Prisoners
are not qualified but may be permitted to enroll for
the obvious reason, among others, that they will
need insurance if released. (Pet.Br.49 & n.7.))2
5. The Government says that a maintenance-ofeffort restriction on state Medicaid programs, which
expressly expires when an Exchange established by
the State is fully operational, 42 U.S.C.
1396a(gg)(1), really expires on January 1, 2014
(Govt.Br.29). That is wholly invented, contrary to
the Acts plain text. Moreover, the provision includes
an exception, for states with deficits, which does end
on December 31, 2013. 42 U.S.C. 1396a(gg)(3).
That proves both that Congress used dates certain
when it wanted to, and that the maintenance-ofeffort rule must extend beyond 2013 (otherwise there
was no need to specify an end date for the exception).
There is therefore every reason to believe that
Congress meant what it said here too. HHSs refusal
to enforce this provision (Govt.Br.29) hardly justifies
the IRSs disregard for the same language in 36B.
6. The Government next cites two provisions
requiring states to take certain actions in relation to
an Exchange established by the State. (Govt.Br.3031.) These provisions, however, would be absurd on
the Governments reading of that phrase.

None of this means HHS Exchanges cannot certify any

plans for sale. (Govt.Br.29.) The requirement to certify plans
as in the interests of qualified individuals comes from 1311,
i.e., the state Exchange provision. 42 U.S.C. 18031(e)(1)(B). It
does not directly apply to HHS Exchanges (though HHS can
impose an analogous requirement by regulation, id. 18041(c)).

12
First, the State must establish procedures to
enroll in Medicaid or CHIP anyone identified by the
Exchange established by the State as eligible for
suchand vice versaand also ensur[e] that the
Exchange established by the State communicates
to other entities using a secure electronic interface.
42 U.S.C. 1396w-3(b)(1). Second, the State must
establish procedures to enroll children affected by
CHIP funding shortfalls in an Exchange established
by the State. Id. 1397ee(d)(3)(B). If there is no
Exchange established by the State in a state, these
provisions are necessarily inapplicable, as a matter
of ordinary English usage.3
Under the Governments term of art theory,
however, the Act would impose those obligations on
states even though they would be incapable of
complying. If an HHS Exchange is established by
the State, these provisions would obligate the
Stateon pain of losing all its Medicaid fundsto
direct an Exchange over which it has no control. The
state would be compelled to somehow ensur[e] that
HHS uses a secure electronic interface; to establish
procedures to automatically enroll people in an HHS
Exchange; and to act on enrollment information
known only to the HHS Exchange. Instead of being
3

That makes perfect sense, because their main objective is

to ensure that people not covered by Medicaid or CHIP enroll
on Exchanges to receive subsidies. 42 U.S.C. 1396w-3(b)(1)(C);
id. 1397ee(d)(3)(B). Since subsidies are not available on HHS
Exchanges, there is no point helping people who requested
subsidized Medicaid or CHIP coverage to enroll in unsubsidized
private Exchange coverage. If these provisions serve any other
purposes, e.g., identifying Medicaid-eligible individuals, HHS
will simply do that on its own authority.

13
inapplicable, these provisions on the Governments
construction would be binding yet impossible.
The Government has thus unwittingly illustrated
why it is a fools errand to search for a construction
that eliminates any conceivable tension in every part
of this gargantuan lawone that Congress was told,
infamously, that it had to pass to find out its content.
Rather, the haste and confusion attendant upon the
passage of this massive bill are all the more reason
to hew to the statutory text. Engine Mfrs. Assn
v. EPA, 88 F.3d 1075, 1092 (D.C. Cir. 1996).
C. Far from Being Absurd, 36Bs Plain Text
Advances Reasonable Purposes.
Plain text can be disregarded only if objectively
absurd; here the Government does not contend that
36B meets that test. Nor can it show even that the
text is inconsistent with Congresss purposes.
1. The Government emphasizes that subsidies
help expand the risk pool. If the IRS Rule is vacated,
it claims, states served by HHS Exchanges would see
increased premiums, reduced enrollment, and
ultimately death spirals. (Govt.Br.36-38.)
Even if that were true (but see p.20, infra), these
consequences are the result of the IRS Rule, not the
statute. Had the IRS from the start made clear that
subsidies were limited to state Exchanges, states
would not have overwhelmingly refused to establish
them. Indeed, Congress had no reason to doubt that
all (or virtually all) states would establish Exchanges
to ensure citizens eligibility for subsidies. It is thus
perfectly plausible (Pet.App.25a)and clearly not
quite impossible, Pub. Citizen v. Dept of Justice,
491 U.S. 440, 471 (1989) (Kennedy, J., concurring in
judgment)that Congress intended to condition the

