Jul 22, 2014

A Major Blow to Obamacare? Depends on who you ask

Patrick Ryan

In an odd twist, just hours apart, two Federal Appellate Courts came out with different answers to the same questions, regarding a provision of the Patient Protection and Affordable Care Act, (also known as the “ACA” or “Obamacare”).

The two Courts addressed the issue of whether or not the IRS could offer tax credits to individuals who purchased health insurance on federally facilitated exchanges, or whether those credits were limited to those exchanges that were facilitated by the states. The issue has to deal with Section 36B of the Internal Revenue Code, which was enacted as part of the ACA, which allowed for tax credits to be issued to those who purchased health insurance (and otherwise qualified for the tax credit) through a health care exchange. The key language in 36B provides for the subsidy for those exchanges “established by the State under section 1311”.

The U.S. Court of Appeals for the District of Columbia voted 2-1 on Tuesday that tax credits available to individuals purchasing health insurance through a health care exchange facilitated by the Federal Government were illegal. They read Section 36B narrowly, to be limited to State run health care exchanges. In other words, individuals who purchased health insurance coverage for themselves or their families in one of the 36 states served by the federally facilitated exchanges (including Illinois), would lose any tax credits available to them. The Appellate Court reversed the trial court which held that “the ACA’s text, structure, purpose, and legislative history make ‘clear that Congress intended to make premium tax credits available on both state-run and federally-facilitated Exchanges.’” Halwig v. Burwell, Appeal from the United States District Court for the District of Columbia (No. 1:13-cv-00623).

However, just hours later, the Fourth Circuit Court of Appeals out of Virginia held 3-0 that the tax credits could be offered in both State AND Federally facilitated exchanges. Writing for the Court, Judge Gregory held that “the applicable statutory language is ambiguous and subject to multiple interpretations. Applying deference to the IRS’s determination, however, we uphold the
rule as a permissible exercise of the agency’s discretion.”

The rulings could impact individuals in 36 of the states that have federally facilitated health care exchanges. These states are either unwilling (the ACA is a divisive party issue) or unable to establish their own health insurance exchanges, so the individuals in those states must purchase their health insurance through the federally facilitated health insurance exchanges. Per Monifa Thomas, a Chicago Sun Times Reports, using May 1, 2014 statistics, of the 369,696 Illinois residents who were eligible to enroll in the Obamacare marketplace, 242,255 could apply for financial assistance. (https://twitter.com/MonifaThomas1/status/491601156377153536)

In the meantime, the Obama Administration did not view it as a defeat, as White House Press Secretary Josh Earnest stated that the D.C. Circuit court ruling has “no practical impact on [an individual’s] right to receive tax credits right now.” The Administration is expected to request an “en banc” hearing from the D.C. Circuit, (meaning a review of the 2-1 ruling by all 11 members of the D.C. Circuit Court). If that occurs, it is expected that, based on the makeup of the full D.C. Circuit Court of Appeals, that the Obama Administration will ultimately prevail.

Either way, the split among the Circuits appears to be setting the stage for another Supreme Court fight over another major issue related to the ACA. This is certainly not the last we will be hearing on this issue.

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