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Matt Dunning

4th Circuit upholds premium subsidies for state and federal health exchanges

July 22, 2014 - 3:08pm


The 4th U.S. Circuit Court of Appeals on Tuesday unanimously upheld the federal government's right to issue premium subsidies for health insurance purchased in both state- and U.S.-operated public exchanges.

Four Virginia residents sued the U.S. Department of Health and Human Services, the U.S. Treasury Department and the Internal Revenue Service in September 2013, claiming the IRS overstepped the bounds of the Patient Protection and Affordable Care Act in 2012 by making tax credits in the form of premium subsides available to individuals who purchase health insurance through any public exchange.

In their lawsuit, the plaintiffs argued that the text of the health care reform law only permits the government to offer premium subsidies for coverage purchased through state-run exchanges, not through exchanges operated by the federal government.

The plaintiffs claimed the IRS' rule unfairly subjects them to the reform law's “individual mandate,” which requires most Americans to maintain minimum health insurance coverage or pay a tax penalty for each year they are uncovered. Absent the availability of premium subsidies for insurance purchased in Virginia's federally run exchange, the residents argued that the law would rightly exempt them from the individual coverage requirement.

A U.S. District Court judge in Richmond, Virginia, rejected the plaintiffs' claims in February.

On Tuesday, a three-judge panel of the 4th Circuit — also in Richmond — affirmed the District Court's decision, ruling unanimously that because the reform law's language is “ambiguous and subject to multiple interpretations,” the court is required to defer to the IRS' interpretation of the statute as a permissible use of its regulatory discretion.

“It is therefore 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,” Judge Roger Gregory wrote in the court's ruling. “The IRS Rule advances this understanding by ensuring that this essential component exists on a sufficiently large scale.”

Additionally, the appeals court held that denying premium subsidies to exchange enrollees in the 36 states that have elected not to establish their own public exchange would “throw a debilitating wrench into the Act's internal economic machinery.”

“With only 16 state-run exchanges currently in place, the economic framework supporting the (health care reform law) would crumble if the credits were unavailable on federal exchanges,” Judge Gregory said. “Furthermore, without an exception to the individual mandate, millions more Americans unable to purchase insurance without the credits would be forced to pay a penalty that Congress never envisioned imposing on them.”

Dueling court decisions

Earlier Tuesday, a three-judge panel of the District of Columbia Circuit Court of Appeals in Washington took a decidedly different approach in a similar case.

Ruling 2-1 in favor of a group of small business owners and individuals challenging the IRS' interpretation of the statute, the panel determined that the text of the reform law does indeed restrict the availability of premium subsidies to insurance plans purchased only through state-run exchanges.

The conflicting rulings have set the stage for a likely hearing before the U.S. Supreme Court.

A copy of the 4th Circuit's ruling in King v. Burwell is available here.

 



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