14
subsidies, even though enforcing that condition now,
given the IRSs misleading deception of states, would
(temporarily) have effects Congress did not desire.
As such, not even the Government claims that
limiting subsidies to state-established Exchanges is
objectively absurd. Yet that is the only scenario in
which a court can disregard plain statutory text. See
Lamie v. United States Tr., 540 U.S. 526, 534 (2004).
2. Instead, the Government contends that
Congress did not subjectively intend to condition
subsidies, because it would not have played such a
high-stakes game of chicken. (Govt.Br.18.)
That is legally irrelevant. Where the statutory
language is clear and unambiguous, we need neither
accept nor reject a particular plausible explanation
for why Congress would have written a statute as it
did. Barnhart v. Sigmon Coal Co., 534 U.S. 438, 460
(2002). Here, not even legislative history says that
subsidies are available on HHS Exchanges. Infra,
pp.17-18. So there is no basis to inferunder any
interpretive theorythat Members of Congress who
read 36B did not intend the limit on subsidies its
text plainly imposes (and which concededly furthers
the textually stated purpose that states shall run
Exchanges). In short, the Government wants this
Court to depart from plain text that serves express
legislative intent, by speculating about how riskaverse Congress was in implementing that intent.
3. Even if assessing congressional risk aversion
were permissible, there is far more evidence that
Congress was willing to take the high-stakes risk
that states would turn down its deal than that
Congress secretly created a term of art whereby
HHS serves as states surrogate.

15
First, the Government provides no inkling how
the Act, other than by conditioning subsidies, could
have avoided the overwhelming state rejection
caused by the IRS Rule.
Second, it is ludicrous to deny that Congress
would engage in a high-stakes game of chicken
with states (Govt.Br.18) when Congress undeniably
did just that by threatening to withhold all Medicaid
funds unless states expanded Medicaid per
Congresss wishes. (Pet.Br.32.) The Government
notes that Medicaid grants are nominally given to
states, not individuals, but this is immaterial since
they are used for coverage for low-income
individuals. (Govt.Br.43.) Whether the payments
flow through the state (Medicaid) or private insurers
(subsidies), the state interest is identical: insuring its
citizens. States are therefore equally responsive to
conditions on either benefit. And, indeed, Congress
elsewhere conditioned individual tax credits on state
action. 26 U.S.C. 35(e)(2)(A). (Govt.Br.44 n.15.)
The Government also observes that Congress did
not create a fallback if states rejected Medicaid, but
did authorize fallback Exchanges if states refused
to establish their own. (Govt.Br.43-44.) All that
shows is that the Medicaid deal had even higher
stakesundermining the Governments claim that
Congress was highly cautious. A Congress willing to
hold hostage all of Medicaid could surely have
conditioned 36B subsidies, with fallback Exchanges
if states balked. And, from the states perspective,
the Medicaid deal was less attractive: It required
states to shoulder up to $60 billion in new state
spending, Natl Fedn of Indep. Bus. v. Sebelius, 132
S.Ct. 2566, 2666 (2012) (joint dissent) (NFIB),

