On July 21, 2014, two United States appeals courts reached different decisions about the legality of subsidies under the Affordable Care Act (ACA). The subsidies assist approximately 4.7 million people, or 86 percent of all HealthCare.gov enrollees. These subsidies offset the cost for low or moderate income individuals in an effort to provide affordable coverage. A large percentage of these individuals pay less than $100 per month in premiums after their subsidies are applied. In short, these subsidies make the cost of healthcare affordable for millions of Americans. HealthCare.gov provides insurance for residents of the 36 states that did not create their own health insurance marketplace. At the end of open enrollment, the “federal exchange” helped 5.4 million Americans sign up for “Affordable Care” plans.
The plaintiffs in both the 4th and D.C. Courts of Appeal sought to invalidate a May 2012 Internal Revenue Service (IRS) rule which provided that health insurance premium tax credits would be available to all taxpayers nationwide, irrespective of whether they obtained coverage through state exchanges or federal exchanges created and operated by the Department of Health and Human Services (HHS).
The plaintiffs contended that the plain language of the ACA provides that premium tax credits are only available to health care policies purchased through state exchanges. There are only 14 states and the District of Columbia that have established “state” exchanges. The plaintiffs’ arguments were based on statutory language which provided that premium tax credits only are available for plans “enrolled in through an Exchange established by the State under section 1311 of the [ACA].”
The D.C. Circuit’s decision in Halbiq v. Burwell
Halbiq held that the IRS and the HHS have been delegated authority to jointly administer the ACA. Accordingly, the court reasoned that since this authority has been given to two agencies jointly, this case is governed by Chevron USA v. Natural Resources Defense Council, Inc.
In Chevron, the Supreme Court outlined what is largely considered a deferential test for reviewing an agency’s formal interpretation of its own authorizing statute or a statute it administers. At step one, a reviewing court must determine “whether Congress has directly spoken to the precise question at issue.” If Congress has clearly addressed the issue, the court “must give effect to the unambiguously expressed intent of Congress.” An agency interpretation that is contrary to the clear intent of Congress must be rejected. If, however, the court determines that Congress’ intent is unclear, or that the statutory language in question is ambiguous, the court proceeds to step two. At step two, a reviewing court will generally defer to any “permissible construction” of the pertinent statutory language. This analysis is commonly referred to as the Chevron “two-step.”
Justice Scalia wrote in a concurring opinion in INS v. Cardoza-Fonseca, which was decided a year after Chevron, that “courts must give effect to a reasonable agency interpretation of a statute unless that interpretation is inconsistent with clearly expressed congressional intent.”
In Halbiq, the three-judge panel of the D.C. Circuit Court of Appeals in Washington, which was comprised of two Republicans and one Democrat, ruled that the text of the reform law clearly forbids income-tax subsidies to for low and middle-income Americans who used a federally-administered exchange. The majority held that the language was plain, and that the ACA restricts the availability of premium tax credits to health insurance purchased through state exchanges. Justice Roger Gregory opined in his decision, “Applying the Chevron doctrine, which provides that a court must defer to an agency regulation’s reasonable interpretation of an ambiguous statute, the majority concluded that because the statutory language is unambiguous, the court was not required to defer to the interpretation of the statute reflected in the IRS rule. Thus, the Court concluded that it is clear that widely available tax credits are essential to fulfilling the Act’s primary goals and that Congress was aware of their importance when drafting the bill.”
In dissent, Justice Harry Edwards asserted that when read in its entirety, the ACA is ambiguous. Justice Edwards continued by maintaining that the opinion required a reading of the law that would “crumble” the reform law’s overall structure, which shows it was not Congress’ intent to have the law interpreted narrowly. Justice Edwards characterized the majority opinion as “a teeth pulling effort bouncing from page to page in an attempt to show that there is no ambiguity in the ACA.” He opined that the result of such an effort demonstrates precisely the opposite. He therefore concludes that under Chevron, the court should defer to the government’s reasonable interpretation of the statute as reflected in the IRS rule.
The ruling, if upheld, could end insurance subsidies for millions of Americans in 36 states who, because of the law, are presently able to afford insurance. The Obama Administration has stated that it will file for an en banc review of the decision, which will trigger an automatic stay. The ruling by the D.C. Court of Appeals has no legal force until after the full panel of the circuit court has an opportunity to reconsider the case.
The appeal to the full bench would be cast by the three judges who originally heard the case as well as 10 other judges on the active bench, according to the DC Circuit’s rules. A decision by the full bench may side in favor of the Obama administration, as it would feature eight Democratic appointees, four of whom were appointed by President Obama, and five Republican appointees.
The 4th Circuit’s decision
Hours after the D.C. Court issued its ruling in Halbiq, the 4th Circuit in Richmond, Va. issued an opposite ruling in King v. Burwell. Remarkably, the 4th Circuit held that Congress always intended to allow subsidies to be provided in both state and federally run exchanges.
In King, the 4th Circuit panel unanimously concluded that the ACA is ambiguous on the question of whether premium tax credits are available for health insurance purchased through federal exchanges. Applying the Chevron doctrine, the panel held that it was mandated to defer to the government’s “reasonable interpretation” of the ACA as reflected in the IRS rule.
The 4th Circuit’s three-judge panel held that the language detailing how tax credits are awarded is “ambiguous and subject to multiple interpretations.” The court continued and opined that “clearly, widely available tax credits are essential to fulfilling the Act’s primary goals and that Congress was aware of their importance when drafting the bill. The IRS Rule advances this understanding by ensuring that this essential component exists on a sufficiently large scale.”
The Court further reasoned that the IRS and HHS’ permissible interpretation of the statute easily survives review under Chevron. The Act contemplates that a Federal Exchange created on a state’s behalf will have equivalent legal standing with state-created exchanges. Under King, “the ACA would be crippling itself if taxpayers who purchase insurance from an HHS-created exchange are deemed ineligible to receive those subsidies. The ambiguous language in the act when reviewed using the Chevron doctrine gives the governing agencies the authority to interpret the law.”
These differing rulings by two appellate courts are among the first in what are likely to be many “bumps in the road” for the ACA. The probability of the courts being split after the en banc review by the D.C. full court is highly unlikely. Moreover, the appetite of the Supreme Court to review this issue, particularly after its decision on the individual mandate case, also seems low. As the current split will likely resolve itself after en banc review of Halbiq by the D.C. Circuit, and short of review by the Supremes, this issue will not likely be a roadblock for millions of Americans continued enjoyment of affordable health insurance.