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Two federal circuit courts fail to agree over Obamacare insurance subsidies

Legal News Reporter

Published: August 19, 2014

The U.S. Supreme Court is being asked to weigh in on the Patient Protection and Affordable Care Act (ACA) once again. This time the concern is over the Internal Revenue Service’s decision to extend insurance premium subsidies to all states regardless of whether or not they chose to establish their own insurance exchanges.

Under the ACA, states were required to set up healthcare exchanges so that their residents and some employers could buy mandatory health plans. However, 36 states, including Ohio, failed to do so, forcing the federal government to step in and fill the void.

As Brennan, Manna & Diamond Partner Christopher Congeni explained, in 2012 the IRS took it upon itself, without the permission of Congress, to expand insurance subsidies to qualifying individuals who buy insurance on federally facilitated exchanges via HealthCare.gov.

In July, two conflicting federal circuit court opinions that address the legality of extending subsidies to federal exchanges left many states without a clear direction. First a panel of the U.S. Court of Appeals for the District of Columbia Circuit ruled in Halbig v. Burwell that the IRS overstepped its bounds in extending the subsidies and hours later the 4th Circuit disagreed in King v. Burwell.

“A federal appeals court panel in Washington D.C., ruled two weeks ago that individuals cannot use tax credits or subsidies to buy health insurance on the federal exchange, HealthCare.gov,” said Congeni.

“A few hours later, another set of appeal judges in Richmond, Virginia, unanimously upheld the ability for people applying for coverage on the federal exchange to receive subsidies. This conflict in interpretation regarding this pivotal part of the ACA should come as no surprise.”

Congeni said the Obama administration said it plans to appeal the D.C. court ruling. In the meantime, attorneys involved in the 4th Circuit case, King v. Burwell, are asking the U.S. Supreme Court to review the case as soon as possible.

He said the discrepancy between the rulings would not affect Americans receiving subsidies until the legal battle ends. In addition, Congeni said people in the 14 states and Washington D.C. that run their own exchanges would not be impacted.

“For states like Ohio, the law is unsettled. A U.S. Supreme Court decision is the best and simplest answer.

“I believe if the D.C. ruling stands, this will prove a serious blow to Obamacare and may have a cascading effect in the years with the employer mandate deadline currently set for January of 2015,” said Congeni. “HealthCare.gov serves residents of the 36 states that did not create their own health insurance marketplace. This reluctance by the states should also not come as a surprise. By the close of open enrollment in mid-April, the federal exchange had enrolled 5.4 million of the 8 million people who signed up for Obamacare plans. In other words, a lot of Americans are waiting to see who will win the subsidy tug-of-war.”

Based on the 4th Circuit decision, he said low-income Ohio residents who purchase insurance through HealthCare.gov would receive a subsidy, however under the D.C. circuit opinion they would not.

According to Jeff Smith, a partner at Fisher & Phillips, the conflict goes beyond an individual’s ability to purchase insurance.

“The law states that if an employer does not offer coverage that is affordable, an employee can go to an exchange and purchase insurance, possibly with a subsidy,” said Smith. “If an employee qualifies for a subsidy, the employer faces a penalty.

“If an employee cannot obtain a subsidy in the 36 states that do not have state exchanges, it appears that the employer could avoid the penalty.”

Smith said this is a very time-sensitive issue. “This component of the law, known as the employer mandate, will become effective in 2015 and 2016 when companies with over 100 and then 50 employees, respectively, are required to comply.”

Smith said employers are currently working to ensure their health plans are in order for the upcoming year. “This development causes more uncertainty about those plans,” he said.

“Once the law becomes clear it is certainly possible that states that did not create exchanges may reconsider,” said Jonathan H. Adler, Johan Verheij Memorial Professor of Law at Case Western Reserve University School of Law.

“Congress might also revisit the law, especially as it pertains to employers,” said Adler, director of the Center for Business Law and Regulation.

“The real question now is whether the D.C. circuit agrees to hear the case en banc and, if not, whether the Supreme Court will grant certiorari in the fall.”