16
while Exchanges are financed through federal grants
and user fees, 42 U.S.C. 18031(a), (d)(5)(A).
Third, the Government admits that the Senate
HELP Committees bill made tax credits conditional
on state action in certain respects. (Govt.Br.48
n.18.) How could it be unthinkable for Congress to
condition subsidies when a Senate committee whose
bill ultimately became the ACA (Govt.Br.47)
concededly wanted to do just that? Nor was this any
novelty. The Clinton Administrations health-reform
proposal used similar conditions 17 years earlier:
There needs to be a federal default if a state does
not administer a purchasing cooperative, but the
President wants to use withholding federal funds as
lever to get all states to participate. Health Reform
Briefing at 2 (Mar. 17, 1993), http://web.archive.org/
web/20140627133428/http://clintonlibrary.gov/assets/
storage/Research%20-%20Digital%20Library/former
lywithheld/batch4/2006-0810-F.pdf; see also Health
Security Act, H.R. 3600, 1513, 103d Cong. (1994)
(unless state complies, HHS shall reduce payments
to individuals and entities in the State, including
hospitals serving vulnerable populations). Earlier
bills, too, had long suggested the same approach.
E.g., National Healthcare Act, H.R. 14017, 531, 93d
Cong. (1974) (Nixon Administration); Financial
Assistance for Health Care Act, S. 3137, 105-106,
109, 94th Cong. (1976) (Ford Administration).
Fourth, the Government admits key Senators,
including Sen. Nelson, opposed the House-proposed
national Exchange bill, which allowed, but did not
incentivize, states to opt out of the federal Exchange.
(Govt.Br.51 & n.20.) Why would those Senators then
be satisfied with a bill amounting to the same thing,

17
allowing states to costlessly opt for a federal
Exchange? The Government tries to distinguish the
nationwide Exchange of the House bill from the
state-specific Exchanges run by HHS (Govt.Br.5051), but that is semantics. The House bill called for a
federally run portal to sell, to a states residents,
plans tailored to their states rating area and
compliant with state licensing and other laws. H.R.
3962, 303(e)(1), 304(b)(1) & (e)(6), 111th Cong.
(2009). That is just how HealthCare.Gov operates.
Fifth, the Governments brusque dismissal of
repeated confirmations of the Acts incentive function
by ACA architect Jonathan Gruber is unconvincing.
(Govt.Br.50 n.19.) Gruber belatedly sought to claim
he was addressing what would happen if HHS failed
to establish Exchanges. Jonathan Gruber, Written
Testimony Before House Comm. on Oversight & Govt
Reform 2 (Dec. 9, 2014).
Yet nothing in his
comments even hinted at such a scenario, and there
was no rational basis in January 2012 to believe that
HHS would defy its statutory duty.
4. Against all this, the Governments evidence
that Congress never intended to incentivize states to
establish Exchanges is strained and unpersuasive.
First, the Government emphasizes the absence of
legislative history confirming the text (Govt.Br.49),
but that is irrelevantespecially here, given that the
ACA was negotiated behind closed doors and
Congress was unexpectedly blocked from amending
it at conference. (Pet.Br.40, 42.) Sensing no irony,
the Government presses this argument even though
it offers no legislative history for its term of art or
the proposition that subsidies are available on HHS
Exchanges. (Its banal legislator statements do not

18
even address HHS Exchanges, much less say that
subsidies would be offered there. (Govt.Br.47-48.))4
Second, the Government claims it was clear
that some States would not establish Exchanges
(Govt.Br.42), but that is false (and, if true, would
only reinforce the need for strong incentives). The
Governments sole pre-enactment legislative source
is the Oklahoma Insurance Commissioners letter,
introduced into the record, saying the opposite:
Oklahoma support[s] the state-based exchange
concept but needs a grant to pay for it. 155 Cong.
Rec. S12543-S12544 (Dec. 6, 2009) (Sen. Coburn). Of
course, the ACA provided such grants. See 42 U.S.C.
18031(a). The Government also cites a news story
referencing, not state proposals to opt out of creating
Exchanges, but unspecified proposals floated around
Capitol Hill that would allow states to opt-out of
regional health insurance markets or governmentsponsored insurers. David D. Kirkpatrick, At State
Level, Health Lobby Fights Change, N.Y. TIMES, Dec.
29, 2009. But the only legislator who warned of state
default was a Republican opponent of the Actafter
the ACAs enactment. 156 Cong. Rec. H2207 (Mar.
22, 2010) (Rep. Burgess). By contrast, the laws
supporters were certain that every state would set
up its own exchange, Robert Pear, U.S. Officials
Brace for Huge Task of Operating Health Exchanges,
N.Y. TIMES, Aug. 4, 2012, at A17and therefore
4

The Senate Finance Committee described subsidies as

available on state exchanges. (Govt.Br.46.) Contrary to the
Governments misleading implication (Govt.Br.47-48), HHS
Exchanges were described as Exchanges within the state. S.
Rep. No. 111-89, at 19 (2009) (emphasis added).

