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Judge rejects challenge to health insurance premium subsidies

Judge rejects challenge to health insurance premium subsidies

Federal health insurance premium subsidies can be provided to lower-income uninsured individuals to buy coverage in states where the federal government set up exchanges after the states declined to do so, a federal judge ruled Wednesday.

The ruling came in a lawsuit filed by several individuals and employers contending that the Internal Revenue Service overstepped its authority in its 2012 rule saying that the subsidies are available to those buying coverage in state as well as federal exchanges under the health care reform law.

The plaintiffs had argued that under the Patient Protection and Affordable Care Act, premium subsidies should be limited to states that set up their own up insurance exchanges, and not the 36 states that refused to do so. The U.S. Department of Health and Human Services established exchanges after the states refused.

However, Judge Paul Friedman of the U.S. District Court for the District of Columbia rejected that argument in his ruling.

In drafting the Patient Protection and Affordable Care Act, “There is no evidence that either the House or Senate considered making tax credits dependent upon whether a state participated in the exchanges. To the contrary, Congress assumed that tax credits would be available nationwide,” Judge Friedman wrote.

“In sum, the court finds that the plain text of the statute, the statutory structure and the statutory purpose make clear that Congress intended to make premium tax credits available on both state-run and federally facilitated exchanges,” Judge Friedman concluded.


The ramifications of the litigation are huge. If premium subsidies were limited to coverage only through state insurance exchanges, millions of uninsured U.S. residents living in states that declined to set up exchanges, such as Ohio, Pennsylvania and Texas, would lack access to the subsidies and likely would remain uninsured.

That would defeat the central purpose of the health care reform law, which is to significantly reduce the ranks of the uninsured. In 2012, about 48 million people were uninsured, according to the U.S. Census Bureau.

Indeed, of the nearly 2.2 million individuals who had obtained coverage through the exchanges by late December, nearly 1.2 million selected plans in the 36 states where the federal government operates the exchanges or where HHS operates the exchanges in partnership with states. About 80% of those obtaining coverage through the exchanges are receiving federal premium subsidies.

A ruling against the government also could have had significant implications for employers. That is because health care reform law penalties against employers that do not offer coverage or do not offer affordable coverage apply only if an employee eligible for a premium subsidy uses it to buy coverage through a public exchange.

Had Judge Friedman ruled that the subsidy is available only in state-established exchanges, employers would not face such penalties for employees living in states that declined to set up exchanges.


Under the law, effective in 2015, employers with at least 50 full-time employees are liable for a penalty of $2,000 per full-time employee if they do not offer coverage. If the employee premium for individual coverage exceeds 9.5% of wages for that individual, the employer would be liable for a $3,000 penalty for that employee.

Judge Friedman's ruling, though, does not completely resolve the issue.

In August, an Oklahoma federal judge allowed a somewhat similar suit filed by Oklahoma Attorney General Scott Pruitt to proceed. The suit is still pending.