Jan. 15—A federal judge rejected a challenge to a key provision of the Affordable Care Act (ACA) on Wednesday.

Judge Paul Friedman of the District Court for the District of Columbia upheld the provision of health insurance subsidies for beneficiaries who buy them through the 36 federally operated health insurance marketplaces, or exchanges. The legality of those premium tax credits, which are expected to help about 80 percent of marketplace enrollees—about 20 million—afford their coverage, was challenged because the text of the law refers only to the availability of tax credits in the 14 state-run exchanges.

The suit alleged Congress intentionally limited subsidies to enrollees in state-run exchanges as an incentive to states to establish their own marketplaces.

Although Friedman found that the ACA's text "viewed in isolation" appeared to support the challenge, a broader reading indicated that its framers intended for the federally run versions to take the place of state-operated marketplaces, which would apply the same operational provisions to both.

The Obama administration also identified provisions of the law that make sense only if the federal exchanges are providing tax credits to cover premiums.
"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," wrote Friedman, who was appointed by President Bill Clinton.

Tim Jost, an ACA expert and prominent supporter, wrote in a Health Affairs blog post that the ruling was "a very important legal victory" for the law and he expects that "not only will his decision be upheld but that the judges in the other cases will follow his reasoning."

Similar challenges are pending in other federal courts.

"A ruling for the plaintiffs would have been a major setback for the ACA," Jost wrote. "Not only would it have barred millions of Americans who live in states that have federal exchanges from receiving premium tax credits to make health insurance affordable, it would have also rendered the employer mandate unenforceable in those states."

The ruling is expected to be appealed.

Publication Date: Wednesday, January 15, 2014