19
provided no funding for HHS Exchanges, forcing
HHS to turn to a general administrative expenses
fund (Govt.Br.42 n.14).5
Third, the Government contends that Congress
thought Exchanges served no viable function without
subsidies and would not have created any Exchanges
absent them. (Govt.Br.44.) That too is demonstrably
false. Territorial Exchanges provide no subsidies.
42 U.S.C. 18043(a). And the legislative history
consistently emphasizes that the Exchanges primary
function is to create an organized and transparent
marketplace for consumers to shop and compare
health insurance options. H.R. Rep. No. 111-443, at
976 (2010); see also 156 Cong. Rec. S1137 (Mar. 4,
2010) (Sen. Baucus) (Just like Orbitz, just like
Expedia.); 155 Cong. Rec. S10452 (Oct. 15, 2009); id.
S12651 (Dec. 8, 2009). Hence the Governments
representation in NFIB that exchanges and tax
credits
are
stand-alone
provision[s]
that
independently advanc[e] Congresss goals. Br. for
Resps. on Severability at 33, NFIB, 132 S.Ct. 2566,
2012 WL 273133.6

Another ACA opponent, Senator Hatch, co-authored a

Wall Street Journal article condemning the Act as infringing on
state power since, even if a state did not accept a condition for
receiving federal funds, an Exchange would still be established
in the state, without its consent. (Govt.Br.45.) He nowhere
suggested that subsidies would be available in that event.
6

The Government responds that its NFIB brief addressed

severability, not whether Exchanges could function without tax
credits. (Govt.Br.44 n.16.) But severability turns on whether
a provision is capable of functioning independently. Alaska
Airlines, Inc. v. Brock, 480 U.S. 678, 684-85 (1987).

20
In stark contrast, no member of the ACA
Congress identified subsidies as critical to a threelegged stool (Econ.Am.Br.3) or said that Exchanges
absent subsidies would cause adverse selection or
trigger death spirals. Rather, as the Government
emphasized in NFIB, the individual mandate was
justified on these grounds, [a]s demonstrated by the
experience of States that attempted [insurance]
reforms without a minimum coverage provision. Br.
for Resps. on Minimum Coverage Provision at 18,
NFIB, 132 S.Ct. 2566, 2012 WL 37168. To be sure,
more people will be exempt from the mandate absent
subsidies, but Congress itself exempted millions, 26
U.S.C. 5000A(d), (e), and the Administration has
gone even further, authoriz[ing] more than 30 types
of exemptions, Robert Pear, White House Seeks To
Limit Health Laws Tax Troubles, N.Y. TIMES, Feb. 1,
2015, at A15. All told, about 30 million people are
expected to claim exemptions for 2014, Stephanie
Armour, Up to Six Million Households Facing
Penalty for Skipping Health Insurance, WALL ST. J.,
Jan. 28, 2015, compared to just five million who
enrolled on HHS Exchanges (Govt.Br.2). The claim
that the incremental exemptions generated by
eliminating subsidies will somehow destroy the
market thus does not reflect any congressional (or
even executive) judgment, only post-litigation
speculative hyperbole by the Government and its
amici. (Consumers.Res.Am.Br.16.)
Finally, the Government objects that Congress
wanted cooperative federalism, which conditioning
subsidies would contradict. (Govt.Br.38-40.) Just
the opposite. Cooperative federalism is impossible
without state cooperation, which is not forthcoming
when states are given no incentives. Consequently,

