Federal Court Rulings Could Threaten ACA Subsidies

Two divergent Circuit Court rulings last week on the legality of ACA subsidies could spur the Supreme Court to consider the case, with potentially lethal implications for the law’s mandates.

The Affordable Care Act provides for subsidies, or tax credits, to qualifying individuals purchasing healthcare plans on an online exchange. These subsidies have since been given to consumers on both state-run and federal exchanges, greatly increasing the ability of those individuals to purchase coverage that would otherwise be too expensive.

In two separate cases, Halbig v. Burwell (D.C. Circuit panel) and King v. Burwell (Fourth Circuit, Texas), judges considered whether the ACA’s rule on subsidies is applicable to all qualifying individuals or only those who purchased their insurance on state-run exchanges. Last Tuesday, each court handed down a decision based on its interpretation of the rule in question.

The Fourth Circuit ruled that the subsidy should be available to all consumers, whether their state’s exchange was state-run or federally administered. Their ruling is based on the legal doctrine of deference, which allows federal agencies to carry out a law as it sees fit if the language is ambiguous. The D.C. Circuit, however, relied on a literal reading of the law’s text to limit subsidy qualification to only the states that run their own exchanges.

Before the issue proceeds to the Supreme Court, the Department of Justice will request a review of the ruling by D.C.’s three-judge panel by the entire D.C. Circuit bench. It is possible that an en banc review will overturn the panel’s decision and bring the ruling in line with the Fourth Circuit.

This ruling has critical implications for not only the availability of subsidies, but also the individual and employer mandates of the ACA. Only 14 states chose to create their own healthcare exchanges; if the Supreme Court steps in and upholds the original D.C. ruling, as many as 90 percent of individuals in the other 36 states lose access to an affordable health care option.

Those who will be unable to purchase an affordable plan will also be exempt from the individual mandate, including the significant demographic of young and healthy consumers that are necessary to balance insurance costs. Furthermore, employers in the affected states may be exempt from their mandate.

As with other provisions of the ACA in dispute, it will likely be some months before there is a concrete decision. We will provide updates as they become available.

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