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July 22 — The fate of an Internal Revenue Service rule allowing tax credits to help individuals purchase health insurance from federally facilitated health insurance exchanges remains in doubt after two federal appeals courts clashed over the rule's validity July 22.
The matter is key because the language of the Affordable Care Act says that tax credits are available only to subsidize the purchase of health insurance on exchanges established by states. Because 36 states don't operate their own exchanges, and instead use federally facilitated exchanges, eliminating the ability of participants in those states to quality for subsidies could strike a major blow to the viability of the ACA.
According to official estimates, about 85 percent of approximately 8 million people who purchased ACA marketplace plans for 2014 did so with the help of the subsidies.
In a defeat for the Obama administration, the U.S. Court of Appeals for the District of Columbia Circuit, in a 2-1 decision, vacated the IRS rule as inconsistent with the ACA's plain language.
Within hours, the U.S. Court of Appeals for the Fourth Circuit reached the opposite result, finding that the ACA provision interpreted in the IRS rule was ambiguous and that the agency didn't exceed its authority in issuing the rule.
Neither decision will be the last word on the rule's validity. The final outcome is uncertain because either or both of the rulings might be the subject of en banc rehearing requests and because U.S. Supreme Court review of the underlying dispute, though not assured, is likely, attorneys for the litigants, interest groups and stakeholders said.
The courts both noted that the decisions don't affect only the subsidies received by those seeking to obtain health insurance. The availability of tax credits helps determine which individuals and employers—under the ACA's individual and employer mandates—will be subject to penalties for failing to obtain and offer health insurance, the courts said.
Caroline Pearson, a vice president at health-care consulting firm Avalere Health LLP, told Bloomberg BNA that “it could be more than a year before we have final resolution on the legal issue.” If the D.C. Circuit's decision is upheld, Congress could amend the law to allow the subsidies in the federally operated marketplaces, or states without state-based marketplaces could establish them. However, “the politics make this difficult,” she said.
“If all of this fails, the federal government is likely to pursue an administrative fix that would circumvent the court decision,” Pearson said. The Department of Health and Human Services could “effectively deem all of the exchanges to be state-based, but continue operating them through HealthCare.gov,” the federal marketplace website.
Ron Pollack, executive director of Families USA, said the D.C. Circuit's decision in Halbig “will never go into effect.” He predicted that the full appeals court of 11 judges will likely reverse the 2-1 panel decision. He also suggested that the Fourth Circuit's unanimous ruling contradicting the D.C. Circuit's decision would make it unlikely that the U.S. Supreme Court would take the case.
To contact the editor responsible for this story: Brian Broderick at email@example.com
The D.C. Circuit decision is at http://www.bloomberglaw.com/public/document/Jacqueline_Halbig_et_al_v_Sylvia_Mathews_Burwell_et_al_Docket_No_, and the Fourth Circuit decision is at http://www.bloomberglaw.com/public/document/David_King_v_Sylvia_Burwell_Docket_No_1401158_4th_Cir_Feb_21_2014.
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