High Court Grants Review in Subsidy Case, Won't Wait for Federal Appeals Court Split

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By Mary Anne Pazanowski

Nov. 7 — The U.S. Supreme Court Nov. 7 granted a petition for a writ of certiorari in a case that will determine whether individuals who buy health insurance on an exchange established by the federal government in the 36 states that don't operate their own exchanges will receive assistance in the form of federal tax credits or subsidies.

Individuals and small businesses sought review of a July decision by the U.S. Court of Appeals for the Fourth Circuit that upheld an Internal Revenue Service rule, 26 C.F.R. 1.36B-2(a)(1), which says all exchange buyers, regardless of whether they use a federally facilitated or state-run exchange, may be eligible for tax credits, or subsidies, designed to help them afford the coverage.

The issue has been contentious, with the U.S. Court of Appeals for the District of Columbia Circuit the same day striking the rule after finding that it was contrary to the plain language of the Affordable Care Act. The ACA, it said, limits the availability of subsidies to state-run exchange buyers. That decision was vacated upon a grant of rehearing en banc. Oral argument before the whole D.C. Circuit is scheduled for Dec. 17.

In the interim, the U.S. District Court for the Eastern District of Oklahoma has sided with the D.C. Circuit in holding the rule invalid. The government has appealed that decision to the U.S. Court of Appeals for the Tenth Circuit. Another case is pending in the U.S. District Court for the Southern District of Indiana, where both the Obama administration and the challengers have moved for summary judgment.

Court Won't Wait on Appeals Courts

Challengers to the IRS rule said the high court should review the Fourth Circuit case, even though the issue is pending in the circuit courts, because it would be better to have a definitive ruling from the Supreme Court sooner rather than later. Other attorneys interested in the case said it would be unusual for the high court to take the issue away from the federal appeals courts, especially in the absence of a circuit split.

Sam Kazman, general counsel at the Competitive Enterprise Institute in Washington, said Nov. 7 the grant was “excellent news, regardless of which side of the issue you’re on.”

“The need for a quick and final resolution of this question is undeniable.” Kazman said in a press release. “This ‘subsidies-for-everyone’ rule affects nearly every person across the country—health insurance policyholders, workers and employers, taxpayers, and state and local governments.” CEI is coordinating and funding the litigation.

Timothy S. Jost, a health-law professor at Washington and Lee University Law School in Lexington, Va., told Bloomberg BNA Nov. 7 that the high court's decision is “unfortunate.”

“In the normal course” of events, the Supreme Court would have waited for a circuit split before taking up the issue, he said. He said the court just may have decided that it would be better to resolve the issue sooner.

This doesn't mean that the challengers will win, he cautioned. It takes the votes of only four justices to grant review, he said, adding that he believes the court ultimately will uphold the IRS rule after looking at the ACA as a whole and considering the purposes of the law.

Announcement Introduces `Further Uncertainty.'

Still, the court's announcement introduces “further uncertainty” just as open enrollment begins, Jost said. And a decision invalidating the IRS rule would have “serious” consequences. With the availability of subsidies or tax credits limited to state exchanges, many Americans might not be able to afford health insurance. That would put a crimp in the individual mandate and have an impact on the enforcement of the employer mandate, he said. It would “pull the rug out from under the non-group market,” he added.

The White House Nov. 7 said, “The ACA is working,” and the King lawsuit and others like it “won’t stand in the way of the Affordable Care Act and the millions of Americans who can now afford health insurance because of it.”

The administration said it was “confident that the Supreme Court will recognize both the clear reading of the entire law, and the certain intent of Congress in crafting it.” It added that “American families who have already enrolled, or are planning to sign up during the open enrollment period beginning on November 15th should know that nothing has changed: tax credits and affordable coverage remain available.”

To contact the reporter on this story: Mary Anne Pazanowski in Washington at mpazanowski@bna.com

To contact the editor responsible for this story: Fabia Mahoney at fmahoney@bna.com