Two federal appeals courts ruled yesterday on a key provision of the Affordable Care Act (ACA) – and reached opposite conclusions.
At issue is the component of the ACA that allows individuals who earn between 100% – 400% of the federal poverty level (FPL), or $11,670 and $46,680 for an individual, to be eligible to receive a subsidy to purchase insurance in the Health Insurance Marketplace. Specifically at issue is the actual language of the ACA provision that says individuals living in states that operate their own Marketplaces are eligible to receive subsidies if they meet the income eligibility criteria specified in the ACA. Seventeen states currently operate their own Marketplaces, while the rest rely on the federal Marketplace or have a partnership with the federal Marketplace.
The DC Circuit ruled 2-1 that the Internal Revenue Service (IRS) lacks the authority to allow subsidies to be provided in Marketplaces not run by the states. Conversely, the Fourth Circuit – based in Richmond, VA – ruled that the law’s language is ambiguous, and that the IRS is free to allow the subsidies in all states, including those that do not operate their own Marketplaces. Because there is uncertainty about the provision’s application, the question may end up in the Supreme Court.
The Obama administration has indicated that it will appeal the DC Circuit’s ruling. The Justice Department will ask the entire appeals court panel to review the decision (called an en banc hearing). That panel is dominated by judges appointed by Democrats, 7-4. The court’s rules indicate that the ruling will not become effective for 45 days to give the government time to ask for an en banc hearing, or seven days after the en banc hearing has been denied. The administration argues that the commonsense interpretation of the ACA provision is that Congress intended for everyone to have access to subsidies, not just individuals living in states that operate their own Marketplaces.
If the ruling stands, it could mean that at least five million individuals in states that do not operate their own Marketplaces would face an average premium increase of 76%. The loss of subsidies will make health insurance unaffordable for many individuals who were planning to use those subsidies in the Marketplace. As reported by the Washington Post more than nine in 10 people in states that rely on the federal Marketplace bought health insurance with the help of subsidies. The average tax credit to those people for coverage this year is $276, lowering their premium from an average price of $345 per month to an average of $69. The loss of subsidies will make complying with the individual mandate to have insurance essentially impossible for many individuals for whom purchasing insurance only would have been possible with the help of the subsidies.
Operationally, this is how the two rulings will impact various states once the rulings become effective and until/unless they are overturned:
- DC Circuit (DC): Subsidies in non-state based Marketplaces will be prohibited. However, DC operates its own Marketplace so, operationally, this is a moot point.
- Fourth Circuit (NC, SC, WV, VA, MD): Subsidies in non-state based Marketplaces will be permitted. Business as usual.
- Rest of the country: Business as usual.