A federal appeals court has ruled the Obama administration cannot subsidize insurance premiums for nearly 7 million Americans, dealing a serious blow to the Patient Protection and Affordable Care Act.
The ruling sets up an almost-certain appeal to the U.S. Supreme Court.
Two judges with the D.C. Circuit Court of Appeals in Washington ruled Tuesday that the text of the reform law clearly forbids income-tax subsidies to go to low- and middle-income Americans who use one of the 34 federally run insurance exchanges. The tax subsidies have been flowing since the beginning of the year, based on a 2012 interpretation of the law by the IRS.
The actual text of the law says the sliding-scale tax credits are only available for coverage purchased “though an exchange established by the state,” which only 16 states did. IRS officials had claimed the imprecise wording of the law contradicted Congress' overall intent to expand insurance coverage as widely as possible. But that argument did not win the day Tuesday.
“Because we conclude that the ACA unambiguously restricts the section 36B subsidy to insurance purchased on Exchanges 'established by the State,' we reverse the district court and vacate the IRS's regulation,” the two-member majority wrote.
The ruling was the second dose of bad news for the Democrat-passed reform law this summer. Last month, the Supreme Court dealt a major symbolic blow to the law by ruling in Burwell v. Hobby Lobby Stores that the administration could not force the owners of closely held corporations to defy religious objections and cover contraceptives in their employees' insurance plans. The ruling prompted new legislation to ensure contraceptives are covered without cost for millions of women, but the future of that proposal is far from certain.
Tuesday's ruling poses a much greater financial threat to the law's internal function, but the decision was not altogether surprising.
During oral arguments in March, the judges seemed to be split along the partisan lines that eventually became the 2-1 vote on Tuesday, with Republican-appointed Judges Thomas Griffith and A. Raymond Randolph voting for the plaintiffs and Democrat-appointed Judge Harry Edwards siding with Obama's IRS.
Judge Edwards filed a dissent saying that 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.
“Reading the ACA as a whole, it is clear that the statute does not unambiguously provide that individuals who purchase insurance from an Exchange created by HHS on behalf of a State are ineligible to receive a tax credit. The majority opinion evinces a painstaking effort — covering many pages — attempting to show that there is no ambiguity in the ACA. The result, I think, is to prove just the opposite.”
The ruling does not automatically doom the subsidies. It's virtually certain that the administration will appeal Tuesday's ruling, either to a full panel of the D.C. Circuit Court or directly to the Supreme Court. Legal experts say the earliest the high court would rule is in the matter as soon as spring 2015 — setting up a period of national uncertainty, since the final word on the subsidies' legality would likely come after the re-enrollment period for next year.
Economists have estimated that a ruling like Tuesday's, in favor of the plaintiffs in Halbig v. Burwell, would eventually cause 6.5 million people nationally to forgo insurance purchased with now-illegal tax credits.
Nearly 7 million people used the exchanges to buy coverage in 2014, and more than 80% of them qualified for a tax credit that averaged about $2,900 per enrollee. Most of them are likely to forgo the coverage rather than pay the full price themselves, legal experts on both sides of the issue say. That would set up a situation where only people with immediate plans to use the insurance — that is, the sick or chronically ill — would be likely to find a way to pay for it. Skewing insurers' risk pools would most likely cause prices to rise, perhaps dramatically.
The ruling could also destabilize non-group insurance markets outside the exchanges.
That's because the reform law required insurance companies to put individuals in the same risk pools for coverage, regardless of whether they use an exchange or not. In other words, the grouping of disproportionately sick individuals in the exchanges could cause non-group premiums to rise outside the exchanges as well, because individuals in each state are in the same risk pool.
The Halbig case is not the only such lawsuit based on the legal theory that the reform law was only supposed to offer subsidies through federal exchanges.
The Competitive Enterprise Institute, which coordinated Halbig v. Burwell, also has a case called King v. Burwell awaiting a decision before judges of the 4th U.S. Circuit Court of Appeals in Richmond, Virginia. In addition, federal lawsuits filed by state officials, Pruitt v. Sebelius in Oklahoma and Indiana v. IRS, are pending in U.S. District Courts in Oklahoma City and Indianapolis.
Traditionally, the Supreme Court waits for two circuit courts to issue split rulings on the same question before taking up a case, though the court is free to accept cases involving urgent national questions if it chooses.
Joe Carlson writes for Modern Healthcare, a sister publication of Business Insurance.