WHAT YOU SHOULD KNOW ABOUT THE RECENT CIRCUIT COURT RULINGS ON
THE ACA, THE IRS, AND TAX SUBSIDIES
An update on the Affordable Care Act (ACA) court cases that challenged the Internal Revenue
Service (IRS) rules allowing tax credits for individuals in both state-established and federallyestablished exchanges:
Two federal court opinions that came out on July 22nd reached conflicting conclusions about whether
low-income individuals who purchase insurance on the federally-established health insurance
Exchanges can get premium tax credits (government subsidies). What will happen next:
 The government requested an en banc panel review (all of the judges on the DC Circuit Court
of Appeals) of the Halbig v. Burwell decision. It is possible that the entire panel may reach a
different conclusion than the 3-judge panel that decided the case on July 22nd. Should that
happen, there would not be a split in the circuits at this point (making it less likely to be sent
to the Supreme Court). At the same time, this issue is likely to come up in other circuit
courts. If there are conflicting opinions, it is likely that this ACA challenge will be ultimately
sent to the Supreme Court which will then need to decide whether to hear the case.

For the foreseeable future, the subsidies are expected to continue while the cases work their
way through the courts.

The AAMC is considering our next steps. In the meantime, we will be monitoring the
situation closely and will keep members informed of any developments.
What the two opinions say:
US Court of Appeals for the D.C. Circuit (Halbig v. Burwell)
 In Halbig v. Burwell, the U.S. Court of Appeals for the D.C. Circuit decided that the IRS
does not have the authority to make tax credits available to low-income individuals who
purchase insurance in the 36 states that rely on the federal government to operate their health
insurance Exchange (because these states did not establish state-run Exchanges). Two judges
agreed with this holding; one judge filed a dissenting opinion.

The majority agreed with the plaintiff’s argument that the ACA language at issue is
unambiguous, because section 36B of the ACA states that subsidies are only available for
plans “enrolled in through an Exchange established by the State under section 1311 of the
[ACA].” Therefore, the court found that the IRS overstepped its statutory authority in issuing
a regulation making the subsidies available to individuals who purchase on the federallyfacilitated Exchanges (which are established by the federal government, not by states).

Accordingly, the Court issued an opinion that reversed the lower court’s decision that had
dismissed the case, and threw out the IRS regulation that would make subsidies available to
all individuals who purchase insurance on the Exchanges including the Federally-facilitated
Exchanges.

If this opinion stands, it means that individuals in 36 states without state-run Exchanges
would no longer get the tax credits and, therefore, without these subsidies would fall under
the exemption in the ACA for low-income individuals who do not have to pay a penalty if
they choose not to purchase health insurance. Both the individuals and large employers
would not be subject to penalties if these individuals lose access to tax credits and do not
obtain health insurance coverage in states with federally-run Exchanges (a potentially fatal
blow to the ACA’s goal of expanding coverage). Finally, insurers in those 36 states would
still come under ACA provisions requiring guaranteed-issue and community rating with the
likely result that premium costs could rise substantially.

The decision is available at:
http://www.cadc.uscourts.gov/internet/opinions.nsf/10125254D91F8BAC85257D1D004E61
76/$file/14-5018-1503850.pdf
U.S. Court of Appeals for the Fourth Circuit (King v. Burwell)
 In King v. Burwell, a panel of the U.S. Court of Appeals for the Fourth Circuit issued a
unanimous opinion that the statutory language in the ACA regarding the premium tax credits
is ambiguous particularly when looking at the statute as a whole and, therefore, the court
should defer to the IRS’ interpretation of the language.

The opinion notes that the IRS’ interpretation of the unclear statutory language advances the
broad policy goals of the ACA to increase the number of Americans covered by health
insurance and decrease health care costs. Therefore, consistent with longstanding precedent,
the court should defer to the IRS’ reasonable construction of the statute.

Accordingly, the Agency did not overstep its statutory authority in issuing a final rule to
make the tax credits available to individuals who purchase insurance on both the state-run
and the federally facilitated Exchanges.

The decision is available at: http://www.ca4.uscourts.gov/Opinions/Published/141158.P.pdf
Prepared by Allison Cohen, J.D., L.L.M.