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Is the Affordable Care Act on the Ropes?

Posted on Tue, Jul 22, 2014 @ 07:45 PM

by Hans M. ZimmerHans M. Zimmer

In a somewhat surprising opinion issued by the federal Court of Appeals for the DC Circuit (Halbig v. Burwell), the court ruled that the federal government lacks the authority to provide subsidies on healthcare.gov to encourage persons currently without health insurance to buy insurance. The court based its decision on the language in the statute that limits subsidies to health insurance policies that can be purchased on exchanges run by state governments. At present, state-run exchanges are available in only 16 states and the District of Columbia. The remaining 36 states operate the exchange through healthcare.gov.

The plaintiff, Jacqueline Halbig, is a West Virginia resident who never had health insurance but also did not want to buy it. Under the Affordable Care Act (“ACA”), she would either have to buy insurance or pay the penalty imposed by that statute as the individual mandate. West Virginia is one of the 34 states that does not have its own exchange but relies on healthcare.gov, the federal exchange. The court ruled that the plain language of the statute limited subsidies to exchanges “established by the states” and as West Virginia had not established such an exchange, no subsidy could be granted. The effect of this interpretation is that not only does the individual mandate disappear in states that do not have their own exchange, but the employer mandate disappears along with it. The judges writing the opinion conceded that the effect of their ruling would be to drastically reduce the number of persons who would be able to gain coverage, but that it was not their job to write laws, only to interpret the law as written by Congress.

This opinion is directly contrary to an opinion issued by another federal circuit court of appeals the same day (King v. Burwell). That court heard the same arguments advanced in the DC Circuit but said that the language in the statute limiting subsidies to exchanges “established by the state” was ambiguous. As the language in the statute was ambiguous, the court relied instead on the regulation issued by the IRS, which permits the subsidies in “exchanges” and then goes on to define exchanges as marketplaces established either by the states or by the Department of Health and Human Services. The court viewed the regulation issued by IRS as a reasonable exercise of its regulatory discretion and upheld the subsidies.

The split between 2 federal circuits on an issue this crucial to the implementation of ACA likely means that the United States Supreme Court will again have to decide the future of ACA. The Obama administration already announced their decision to appeal earlier this afternoon.  In 2012, the Supreme Court generally upheld the validity of ACA in a very divided opinion with the majority ruling stating that ACA was a valid exercise of Congress’ power to impose taxes as opposed to an invalid limitation on the rights of individuals in the country to decide their own fate with respect to health insurance. It will be interesting to follow the course of this issue over the next year. Current numbers indicate that over 8,000,000 individuals in states where the only marketplace is healthcare.gov are subject to the individual mandate and the penalties imposed. These individuals would now be free from that mandate. In addition, in those same states, 250,000 firms with 57,000,000 employees would now be freed from the employer mandate that requires employers to offer “affordable” insurance to their employees. In contrast, only 5,000,000 individuals signed up for coverage in the 34 states relying on the federal exchange and are receiving the subsidy that was declared illegal by the DC Circuit.Given the number of persons involved on both sides of this issue, Supreme Court involvement appears likely.

Tags: Affordable Care Act