The Future of Premium Subsidies under the Affordable Care Act: 'Halbig v. Burwell' and 'King v. Burwell'

by JD Supra Perspectives

The disposition of these cases may significantly affect implementation, perhaps even the survival, of Obamacare...

On July 22, 2014, two federal appellate courts issued conflicting decisions regarding the IRS final rule published on May 23, 2012 (the “IRS Rule”), implementing the exchange-related tax credit provisions of the Affordable Care Act (“ACA”). This will likely lead to the Supreme Court again addressing a fundamental ACA provision. The disposition of these cases may significantly affect implementation, perhaps even the survival, of Obamacare.


ACA Section 1401 provides tax credits for eligible taxpayers purchasing insurance “through an Exchange established by the State under [ACA Section 1311]” (emphasis added). ACA Section 1311 directs the states to establish health insurance exchanges. It does not refer to federally-facilitated exchanges. Under ACA Section 1321, if a state elects not to create an exchange meeting federal requirements, the federal government will “establish and operate” one in that state. Currently 16 states and the District of Columbia have established their own exchanges. Thirty-four states rely on federally-facilitated exchanges. The IRS Rule authorized tax credits for insurance purchased on state and federally-facilitated exchanges.

Both decisions addressed whether tax credits are available for residents in states that have federally-facilitated exchanges. The District of Columbia Court of Appeals said “no”; the Fourth Circuit Court of Appeals said “yes.”


Both decisions addressed whether tax credits are available for residents in states that have federally-facilitated exchanges. The District of Columbia Court of Appeals (the “D.C. Circuit”), in Halbig v. Burwell said “no”; the Fourth Circuit Court of Appeals (the “Fourth Circuit”), in King v. Burwell, said “yes.”  The decisions turned on readings of the relevant statutory language and application of a test derived from the 1984 Supreme Court case, Chevron U.S.A. v. NRDC.

The Chevron test is used to assess whether agency action, here the IRS, is within the scope of the agency’s authorization, here the ACA. The Chevron test has two prongs:

  • First, has Congress directly spoken to the precise question at issue?  If Congress’ intent is clear, the court and the agency must give effect to that unambiguously expressed intent.
  • Second, if the statute is silent or ambiguous, is the agency's action based on a permissible construction of the statute?

The D.C. Circuit relied principally on the first prong, concluding that the specific language of Section 1401 was unambiguous: the IRS cannot provide tax credits in conjunction with federally-facilitated exchanges.

The Fourth Circuit weighed the conflicting arguments before it, placed Section 1401 in a broader context, and concluded it was ambiguous. Applying Chevron’s second prong, it emphasized that the applicable review standard is highly deferential, with a presumption favoring finding the agency action valid. In upholding the IRS Rule, the Fourth Circuit was “primarily persuaded by the IRS Rule’s advancement of the broad policy goals” of the ACA.

Employers operating in states with federally-facilitated exchanges would have a competitive advantage...

Potential Impact

If ultimately no premium subsidies are available in states with federally-facilitated exchanges, millions of individuals in those states will be subject to the individual mandate without access to tax credits to make coverage affordable. Some may risk penalties and cancel their coverage. Risk pools could thereby experience increased adverse selection and become economically untenable, jeopardizing the federally-facilitated exchanges and undermining key ACA benefits.

However, in those states employers subject to the ACA’s employer shared responsibility rules would have no exposure for employees who otherwise trigger assessable payments by receiving the tax subsidies. Assessable payments are triggered when an employee qualifies for a premium tax credit: no eligible employees, no liability for assessable payments, even if the employer offers no coverage.

For multistate employers, the penalties for offering unaffordable or inadequate coverage could be imposed only with respect to employees in states that establish exchanges. Employers operating in states with federally-facilitated exchanges would have a competitive advantage.

What Happens Next

Both cases were decided by three judge panels. Recourse to the full circuit bench is possible, especially where the matter is of exceptional public importance. It seems that the Administration will seek review before the full panel of D.C. Circuit judges.

If the two circuit courts agree, appeal to the Supreme Court is still possible, although then the Supreme Court may be inclined to take the case only if it sees the case as raising important policy issues (which may be the case). A Supreme Court decision is unlikely to be reached much before June 2015, and could be as long as two years away. For the immediate future, provided that the D.C. Circuit stays its decision, the IRS final rule stays in effect.


Written by:

JD Supra Perspectives

JD Supra Perspectives on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.