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Appeals Courts Issue Different Rulings on Legality of Tax Subsidies in ACA's Federal Marketplaces

Appeals Courts Issue Different Rulings on Legality of Tax Subsidies in ACA's Federal Marketplaces

July 23, 2014 — Two federal appeals courts on Tuesday issued conflicting rulings on whether the federal government can provide subsidies to U.S. residents who purchase coverage through the Affordable Care Act's federally operated insurance marketplaces, the New York Times reports.

Both cases involve an Internal Revenue Service regulation that permits consumers shopping for health insurance through the federal marketplace to receive tax subsidies.

In the first case, a panel for the U.S. Court of Appeals for the District of Columbia in a 2-1 decision ruled that the Affordable Care Act allows subsidies only for consumers purchasing insurance through state-run marketplaces. The law "does not authorize the I.R.S. to provide tax credits for insurance purchased on federal exchanges," the panel said. According to the panel, the law "plainly makes subsidies available only on exchanges established by states." A dissenting opinion filed by Judge Harry Edwards called the case an "attempt to gut" the ACA and said the majority opinion "defies the will of Congress."

Meanwhile, in the second case, a three-judge panel for the 4th U.S. Circuit Court of Appeals in Richmond, Va., unanimously ruled to uphold the subsidies. That decision declared the IRS regulation "a permissible exercise of the agency's discretion." The panel noted that the ACA's language is "ambiguous and subject to multiple interpretations" and, thus deferred to the IRS (Pear, New York Times, 7/22).

Effects for Consumers

The rulings will have no immediate impact on consumers, according to government officials (Savage, "Nation Now," Los Angeles Times, 7/22). DOJ said the federal government will continue providing the subsidies in states that use the federal marketplaces while the issue is reviewed in courts.

According to the New York Times, if the ruling outlawing the subsidies stands, more than 4.5 million people who purchased coverage through the federal marketplaces could lose their financial assistance. The White House estimated that the subsidies have helped lower average monthly insurance premium payments from $346 to $82 (New York Times, 7/22). Avalere Health Vice President Caroline Pearson said if the ruling stands, "individuals in at least 25 states who remain in their current plans could see an average premium increase of over 70%."

Issue Could Land at Supreme Court

Legal experts have noted that the split rulings indicate the cases could end up before the Supreme Court (Wolf, USA Today, 7/22). According to the Los Angeles Times' "Nation Now," if the issue does end up before the high court, the case could be heard as early as next year ("Nation Now," Los Angeles Times, 7/22).

Meanwhile, at least two other cases challenging the subsidies are pending in federal district courts in Indiana and Oklahoma (New York Times, 7/22).

In the meantime, Congress or states could act to address the issues. According to the New York Times' "The Upshot," Congress could fix the language in the ACA to clarify how the subsidies are awarded. In addition, states that do not operate their own marketplace could move to do so, which would mean consumers there would be eligible for subsidies (Sanger-Katz, "The Upshot," New York Times, 7/22).