Earlier this week, two federal appellate courts issued conflicting opinions regarding the legality of providing health insurance subsidies to residents in two-thirds of the states. This litigation presents a legitimate and potentially significant threat to the viability of the Affordable Care Act (ACA)—and the issue may be headed to the U.S. Supreme Court’s docket in the months to come.
The issue at hand is whether the ACA authorizes tax credits to be provided to individuals who reside in the 36 jurisdictions where the federal government operates individual health insurance exchanges. Those who argue that the law does not permit such assistance in these states point to an ACA provision that describes the mechanics of the tax credits and says subsidies are available to those who enroll in health plans “through an Exchange established by [a] State.” The legal question is whether federally operated exchanges can be classified as exchanges “established by [a] State.” The IRS previously concluded that the law allows federally run exchanges to provide subsidies to those who qualify, and in 2012 issued a rule authorizing the payment of tax credits in all states.
In Halbig v. Burwell, a three-judge panel from the D.C. Circuit Court of Appeals held that the Obama Administration’s interpretation and the IRS rule were improper. The court’s 2-1 decision concluded that a literal and plain reading of the statute clearly indicates that a federal exchange is not an exchange “established by [a] State” and that subsidies are not permitted in jurisdictions that do not set up their own exchanges.
Less than two hours after the release of the Halbig decision, the Richmond, Va.-based 4th U.S. Circuit Court of Appeals handed down a ruling that reached the opposite conclusion. In King v. Burwell, three judges unanimously found that the statutory text in question is ambiguous and that the administration’s interpretation of the law was appropriate, reasonable and entitled to deference from the courts. The appellate court acknowledged that “there is a certain sense to the plaintiffs’ position” but noted that the administration’s interpretation was “entirely sensible.” The panel also observed that making tax credits widely available was “essential to fulfilling the Act’s primary goals” and noted that “denying tax credits to individuals shopping on federal Exchanges would throw a debilitating wrench into the Act’s internal economic machinery.”
A final resolution to this question will not come quickly, but federal officials announced Wednesday that they will continue to make premium subsidies available in federally operated exchanges as the legal process runs its course. The Obama Administration has also announced its intention to seek a review of the Halbig decision by the entire D.C. Circuit Court, and many observers believe the full court is more likely to uphold the government’s interpretation of the statute.
It is unclear whether the plaintiffs in the King case will seek a similar en banc review of that decision, but the unanimous nature of the opinion may make such a request unlikely. Regardless of the outcome of these appeals (and of similar lawsuits already underway in Indiana and Oklahoma), many expect that the U.S. Supreme Court will ultimately decide the final outcome.
Wes Bissett is Big “I” outside senior counsel of government affairs.
