In this week’s Alabama Law Weekly Update,we present for your consideration three recent federal decisions, the outcomes of which may have a tremendous impact on health insurance in Alabama, for individuals and businesses.

Eternal Word Television Network, Inc. v. Secretary, U. S. Dept. of Health and Human Services, No. 14–12696–CC (CA11, June 30, 2014) (granting injunction pending appeal, preventing enforcement of the Affordable Care Act (“ACA”) contraceptive mandate).

News outlets covered extensively the recent U.S. Supreme Court decision challenging part of the ACA contraceptive mandate, Burwell v. Hobby Lobby Stores, Inc.  Hours after the Hobby Lobby decision, a three-judge panel of the U.S. Court of Appeals for the Eleventh Circuit (which includes Alabama) granted a motion for an injunction pending appeal, preventing enforcement of the ACA contraceptive mandate against Eternal Word Television Network, Inc. (“EWTN”), a worldwide Catholic media network based in Irondale, Alabama.  The Eleventh Circuit did not issue an opinion with the order, but one of the panel members, Judge William H. Pryor, Jr., specially concurred, to explain why EWTN likely would be successful in its appeal.

As background, the Department of Health and Human Services (“HHS”) issued regulations under the ACA statute, referred to as the “contraceptive mandate”, requiring many employer-based group health plans to provide to women, at no charge, 20 types of contraception approved by the U.S. Food and Drug Administration (“FDA”).  The plaintiffs in the Hobby Lobby case, both for-profit closely-held companies, objected to 4 of the 20 types of contraception required.  The U.S. Supreme Court ruled in favor of the Hobby Lobby plaintiffs based on the Religious Freedom Restoration Act of 1993 (“RFRA”), a law that prevents the federal government from taking actions which substantially burden the exercise of religion, unless the action constitutes the least restrictive means of serving a compelling government interest.

The ACA exempts many entities from the contraceptive mandate altogether, including religious employers such as churches (known as the “religious employer” exemption) and certain other nonprofit organizations which hold themselves out as religious organizations (known as the “religious organization” exemption).  EWTN is a nonprofit that could apply for the religious organization exemption, which is not an outright exemption, but a “religious accommodation.”  The process to obtain such accommodation includes filing a form from the Department of Labor, called “Form 700”, certifying to the government the religious organization’s objection to the provision of contraceptives.  The religious organization also must provide a copy of Form 700 to its insurance issuer or third-party administrator.   Form 700 functions to notify the insurance issuer or third-party administrator of its obligation to provide contraceptive coverage free of charge to the organization’s employees, without passing on the cost burden to the religious organization.

EWTN argues that executing Form 700 would “ensure that its health insurance plan would serve as the trigger for a stream of payments to its employees for the specific purpose of increasing access to, and use of, contraceptive, sterilization, and abortifacient services.”  Catholic teaching considers any such use or encouragement an immoral act and contrary to Catholic doctrine.  Completing Form 700 would make EWTN complicit in the immoral actions that would follow.  In the absence of the injunction, if EWTN did not deliver the form by July 1, 2014, it would be subject to an annual fine of $12,775,000.

Judge Pryor’s concurrence indicates that the issue of complicit behavior would justify a separate analysis under the RFRA – the same type of analysis from the Hobby Lobby case.  His concurrence noted prior federal cases which find that religion is “substantially burdened” if a government regulation requires participation in an activity prohibited by religion.  It is important to note that other courts in the Sixth and Seventh Circuits have denied injunctions on this same issue in similar circumstances.  However, The U.S. Supreme Court issued a similar injunction in favor of Wheaton College several days later on July 3, 2014.

Halbig v. Secretary, U. S. Dept. of Health and Human Services, No. 14–5018 (D.C. Cir. July 22, 2014) and King v. Secretary, U. S. Dept. of Health and Human Services, No. 14–1158 (4th Cir. July 22, 2014) (conflicting rulings regarding tax credit subsidies for individuals who purchase health insurance through federal exchanges).

Under the Affordable Care Act (the “ACA”), each state may establish a health insurance exchange where individuals can purchase health insurance policies, known as a “state-run” exchange.  If a state chooses not to establish an exchange, the ACA permits the federal government to facilitate the exchange in that state, known as a “federally-facilitated” exchange.  The ACA statute includes a provision authorizing tax credits for certain individuals who obtain health insurance plans through a state-run exchange.  If a person is not offered affordable health insurance coverage by their employer, and they meet certain income requirements, they are eligible for tax credits to subsidize insurance purchased on a state-run exchange.  The tax credit is advanced directly to insurance companies on behalf of eligible individuals based on their expected income.  The credit is reconciled after year-end when a person completes their tax return.  The IRS published a rule in 2012, providing that the ACA tax credits available to individuals through state-run exchanges also apply to individuals in states with federally-facilitated exchanges.

Alabama, along with 33 other states, has a federally-facilitated exchange.  The plaintiffs in both cases live in states with federally-facilitated exchanges.  The question in both cases centers on the IRS’s 2012 rule – whether tax credits authorized for individuals in states with state-run exchanges likewise apply to individuals in states with federally-facilitated exchanges.  Absent the IRS’s rule, the plaintiffs would not be required to purchase health insurance because their income is sufficiently low to exempt them from the individual mandate.  The tax credits, however, reduce the cost of insurance enough to require that the plaintiffs either purchase insurance or pay a penalty.

The United States Court of Appeals for the District of Columbia Circuit concluded that the ACA statute does not authorize the IRS to provide tax credits for insurance purchased on federally-facilitated exchanges.  The IRS’s 2012 rule was too broad because the statute only authorizes tax credits for exchanges “established by the [s]tate.”  The United States Court of Appeals for the Fourth Circuit came to a different conclusion, finding that the IRS’s 2012 rule was a permissible exercise of the agency’s discretion and therefore tax credits should be available for insurance purchased on federally-facilitated exchanges.

Similar cases are pending around the country.  The ultimate outcome will likely have a significant impact in Alabama, both for individuals and businesses.  If the D.C. Circuit view prevails, it appears those eligible individuals that selected a plan on Alabama’s federally-facilitated exchange will no longer be eligible for tax credits, and raises the question of whether advanced payments of tax credits must be refunded – the greatest impact would fall on persons with the lowest incomes.

Many businesses in Alabama also have a lot riding on the IRS’s rule.  The employer mandate, requiring that applicable large employers offer full-time employees affordable health insurance that meets minimum value requirements or face a penalty, hinges on the tax credits.  The trigger for an employer mandate penalty is where an employee is certified as having enrolled in a health plan “with respect to which an applicable premium tax credit or cost-sharing reduction is allowed or paid with respect to the employee.”  If credits are unavailable in states with federally-facilitated exchanges, such as Alabama, employers would not face penalties for failing to offer coverage.

Neither case impacts Alabama directly.  Alabama sits in the Eleventh Circuit and currently has a federally-facilitated exchange.  The ultimate outcome is unknown at this point.  The apparent “circuit split” does often invite quicker review by the U.S. Supreme Court, which may side with one of these views, or even adopt an entirely different posture.  The difference could be resolved by another level of “en banc” review, or the U.S. Supreme Court might decide not to take the case.  Also, if Congress acts, it could change the landscape entirely.