21
Congress routinely conditions benefits for states or
their residents on state compliance with federal
policies. (Okla.Am.Br.5-14.)
Hence, what would be unusual is if Congress had
provided that state residents would receive subsidies
whether or not states abided by a directive that they
shall establish Exchanges, 42 U.S.C. 18031(b)(1),
turning that shall into just a toothless suggestion.
Such a scheme is unheard-of. The Government
identifies schemes that allow the federal government
to take over enforcement authority if states default,
but they do not grant federal benefits in that event.
42 U.S.C. 300gg-2; id. 7410(c).
Nor was clearer notice needed. (Govt.Br.3941.) The ACAs Medicaid deal was implemented by
innocuously adding a subclause VIII to 42 U.S.C.
1396a(a)(10)(i), enumerating Medicaids eligibility
criterianot by express threats. ACA 2001(a).
Section 36B is certainly no less clear (and Congress
could hardly have expected that states would ignore
statutory text but somehow be alerted by notice
buried in legislative history). In both situations,
Congress relied on federal agencies to accurately
represent the law to affected parties (during the four
years before it took effect). The IRSs failure to do so
does not prevent enforcement of the law under
Pennhurst State School & Hospital v. Halderman,
451 U.S. 1 (1981), because that doctrine prevents
binding states to unclear conditions in a contract,
see id. at 17, whereas this suit seeks to enjoin the
IRS (which will allow states to make an informed
choice).

22
II. THE IRS IS NOT ENTITLED TO DEFERENCE.
Even apart from 36Bs unambiguous text,
deference is triply unwarranted here.
1. Congress does not delegate decisions of vast
economic and political significance, Util. Air
Regulatory Group v. EPA, 134 S.Ct. 2427, 2444
(2014), which this issue plainly is. The Government
responds that denying subsidies on HHS Exchanges
is equally significant. (Govt.Br.57.) That is exactly
the point: This is so consequential that Congress
would not have delegated it either way. This Court
should therefore discern, based on its best reading of
the ACA, what Congress meant when it directly
spok[e] to th[is] precise question, Chevron U.S.A.
Inc. v. NRDC, Inc., 467 U.S. 837, 842 (1984)not
defer on the fiction that Congress left it to the IRS.7
2. As the Government admits (Govt.Br.57), tax
credits must be narrowly construed. It argues that
the canon is a wash here, because a narrower 36B
would expand individual and employer mandate-tax
exemptions. (Govt.Br.58.) The canon, however, is
not concerned with maximizing revenues, but with
respecting Congresss role by not allowing executive
spending based on mere ambiguity. United States
v. Stewart, 311 U.S. 60, 71 (1940). The mandate-tax
exemptions are concededly unambiguous, and so the
canon does not speak to them. But its constitutional
concern is directly implicated by 36B.

City of Arlington v. FCC concerns whether to defer on

agency jurisdiction. 133 S.Ct. 1863, 1868 (2013). It does not
undermine Utility Air, written later and by the same Justice.

23
Nor is there a conflict here with the competing
canon that tax laws should be uniform. That canon
means that federal law, not state law, determines
whether and to what extent to tax property. United
States v. Irvine, 511 U.S. 224, 238 (1994). A federal
credit conditioned on state actionlike 36B (and 26
U.S.C. 35)is plainly different. Steward Mach. Co.
v. Davis, 301 U.S. 548, 574, 584-85 (1937) (upholding
credit for contributions to federally approved state
unemployment funds). Anyway, the plain text does
create a uniform scheme. Citizens everywhere may
earn a credit if their state establishes an Exchange,
and all states have equal opportunity to do so.
3. The Government cannot explain why the IRS
should have authority to discover a term of art in
Title 42 of the U.S. Code, over which it has neither
authority nor expertise. And HHS can claim no
deference on 36B, since it does not administer that
provision. None of this Courts cases has addressed
whether to defer in such a case (cf. Govt.Br.58), and
no traditional ground for deference supports doing
so. Rather, when terms in an Act cut across multiple
Code titles and multiple agencies jurisdiction, no
agency has been delegated interpretive authority.

24
FEBRUARY 2015

Respectfully submitted,
MICHAEL A. CARVIN
Counsel of Record
YAAKOV M. ROTH
JONATHAN BERRY
JONES DAY
51 Louisiana Ave., NW
Washington, DC 20001
(202) 879-3939
macarvin@jonesday.com