Two Appellate Decisions Suggest Major Battle Brewing for the Affordable Care Act

On July 22, 2014, two opinions concerning the Affordable Care Act were issued from two different United States Circuit Courts of Appeals. Both opinions analyzed the same lawsuit filed in two different courts. Both opinions reached conclusions that were diametrically opposed to one another.

The first opinion, Halbig v. Burwell, which was decided by a three member panel of the United States Court of Appeals for the D.C. Circuit, was released early in the morning on July 22, 2014. Two of the three judges ruled that IRS rules that provide subsidies for certain individuals to purchase health insurance in health insurance marketplaces established and operated by the United States Department of Health and Human Services was an improper exercise of the IRS’s rule making authority. Specifically, Section 36B of the Internal Revenue Code makes tax credits available as a form of subsidy to individuals who purchase health insurance in marketplaces “established by the State…” Only 14 states established their own health insurance marketplaces. In the other 36 states, the health insurance marketplaces were established by the United States Department of Health and Human Services because the states were either unwilling or unable to do it on their own.

The majority of the D.C. Circuit Panel found that the language of the statute was clear. If Congress wanted people who purchased health insurance through marketplaces operated by the federal government to be eligible for subsidies, it could have done so. Instead, according to the Court, Congress made subsidies available only to those individuals who purchased health insurance through marketplaces established by individual states.

The potential impact of the Halbig decision is far reaching. If subsidies are not available to individuals in the 36 states with marketplaces operated by the United States Department of Health and Human Services, the Affordable Care Act’s individual mandate will not be enforceable and individuals will not be required to purchase health insurance. Additionally, if subsidized coverage is not available to individuals, the employer mandate will be of no effect because penalties against employers for failing to provide affordable health insurance are only levied if an employee purchases subsidized coverage in a marketplace. This ruling has the potential to destabilize the individual insurance market and the mechanisms for funding the programs created by the Affordable Care Act. Such significant consequences were emphasized in the dissenting opinion.

As the media was reacting to the Halbig decision, a second opinion, King v. Burwell, was released by the 4th Circuit Court of Appeals. As noted above, the decision out of the 4th Circuit examined the exact same legal claims addressed in the Halbig decision but reached an entirely different conclusion. In the King decision, the 4th Circuit unanimously concluded that the IRS rule which interprets the language of Section 36B of the Internal Revenue Code to include marketplaces established by the United States Department of Health and Human Services was a permissible interpretation of the statute and a proper exercise of its rulemaking authority. The 4th Circuit noted a contrary ruling would result in an interpretation of the statute that would be contrary to the overall policy goal of ensuring affordable health insurance for most Americans. The 4th Circuit also found that a contrary ruling would effectively unravel the entire Affordable Care Act.

Currently, the Affordable Care Act remains intact and further appeals are likely in both of these cases. The first level of appeal in the Halbig case will likely be before a panel all of the judges in the United States Court of Appeal for the D.C. Circuit. From there, the next level of appeal would be to the United States Supreme Court. Eventually, it is possible that the issues addressed in both Halbig and King will reach the United States Supreme Court. If the Supreme Court upholds the Halbig decision, there could be significant changes to the Affordable Care Act, including substantial changes to the individual mandate and the obligations placed on employers. In the meantime, employers should continue preparing for full implementation of the Employer Shared Responsibility provisions which are set to go into effect on January 1, 2015.

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