The Chevron Sidestep: Professor Freeman on King v. Burwell

Today, the Supreme Court held that federal subsidies to help Americans buy health insurance under the Affordable Care Act are available in every State, whether the States themselves or the Federal government sets up the health care exchanges. This is a major victory for the Obama administration, which had adopted that view of the law in an Internal Revenue Service rule. Unless subsidies are available nationwide, the Act’s scheme does not really work, because insurance would become more, not less expensive, and premiums would soar, undermining the core purpose of the law, which is to insure every American.

Yet in finding for the Obama administration, the Court nevertheless struck a blow against the executive branch. The Chief Justice’s majority opinion showed zero deference to the administration’s interpretation of the law. The Court construed the Act for itself.

Why should this matter? Because the Court’s approach could in the future limit the power of both executive branch and independent agencies to interpret the statutes they administer. The Chief Justice made a striking and significant departure from the normal rule of statutory interpretation, which is that when statutes are unclear, courts must defer to agency interpretations providing they are “reasonable.” This approach is known as the Chevron principle, for the case in which it was first announced. For thirty years Chevron has been bedrock legal doctrine and the dominant way to approach statutory interpretation: ambiguity favors the agency. As recently as two years ago, in Arlington v. FCC, the Supreme Court, over Chief Justice Roberts’ vehement dissent, reaffirmed the principle that Chevron applies in cases big and small, even where they involve matters of extraordinary economic and social significance. The Chief Justice in his Arlington dissent—joined, notably, by Justice Kennedy, a swing vote in many cases—went on at length about executive overreach and referred ominously to “the danger posed by the growing power of the administrative state.” He has clearly been waiting in the weeds since then. In two short paragraphs in today’s decision, the Chief Justice had his way. In one fell swoop, he elevated his Arlington dissent into a majority opinion—and did so without a peep from Justice Kagan, who had been so firmly against him on this point in Arlington.

This matters because King v. Burwell could easily have been resolved under the Chevron framework. The Chevron test has two steps: if the statute is clear, that is the end of the matter, but if it is unclear, the agency’s reasonable interpretation gets deference. In today’s case, the IRS had interpreted the law to allow federal subsidies in States with either State- or Federally-established health care exchanges. The Court could have reached the same result under Chevron in one of two ways. First, it might have held that the Affordable Care Act was unclear on whether federal subsidies would be available nation-wide and that the IRS resolved the matter reasonably by answering yes. The downside of this approach is that it would allow a new administration to change its mind and argue that their new approach, too, is reasonable and deserves deference. That uncertainty may have troubled the Court, which may have wanted to put this matter to rest once and for all.

But the Court easily could have avoided that problem by simply applying the Chevron framework and concluding that the statute was clear at Step One, and could be read only one way, to allow federal subsidies nationwide. The Court could have used exactly the same logic it ultimately adopted, which is that making subsidies available in all States is the only plausible reading of the law if the relevant statutory provision is read in context and in light of the Act’s clear purpose.1 But the Chief Justice took pains to say that “This is not a case for the IRS” but rather for the High Court, jettisoning Chevron in the process.

One might object that abandoning the Chevron framework doesn’t matter because the result is the same whether the Court reads the law for itself or concludes it is clear under Chevron. But this is only true in cases where the law is clear. The Chief Justice’s approach makes a big difference when the law is ambiguous. Recall that, under Chevron, ambiguity favors the agency. Without Chevron, the Court decides. So what the Chief Justice managed to do today is subtly to shift the balance of power in statutory interpretation back to the courts and away from agencies in the most contentious cases—precisely the cases where the law is not clear.

In many, perhaps most, cases, it will not matter. Most cases are not “extraordinary” and most do not involve matters of great “economic and political significance,” which is how the Chief described King v. Burwell. And certainly, in most cases, the agency seeking deference will be the one with relevant expertise and the one charged explicitly by Congress with administering the statute, which was not true of the IRS under the health care law. Yet this will not stop litigants from claiming that their case is “extraordinary” and involves agency regulation of matters of such grave economic and social importance that courts should decide for themselves, with no deference to the agency. At a minimum, this will add an extra step and an extra hurdle to the government’s defense of every regulation with an arguably significant impact on the economy. And at worst, it will mean that more policy decisions fall outside the Chevron framework, and that agency regulations that might once have received deference will be struck down more of the time.

One might argue in response that today’s decision effects no radical change—that it just reinforces the principle established fifteen years ago in FDA v Brown & Williamson, in which the FDA sought to regulate tobacco and was rebuffed by the Supreme Court. There, the Court applied Chevron but resolved the statutory question at Step One, concluding that the FDA did not possess the authority to regulate nicotine as a “drug.” It did so in part because, it said, “the court must be guided by a degree of common sense as to the manner in which Congress is likely to delegate a policy decision of such economic and political magnitude to an administrative agency.” As a precedent, Brown & Williamson has not had much success in displacing Chevron deference. It failed, for example, to persuade the Supreme Court in Massachusetts v. EPA, a case in which it might naturally have applied. Its future was not bright.

But enter the Chief Justice. His artful and bold move today breathes new life into Brown & Williamson, seeks to vindicate his dissent in Massachusetts v. EPA, and rectifies his defeat in Arlington. That is a lot to accomplish in two paragraphs.

The full implications of the Chevron sidestep will unfold over time. But there is reason for concern. Chevron suffered another blow in the Court’s final decision of the term, Michigan v. EPA. In a 5-4 decision authored by Justice Scalia, the Court held—notably for the first time—that EPA must consider cost even when Congress hasn’t required it to do so or even mentioned it as a relevant factor. The statutory provision at issue in Michigan, section 112(n) of the Clean Air Act, instructs EPA to list power plants for regulation where “appropriate and necessary” after considering the results of a health study. EPA listed oil-and coal-fired plants for regulation, determining that it was “ appropriate” to do so because the health study revealed that mercury remains dangerous to the public health, and because technology exists to control it. Normally, under Chevron, capacious language like “appropriate” would give the agency lots of latitude. Excluding cost consideration at this stage would be reasonable, especially when, as the agency concedes and everyone agrees, cost clearly comes into play later, when EPA sets the emission standards. But the Court here held that EPA must consider cost earlier too, at the listing stage. The agency’s reading was “impermissible” at Step Two.

This case can be read as quite limited, and Justice Scalia was unusually restrained. But it nevertheless portends a potentially radical shift in the Court’s approach to the role of cost in environmental regulation. EPA would not be overreacting to assume going forward that, unless Congress clearly precludes cost as a consideration, it is relevant. That flips the traditional presumption on its head. And it makes light work of the Chevron-derived principle that agencies are the primary interpreters of statutory ambiguity.

There are a number of blockbuster cases this term, with Obamacare and gay marriage rightly in the headlines. But there is another quiet story playing out behind the scenes: this may be annus horribilus for Chevron.

1Many commentators have admired the ingenuity of Chief Justice Roberts in declining to apply Chevron in Burwell, saying that it was a favor to the administration. On this view, the Court could not (at least with a straight face) have construed the statute to be clear under Chevron Step One—the plain meaning arguments against that finding were too strong. And since it could not concede ambiguity and defer to the administration’s interpretation as “reasonable” at Step Two without risking that another administration would reverse course, sidestepping Chevron was the best thing it could do from the administration’s perspective.

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