Will the Supreme Court Stay Its Judgment in King v. Burwell for Tax Reasons?

by Andy Grewal — Wednesday, Nov. 19, 2014

In a short forthcoming article, I explain how a government loss in King v. Burwell may create tax problems for persons who purchase policies on the federal exchanges during the current enrollment season. With a loss, enrollees will generally have to pay back the subsidies they received from the government. Also, starting in July 2015, enrollees would have to pay their full monthly premiums out of their own pockets. This may impose serious hardships on taxpayers, who may have selected a health plan that would be affordable only with the help of government subsidies.

Given these potential hardships, it’s worth asking whether the Court will stay its judgment if it concludes that Section 36B allows a credit only for policies purchased on an exchange established by a state. Technically speaking, a mere stay wouldn’t accomplish much. A judicial decision generally relates back to the date of the statute it interprets such that if, for example, the Court stayed its decision to January 1, 2016, purchasers of federal policies will still have overstated their credits in 2015 and would have to pay them back. However, under the tax code, the Treasury has the authority to deny retroactive effect to Supreme Court decisions, and a delayed judgment date, along with the exercise of the Treasury’s power, will protect purchasers of federal policies this current enrollment season. Alternatively, the Supreme Court might stay its judgment and simply announce that its decision applies only prospectively.

Is this doctrinally sound? I’m genuinely unsure. I know that the Supreme Court twice stayed its judgment in Northern Pipeline to give Congress a chance to cure constitutional defects regarding the structure of the bankruptcy courts. But maybe constitutional cases warrant stays that statutory cases, like King v. Burwell, do not.

Regarding prospective-only judicial decisions, cases like Harper v. Virginia Dep’t of Taxation, frown sharply on that practice. As Justice Scalia’s Harper concurrence explains, the judicial power does not allow courts to pick and choose when their decisions go into effect. Judges do not create law but rather find it, such that a judicial opinion simply explains what was already there. However, the case law is noisy on prospective-only decisions, and lower courts occasionally limit the retroactive effect of their decisions.

It makes sense for the government to argue in King that any adverse decision should be stayed and rendered prospective only. However, the government might not want to adopt a defensive posture. If that is so, and the issues really are as confusing as they seem to me, an informed amicus could aid the Court’s understanding.

Andy Grewal

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