United States: U.S. Appeals Courts Issue Conflicting Decisions On Whether ACA Permits Tax Subsidies Of Health Care Coverage Purchased Through Federal Exchanges

On July 22, 2014, three-judge panels of the U.S. Courts of Appeals for the District of Columbia and Fourth Circuits issued conflicting decisions regarding whether the Affordable Care Act (ACA) permits federal tax credits for health insurance purchased through federal exchanges.  In Halbig v. Burwell, a divided panel of the D.C. Circuit struck down the Internal Revenue Service (IRS) rule providing for such credits.  On the same day, a unanimous panel in the Fourth Circuit upheld the same IRS rule in King v. Burwell.  If the circuit split is not resolved by further review by the courts of appeals en banc, Supreme Court review is very likely.  Even if the D.C. Circuit sitting en banc overturns the panel decision in Halbig and eliminates the circuit split, Supreme Court of the United States review is still a distinct possibility.  

The Issue

The plaintiffs in both Halbig and King seek to invalidate a May 2012 IRS rule providing that health insurance premium tax credits will be available to all taxpayers nationwide, regardless of whether they obtain coverage through state exchanges or federal exchanges.  (McDermott represented a group of deans, chairs and faculty members from schools of public health who filed amici curiae briefs in support of the federal government in both Halbig and King.)  The plaintiffs contend that the plain language of the ACA limits the availability of premium tax credits to health care policies purchased through state exchanges, which only 14 states and the District of Columbia have established.  By the D.C. Circuit's count, the 36 other states use a federal exchange.  The plaintiffs' argument is based on statutory language providing that premium tax credits only are available for plans "enrolled in through an Exchange established by the State under section 1311 of the [ACA]."  ACA § 1401(a), codified at 26 U.S.C. § 36B(c)(2)(A)(i) (emphasis added).

The D.C. Circuit's Decision

In Halbig, the D.C. Circuit panel majority held that the plain language of the ACA restricts the availability of premium tax credits to health insurance purchased through state exchanges.  Applying the Chevron doctrine, which provides that a court must defer to an agency regulation's reasonable interpretation of an ambiguous statute, the majority concluded that because the statutory language is unambiguous, the court was not required to defer to the interpretation of the statute reflected in the IRS rule.  In dissent, Judge Harry Edwards argued that when read as whole, the ACA is ambiguous, and therefore under Chevron the court should defer to the government's reasonable interpretation of the statute as reflected in the IRS rule.    

The Fourth Circuit's Decision 

In King, the Fourth Circuit panel unanimously concluded that the ACA is ambiguous on the question of whether premium tax credits are available for health insurance purchased through federal exchanges.  Applying Chevron, the panel held that it was required to defer to the government's reasonable interpretation of the ACA as reflected in the IRS rule. 

Key Issues 

Immediate Impact

Neither decision will take effect until the losing side has exhausted the opportunity to seek rehearing en banc, i.e., consideration by the entire court.  That process will take months to play out.  As a practical matter, regardless of what either court does, it is very likely that any final decision that invalidates the IRS rule will be stayed—either by the issuing court or by the Supreme Court—pending review by the Supreme Court.  The Supreme Court's review, in turn, likely would not be concluded until June 2015 at the very earliest.  

Potential Impact on the Affordable Care Act

If the D.C. Circuit's decision is not ultimately reversed, it may have significant consequences for millions of U.S. citizens in states that do not establish state exchanges, and for the health insurance market as a whole. 

The significance of premium tax credits is illustrated by the fact that about 87 percent of consumers enrolled through federal exchanges nationwide (nearly 4.7 million people) are currently eligible to receive premium tax credits, according to federal government data.  The U.S. Department of Health and Human Services estimates that tax credits pay on average 76 percent of premiums of coverage purchased through exchanges.  HHS, Assistant Secretary for Planning and Evaluation Research Brief: Premium Affordability, Competition, and Choice in the Health Insurance Marketplace, 2014 at 3 (Jun. 18, 2014).  Absent the credit, coverage will be less affordable.

The D.C. Circuit's decision also notes the decision's practical impact on the individual mandate, which requires individuals to purchase health insurance coverage or face a tax penalty.  See 26 U.S.C. § 5000A.  Without the premium tax credit, individuals such as the plaintiffs in Halbig and King would be exempt from the mandate because health insurance would be "unaffordable" to them as a matter of law.

The D.C. Circuit's decision also would decrease the number of employers subject to the ACA employer pay-or-play penalty provisions, enforcement of which has been delayed for medium-sized insurers.  See Shared Responsibility for Employers Regarding Health Coverage, 79 Fed. Reg. 8544 (Feb. 12, 2014).  Employers with 50 to 99 workers (about 2 percent of all employers) will be given until 2016 (two years longer than originally envisioned under the ACA) before they risk a federal penalty for not complying.  See id.  Companies with 100 workers or more (about 2 percent of all employers) can avoid a fine by offering insurance to 70 percent of their full-time workers—rather than 95 percent of their full-time workers as envisioned by the ACA—in 2015.  See id. 

The pay-or-play penalties are triggered if a covered employer fails to offer health care coverage and an employee purchases coverage through an exchange with the benefit of the tax subsidy.  If there were no premium tax credit available to consumers through the federal exchanges, fewer employers would be subject to penalties for failure to provide coverage, thereby reducing the incentive of employers to provide employee health care coverage.

What's Next

In Halbig, the government almost certainly will seek en banc rehearing by the entire D.C. Circuit, and rehearing is likely to be granted, given the importance of the issue and the fact that the government will be the party seeking rehearing.  In King, the plaintiffs may similarly seek rehearing en banc, although rehearing is much less likely to be granted in that case.    

If the conflict between the D.C. Circuit's decision in Halbig and the Fourth Circuit's decision in King is not resolved through the en banc proceedings in those courts, then Supreme Court review of this issue is very likely, if not practically certain.  If the conflict is resolved by the en banc D.C. Circuit overturning the panel decision in Halbig, Supreme Court review is less likely but still possible because of the sheer importance of the issue. 

In the meantime, unless and until the Supreme Court renders a decision invalidating the IRS rule, any final decision by the D.C. Circuit or the Fourth Circuit invalidating the IRS rule likely will be stayed pending the Supreme Court's review of such decision.  Therefore, tax subsidies under the IRS rule for health care coverage purchased through federal exchanges should remain available unless and until there is a final decision by the Supreme Court invalidating the IRS rule.  The earliest the Supreme Court likely would issue a final decision would be June 2015.  

U.S. Appeals Courts Issue Conflicting Decisions On Whether ACA Permits Tax Subsidies Of Health Care Coverage Purchased Through Federal Exchanges

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions