ACA Subsidies: One Court Strikes Down, Another Upholds

The U.S. Court of Appeals for the D.C. Circuit ruled Tuesday morning that the insurance subsidies granted through the federally run health exchange, which covered 36 states for the first open enrollment period, are not allowed by the law.  Subsidies provided by state ran exchanges would still be allowed.

The highly anticipated opinion in the case of Jacqueline Halbig v. Sylvia Mathews Burwell reversed a lower court ruling finding that federally run exchanges did have the authority to disburse subsidies.

This  ruling vacates the Internal Revenue Service (IRS) regulation allowing the federal exchanges to give subsidies. The large majority of individuals, about 86 percent, in the federal exchange system received subsidies, and in those cases the subsidies covered about 76 percent of the premium on average.

No more than two hours later, a second federal appellate court, the U.S. Court of Appeals for the 4th Circuit, reached the opposite conclusion, ruling that while the relevant provision of the federal health care law might appear to cut against the federal government, the I.R.S. is nonetheless entitled to the benefit of the doubt from the federal courts.

“We cannot discern whether Congress intended one way or another to make the tax credits available on HHS-facilitated Exchanges. The relevant statutory sections appear to conflict with one another, yielding different possible interpretations,” the 4th Circuit declared in King v. Burwell. “Confronted with the Act’s ambiguity, the IRS crafted a rule ensuring the credits’ broad availability and furthering the goals of the law. In the face of this permissible construction, we must defer to the IRS Rule.”

Due to the circuit split on a fundamental question of the legality of the ACA, I would guess it is likely the U.S. Supreme Court will review the rulings.  Until then, stay tuned.

Special thanks to David Enquist in our Moses Lake office for writing this post.

Paul Neiffer, CPA