On Tuesday, July 22, in Halbig v. Burwell, the US Court of Appeals for the DC Circuit invalidated an Internal Revenue Service (IRS) regulation that provides premium tax credit subsidies for individuals obtaining health insurance coverage through the federal exchange. The IRS regulation offers subsidies for consumers who purchase qualified health plans (QHPs) through the health insurance exchanges created by the Affordable Care Act (ACA), regardless of whether a state or the Department of Health and Human Services (HHS) establishes the exchange. Plaintiffs in several lawsuits have argued that the text of the ACA restricts the issuance of tax credits to QHPs purchased from a state-based exchange.
This ruling, which conflicts with King v. Burwell, also issued July 22 by the US Court of Appeals for the Fourth Circuit, has the potential to derail the ACA's coverage expansion goals in the majority of states if ultimately upheld. In King, the court endorsed the IRS regulation as a "permissible exercise of the agency's discretion." The Halbig court, however, rejected the government's argument that the federal government stands in the shoes of the states when establishing the federal exchange and held that the text of the ACA unambiguously restricts the premium tax credit subsidies to QHPs purchased from an exchange established by a state.
If Halbig ultimately is upheld and becomes the law of the land, the ACA's overall coverage expansions will take a significant hit. In 2014, the first year of the exchanges, only 14 states and Washington, DC established an exchange; the remaining 36 states deferred to HHS. According to HHS, of the roughly 8 million enrollees nationally in QHPs this year, 5.4 million obtained coverage through the federal exchange, 86% were eligible for subsidies, and the subsidies resulted in an average 76% decrease in the cost of monthly premiums to consumers.
Without the ACA's subsidies, the individual and employer mandates would be substantially limited in states that do not establish an exchange. The individual mandate does not apply to anyone for whom health insurance premiums exceed 8% of projected household income. Without financial assistance, a large number of low and moderate income enrollees would fall into the unaffordability exception to the individual mandate and would not be penalized for failing to obtain coverage. A majority of this population would not likely be able to afford QHP coverage without the subsidies. The employer mandate only penalizes large employers for failing to offer coverage (or offering unaffordable coverage) if an employee obtains coverage through an exchange and such employee receives a subsidy.
While some individuals may be able to afford monthly premiums absent the availability of subsidies, the resulting impact of Halbig could render the insurance market unsustainable in states that do not establish an exchange. Ultimately, the existence of the federal exchange would be threatened.
While this issue and these cases continue to navigate through the court system, the Administration will almost certainly allow subsidies to remain available to current enrollees in QHPs. Predictably, opponents of the ACA highlighted the Halbig decision as proof of another Obama Administration overreach. Supporters of the law expressed confidence that the Halbig decision would be overturned and promised to fight the adverse ruling. The Obama Administration plans to appeal the Halbigdecision to the full US Court of Appeals for the DC Circuit. If the panel's decision is upheld by the full court, the Administration would presumably seek review by the Supreme Court. The ACA will remain the same highly-charged partisan issue it has been for the past two election cycles and will certainly be used by both parties in the upcoming elections.