Appeals Courts Issue Conflicting Rulings on ACA Subsidies

On Tuesday, two federal appeals courts issued conflicting rulings on whether the federal government can provide subsidies to U.S. residents who purchase coverage through the Affordable Care Act's federal insurance exchanges, the New York Times reports (Pear, New York Times, 7/22).

Halbig v. Burwell

A three-judge panel for the U.S. Court of Appeals for the District of Columbia in a 2-1 decision in the case Halbig v. Burwell ruled that subsidies to help U.S. residents purchase coverage through the ACA's federal insurance exchanges are illegal.

The lawsuit targets a May 2012 Internal Revenue Service rule that allows subsidies to be offered through the federal exchanges.

The suit's 12 plaintiffs -- including a hospital chain and a restaurant franchise -- argued that the IRS rule should be invalidated because it contradicts what Congress originally intended in the ACA. Numerous ACA opponents also have argued that IRS exceeded its legal authority by issuing the rule.

However, a district court judge in January ruled against the plaintiffs, stating that both the text of the ACA and the law's structure "make clear that Congress intended to make premium tax credits available on both state-run and federally facilitated exchanges." The plaintiffs filed an appeal following the ruling. Initial arguments were heard by the appeals court in March (California Healthline, 7/22).

In the appeals court's ruling, the judges wrote that the ACA "does not authorize the IRS to provide tax credits for insurance purchased on federal exchanges." Instead, the law "plainly makes subsidies available only on exchanges established by states."

However, a dissenting opinion filed by Judge Harry Edwards called the case an "attempt to gut" the ACA and said the majority opinion "defies the will of Congress."

King v. Burwell

Meanwhile, a three-judge panel for the 4th U.S. Circuit Court of Appeals in Richmond, Va., in the case King v. Burwell unanimously ruled to uphold the subsidies, the Times reports (New York Times, 7/22).

In the 4th Circuit Court's ruling, the judges wrote that the IRS rule was "a permissible exercise of the agency's discretion." They noted that the ACA's language is "ambiguous and subject to multiple interpretations" and thus deferred to IRS.

Next Steps

The Obama administration said that the Department of Justice will ask for a full appeals court review of the Halbig decision (New York Times, 7/22). The plaintiffs in the King case might also ask for a full review (Somashekhar/Goldstein, Washington Post, 7/22).

Meanwhile, legal experts have noted that the split rulings indicate the cases could end up before the Supreme Court (Wolf, USA Today, 7/22). According to the Los Angeles Times' "Nation Now," if the issue does end up before the high court, the case could be heard as early as next year (Savage, "Nation Now," Los Angeles Times, 7/22).

According to the New York Times' "The Upshot," all parties involved in both suits could also appeal directly to the Supreme Court without asking for full "en banc" reviews, in which the entire appellate court reviews a case instead of just a three-judge panel (Sanger-Katz, "The Upshot," New York Times, 7/22).

Meanwhile, at least two other cases challenging the subsidies are pending in federal district courts in Indiana and Oklahoma (New York Times, 7/22). Decisions in those cases could also end up in appellate courts, which could then potentially create even more split rulings ("The Upshot," New York Times, 7/22).

In the meantime, Congress or states could act to address the issues. According to "The Upshot," Congress could fix the language in the ACA to clarify how the subsidies are awarded. In addition, states that do not operate their own exchanges could move to do so, which would mean consumers there would be eligible for subsidies ("The Upshot," New York Times, 7/22). Further, states could enter into a partnership with the federal government to run their exchanges instead of building their own (Norman, Politico, 7/22).

Potential Effect

According to the Times, more than 4.5 million people who purchased coverage through the federal exchanges could lose their subsidies if the Halbig ruling stands. The White House estimated that the subsidies have helped lower average monthly insurance premium payments from $346 to $82 (New York Times, 7/22). Avalere Health Vice President Caroline Pearson said if the ruling stands, "individuals in at least 25 states who remain in their current plans could see an average premium increase of over 70%."

In addition, the ruling could deal major blows to both the ACA's individual and employer mandates. According to USA Today, individuals are penalized under the law if they do not purchase affordable insurance that is available to them. However, eliminating the subsidies also could mean that many individuals would no longer be able to afford the plans, making them exempt from the mandate's financial penalties. Meanwhile, employers under the mandate are penalized when their workers received subsidized coverage for exchange plans (USA Today, 7/22).

Further, the Wall Street Journal reports that the conflicting rulings could create confusion for the ACA's upcoming 2015 open enrollment period, which begins Nov. 15. Sanford Health Plan President Ruth Krystopolski said the rulings "just la[y] another layer of uncertainty on top of an already confused environment" (Kendall/Armour, Wall Street Journal, 7/22).

However, the rulings will have no immediate impact on consumers, according to government officials ("Nation Now," Los Angeles Times, 7/22). DOJ said the federal government will continue providing the subsidies in states that use the federal exchanges while the issue is reviewed in courts (New York Times, 7/22). In addition, the Halbig ruling would not affect consumers in states and the District of Columbia that created their own exchanges (USA Today, 7/22).