Obamacare Subsidies in 34 States May Not Be Legal
One of the Patient Protection and Affordable Care Act’s (“Act”) major selling points, the subsidies that certain individuals within 400% of the federal poverty level can receive if they purchase health insurance on state or federal exchanges, has recently been called into question. The D.C. Circuit recently ruled these subsidies are available only to individuals on state-run exchanges, not on federal exchanges, while the Fourth Circuit came to the opposite conclusion.
Under the Act, states can set up their own exchange or they may choose to rely on the federal government’s exchange. Currently, 36 states declined to set up their own exchanges and instead are relying on the federal exchange. Under the relevant section of the Act, tax subsidies are available to individuals on “an exchange established by the State.” The IRS promulgated regulations interpreting this to mean that individuals on both state and federal exchanges may receive subsidies.
In July of this year, the D.C. Circuit ruled that the Act allows tax credits for individuals purchasing insurance through state exchanges only and that the IRS’ interpretation of the Act is unlawful. The Court found the statute unambiguously allowed tax credits for only state exchanges. Several months later, at the request of the Department of Justice, the Court vacated this decision and agreed to rehear the case with the entire panel of judges in the Court present. Many believe that because five out of the eight judges are liberal, including three who were recently appointed by President Obama, this decision has a high likelihood of being reversed. Oral arguments are set for December 17. See Halbig v. Burwell, 758 F.3d 390 (D.C. Cir. 2014), vacated and rehearing en banc by Halbig v. Burwell, 2014 U.S. App. LEXIS 17099 (D.C. Cir. 2014).
On the same day, the Fourth Circuit Court held that the statute at issue was ambiguous and subject to at least two interpretations. Because of this ambiguity, the Court was satisfied with the IRS’ construction of the statutory language that individuals on both state and federal exchanges can receive subsidies. A petition for certiorari to the U.S. Supreme Court was filed in the end of July to resolve this conflict. See King v. Burwell, 759 F.3d 358 (4th Cir. Va. 2014), petition for cert. filed, (Jul. 31, 2014) (No.14-114).
In September, these two cases were joined by an Oklahoma Federal District Court which ruled the IRS’ interpretation of the Act unlawful. It vacated the IRS’ interpretation but stayed the decision pending an appeal of its order. See Oklahoma ex rel. Pruitt v. Burwell, 2014 U.S. Dist. LEXIS 139501 (E.D. Okla. Sept. 30, 2014). Other courts are also deciding this issue including a federal court in Indiana.
If the D.C. Circuit reverses its decision, there is a likelihood the U.S. Supreme Court will not take the case because there will be no Circuit split, which is one common ground upon which the U.S. Supreme Court generally grants certiorari. We will keep you updated on any developments across the country on this issue.
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THIS ARTICLE WAS FIRST PUBLISHED ON THE LAW.COM CONTRIBUTOR NETWORK ON OCTOBER 30, 2014.