July 22—Federal appeals courts reached opposite conclusions this week on whether subsidies are legal for plans purchased through 34 of the new government-run marketplaces.

A 2-1 ruling of the District of Columbia Circuit Court of Appeals on Tuesday concluded that the language of the Affordable Care Act (ACA) clearly limited federal subsidies to marketplaces established by states, which operate only 14 of the marketplaces.

Two hours later, a three-judge panel of the 4th U.S. Circuit Court of Appeals in Richmond ruled unanimously that the language of the law was too vague to draw any definitive conclusions and upheld the subsidies.

The ACA marketplaces paid $16 billion in premium and cost-sharing subsidies for 5 million enrollees in the first year of operation, according to the Congressional Budget Office.

The D.C. appeals court ruling struck down IRS rules, which interpreted the law as allowing the subsidies for enrollees in either federal or state-operated marketplaces.

“The point is that we don’t know, and in asking us to ignore the best evidence of Congress’s intent—the text of section 36B—in favor of assumptions about the risks that Congress would or would not tolerate—assumptions doubtlessly influenced by hindsight—the government and dissent in effect urge us to substitute our judgment for Congress’s,” stated the majority opinion of Republican-appointed judges Thomas Griffith and A. Raymond Randolph. “We refuse.”

Democrat-appointed Judge Harry Edwards underscored the significance of the ruling striking down the subsidies in his dissent.

“The IRS’s and HHS’s constructions of the statute are perfectly consistent with the statute’s text, structure, and purpose, while Appellants’ interpretation would ‘crumble’ the Act’s structure,” Edwards wrote. “Therefore, we certainly cannot hold that that the agencies’ regulations are ‘manifestly contrary to the statute.’”

Meanwhile, the 4th Circuit judges found “that the applicable statutory language is ambiguous and subject to multiple interpretations,” according to the opinion. “Applying deference to the IRS’s determination, however, we uphold the rule as a permissible exercise of the agency’s discretion.”

Subsidies Continue

The White House issued a statement that pending the final outcome of the appeals process, “premium tax credits will continue, unchanged,” according to press reports.

Supporters of the ACA said the Obama administration is likely to appeal the D.C. court’s ruling to the full appeals court, which is comprised of a majority of Democrat-appointed judges and could vacate the ruling before the next open enrollment begins.

A Supreme Court ruling on the case—which traditionally follows splits by appeals courts on major issues—would likely not come until after the next open enrollment period.


Rich Daly is a senior writer/editor in HFMA’s Washington, D.C., office. Follow Rich on Twitter: @rdalyhealthcare.

Publication Date: Tuesday, July 22, 2014