On July 22, two different U.S. Courts of Appeals issued conflicting decisions regarding the legality of the federal government’s provision of subsidies to enrollees for coverage in “federally facilitated” health insurance exchanges. It is difficult to anticipate the potential effects of the decisions on the long-term implementation and success of the Patient Protection and Affordable Care Act (ACA) if the legality of the subsidies is not ultimately upheld on appeal.
Both cases arose from an ambiguity in the statutory language of the ACA, which specifically provides for the provision of subsidies to individuals in “state-based” exchanges. Currently, only 14 states and the District of Columbia operate their own exchanges, while the federal government operates “federally facilitated” exchanges, or “marketplaces,” in the other 36 states. Although government regulations have provided that subsidies are available for insurance purchased in the federally operated exchanges, the question has not been settled in the courts.
In the first case, the U.S. Court of Appeals for the District of Columbia Circuit ruled that ACA subsidies cannot legally be provided for insurance policies purchased on federally facilitated exchanges. The majority opinion stated that the literal requirement that subsidies be available only for policies purchased on exchanges “established by the state” cannot be ignored, irrespective of an argument based on the presumed Congressional intent behind the ACA. The decision, by a three-member panel of the Court, has been temporarily stayed pending the government’s request that the full Court review the ruling. If the full Court agrees to do so, it may uphold or overturn the panel’s decision.
In the second case, a three-judge panel of the U.S. Court of Appeals for the Fourth Circuit ruled that ACA subsidies are permitted for policies purchased on federally run exchanges. The Fourth Circuit covers Virginia, West Virginia, Maryland, North Carolina and South Carolina. The lead opinion found that the statutory language is ambiguous, and that the Internal Revenue Service has the legal authority to interpret it.
The interpretation of the statutory language is currently being litigated in federal courts in other states as well, and an ultimate uniform result appears unlikely. It is possible that the U.S. Supreme Court will eventually agree to hear an appeal of one or more of the lower court cases.
Without the availability of subsidies, it is likely that many individuals would elect not to purchase insurance, despite the ACA’s “individual mandate.” In addition, the “Employer Shared Responsibility fee,” or “employer mandate” penalty, applicable to large employers who do not offer “minimum essential coverage” to their employees becomes applicable only when at least one employee purchases insurance on an exchange and receives a subsidy. An employer located in a state in which there is a federally facilitated exchange, and no subsidies, would therefore not be subject to a penalty for not offering health insurance to its workers.