Patient Protection and Affordable Care Act (ACA) judicial challenges and decisions have continued to stir the health care delivery pot. Two appeals court decisions on July 22nd certainly kept the pot boiling.
The ACA created the American Health Benefits Exchanges (Marketplace/exchange). The law further authorizes states to set up health exchanges. In the event a state decided not to establish its own exchange, the Secretary of Health and Human Services (HHS) is authorized to establish a Federal-operated exchange. The law also authorizes the Federal government to operate an exchange in conjunction with a state. To date, 14 states and the District of Columbia currently operate exchanges. The Federal government operates 36 exchanges.
The ACA authorizes tax credits for individuals who purchase health insurance through state-operated exchanges. The subsidies are available to individuals with family incomes between 100 percent (133 percent in states that have chosen to expand their Medicaid programs) to 400 percent of the federal poverty level. On May 23, 2012, the Internal Revenue Service (IRS) promulgated a rule which interpreted the statute as authorizing subsidies under both the state and Federal exchanges. As such, the individual mandate and the employer mandate would apply to Federally-operated exchanges. The question before the two appeals court opinions is whether the subsidies and mandates are also authorized under Federally-operated exchanges.
In Halbig v. Burwell, the U.S. Court of Appeals for the District of Columbia Circuit ruled, in a 2-1 decision, that the subsidies do not apply to Federally-operated exchanges.
In a majority opinion written by Senior Circuit Judge Griffith, the court ruled the statute plainly states subsidies are authorized for the state exchanges. However, it is silent with regard to the Federal exchanges. According to the court, the IRS went too far in applying the subsidies and the individual and employer mandate to Federal exchanges. The effect of the IRS rule was to increase the number of individuals and businesses subject to the mandate.
The court felt “the legislative record provides little indication one way or the other of congressional intent, but the statutory text does.” The court found that “section 36B unambiguously forecloses the interpretation embodied in the IRS Rule and instead limits the availability of premium tax credits to stated-established exchanges.” As such, the subsidies are not authorized for Federal exchanges. Judge Griffith based his decision on one section of the ACA.
Meanwhile, a unanimous Court of Appeals for the Fourth Circuit (Richmond) upheld the subsidies for Federally-operated exchanges in King v. Burwell. Unlike the D.C. Circuit Court, the 4th Circuit interpreted the statute more broadly finding it to be “ambiguous and subject to multiple interpretations. Applying deference to the IRS’s determination, however, we uphold the rule as a permissible exercise of the agency’s discretion.”
The immediate question is what is at stake? First, the neither Appeals Court decision has an immediate impact. The Federally-operated exchanges, the individual subsidies, and the employer mandate will continue pending appeals. The Administration has filed a petition with the D.C. Court of Appeals for rehearing the Halbig case en banc. The King plaintiffs have also filed an appeal with the U.S. Supreme Court.
Second, in June, the Department of Health and Humans Services (HHS) reported that since October 1, 2013, over eight million individuals purchased health insurance through the Marketplace, with a significant majority receiving financial assistance. During the initial enrollment period, more than 5.4 million individuals selected an insurance plan through the Federally-operated Marketplace. HHS reported 69 percent of individuals who selected plans had premiums of $100 or less after tax credits, with 46 percent having premiums of $50 or less. Individuals eligible for the tax credits have “a post-tax credit premium that is 76 percent less than the full premium amount, on average, as a result of premium tax credits.” Add to this a recent Wall Street Journal report that large hospital systems are seeing an increase in patient volumes and emergency department visits. Health insurers are paying for more procedures for individuals enrolled through the health law exchanges. Hence, overturning this federal exchange subsidies would have a significant negative financial impact on providers and patients.
Third, depending on the final outcome, there is a great deal of money involved. In their latest cost estimates, the Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT) projected exchange subsidies outlays at $899 billion and a reduction in Federal revenues of $137 billion for premium assistance tax credits over the next 10 years. They also project $167 billion in outlays for cost-sharing subsidies (which reduce out-of-pocket payments for low-income individuals).
Finally, like the U.S. Supreme Court decision in the Hobby Lobby case, the D.C. Court of Appeals did not rule the ACA unconstitutional. But it did seek to reign in Executive Branch authority. Pending a possible rehearing and decision by the U.S. Court of Appeals D.C. Circuit, it remains to be seen is how, and if, the two decisions can be resolved or whether the matter will be ultimately decided by the U.S. Supreme Court. Stay tuned.
Julius W. Hobson, Jr. is Senior Policy Advisor at Polsinelli P.C. and Adjunct Professor of Political Management, Graduate School of Political Management, George Washington University, where he teaches courses on Lobbying, Electoral and Legislative Processes, and Legislative Writing and Research.