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Chevron deference: the legal principle that could save Obamacare

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If you want to understand the Obama administration's plan to save Obamacare in the Supreme Court, you have to understand Chevron deference.

Chevron deference is a legal concept from the 1980s that directs the Supreme Court to defer to executive agencies' interpretation of law when the actual text is ambiguous.

The White House has leaned heavily on this precedent in legal briefs and oral arguments; the Supreme Court brief itself mentions it more than a dozen times. The administration argues that the language about Obamacare subsidies is ambiguous — and that under Chevron deference, the Treasury Department ought to get to decide how to interpret the guidance.

"Chevron is a rule that tips the scales in favor of a particular result when a statute is unclear," Yale Law's Abbe Gluck has written of the principle. "In Chevron's case, the scales are tipped toward the agency's preferred interpretation."

That's good news for the White House if the Supreme Court thinks Chevron deference applies — but very bad news if it doesn't.

The White House wants to answer two key questions

Chevron is named after, well, Chevron, the massive energy conglomerate. The principle takes its name from a 1984 Supreme Court case, Chevron v. NRDC, in which the company challenged the Environmental Protection Agency's interpretation of new Clean Air Act regulations, arguing that the EPA's definition of a "stationary source" was broader than the underlying law supported.

Justice John Paul Stevens delivered the majority opinion for the court. And he wrote that "If the intent of Congress is clear, that is the end of the matter." But in cases where Congress didn't articulate a clear policy preference — if Congress didn't, in this case, have a clear vision of what exactly a "stationary source" of air pollution entails — things were less simple.

In cases where "Congress has not directly addressed the precise question at issue, the Court does not simply impose its own construction on the statute," Stevens wrote.

What the Supreme Court set up in this decision was, essentially, a two-step test for determining when courts ought to step in and block an agency's interpretation of law — and when they should give the agency deference in rule-making:

  1. Is the legislative text ambiguous? The justices first look at whether it's possible to interpret part of the law in multiple ways. If the answer is yes, the justices move to a second question.
  2. Is the agency's interpretation of the law plausible? In a situation where the justices find that the law's text is unclear, the next step is weighing whether the executive's reading of the law makes sense.

Chevron meets Obamacare

supreme court

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King centers on how the White House interprets Obamacare's rules for who gets insurance subsidies. Particularly, there's a section of the law that says subsidies are available to people "enrolled in through an Exchange established by the State under 1311" — the section that sets up state-based exchanges. It does not reference section 1321, which sets up the federal and partnership marketplaces.

In a separate part of the law, Obamacare says that when a state doesn't set up its own marketplace, the federal government "shall establish and operate such exchange."

According to the administration, the word "such" implies that federal exchanges effectively step into the shoes of state exchanges. And this is the place where the White House invokes Chevron deference: it argues that this reading is a plausible way to interpret Obamacare.

Chevron deference, the White House argues, sets the bar low. The Obama administration doesn't need to show that its preferred reading of the law — one where all states get subsidies — is the best one, or the most natural. It just needs to show that it's one possible interpretation that makes decent sense.

The White House argues that the overall purpose of the law is, pretty clearly, to give lots of people subsidized health insurance, and that the IRS interpretation is a reasonable effort to fulfill that purpose.

"If there were any ambiguity," the White House argues in its Supreme Court brief, there's no reason "it should be resolved … by courts rather than the agency vested with the authority to implement."

king v burwell subsidies

The Obamacare challengers, unsurprisingly, take the opposite view. In order to counter the Obama administration's Chevron argument, they make the case that there isn't any ambiguity in the statute, and that the Supreme Court doesn't even need to go into the second prong of the Chevron test.

"The ACA plainly limits subsidies to coverage purchased on state-established Exchanges," the King plaintiffs argue. "No absurdity arises from that limitation, which is consistent with the Act’s structure, history, and purposes."

Chevron was at the heart of the two circuit court rulings on Obamacare. The federal district court in Virginia ruled against the health-care law, finding the text on subsidies to be unambiguous. The Fourth Circuit Court of Appeals, meanwhile, decided for the Obama administration because it believed the text was ambiguous.

If Obamacare wins on Chevron deference, that could spell disaster for Republicans

If Obamacare prevails at the Supreme Court, there's a decent chance the ruling will cite Chevron deference — that the court does find the language in the law ambiguous and, as such, defers to the Obama administration.

This could pose a twofold problem for Republicans. First, and most obviously, it would mean they lost a big case against Obamacare. Second, and less obviously, if the Supreme Court finds the language to be ambiguous, Republican candidates in 2016 could face questions about whether they would interpret Obamacare to not be legal. Brian Beutler wrote about the challenge earlier this week:

it will create a new conservative litmus test for Republican presidential candidates. If elected, will you shut down the subsidies? I suspect most of the candidates will yield to pressure from the right and promise to do precisely that. Most immediately, this promise becomes a general election liability for the Republican primary winner. If that person becomes president, it will turn into an administrative and political nightmare, forcing states and the U.S. Congress to grapple with a completely elective policy fiasco.

This is one possible future — although it's not the only one. Right now there doesn't seem to be much pressure on Republicans to halt subsidies immediately. In fact, every Republican plan to address a Supreme Court victory includes some type of subsidy extension. But if that pressure does ratchet up, a ruling on Chevron deference could become a potential obstacle for Republicans going forward.


CORRECTION: This post originally referred to Justice John Paul Stevens as the Chief Justice.