Circuit Courts Split on ACA Subsidies

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On July 22, 2014, United States Circuit Courts of Appeals from two different circuits issued opposing rulings on the legality of the Federal government providing subsidies to eligible buyers of health insurance products from Federally-sponsored insurance exchanges under the Affordable Care Act.  The statutory language states that the Government may provide subsidies for products purchased from State exchange plans and is silent on whether products purchased from Federal exchanges are eligible.  The circuit court split increases the chances that the issue will find its way to the Supreme Court.  The Supreme Court briefly touched on this issue in its 2012 ruling upholding the law.  In that case, the justices noted that the entire insurance marketplace established by the ACA, along with many of its structural reforms, would fail if subsidies were not available to all eligible buyers.

In a split ruling, a three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit held that the ACA authorizes subsidies only for the purchase of products listed on State-sponsored insurance exchanges and not those listed on Federal exchanges.  Many States opposed to ACA implementation have refused to develop State-based exchanges, prompting HHS to manage exchanges in their place.  The Court held that the ACA is clear in authorizing subsidies only for those products purchased on State-based exchanges.  The Court surmised that Congress drafted the law in this way to incentivize States to establish exchanges. The Administration has stated that it will seek a rehearing of its case before the entire D.C. Circuit.

In a ruling issued by another three-judge panel shortly thereafter on the same day, the U.S. Court of Appeals for the Fourth Circuit held 3-0 that while the language in the ACA is ambiguous, an “entirely sensible” reading of the provision supports the Government’s position that qualified buyers are eligible for subsidies on both Federal and State exchanges.  The individuals challenging the subsidies in the Fourth Circuit case have not stated whether they will appeal.

The D.C. Circuit decision invalidating the Federal subsidies is available here.  The Fourth Circuit decision upholding the subsidies is available here.

Reporter(s), Christopher Kenny, Washington, D.C., + 1 202 626 9253, ckenny@kslaw.com.

 

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IRS
Tax

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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