The case is Halbig v. Sebelius, U.S. District Court for the District of Columbia, No. 1:13-cv-623. (Link to opinion.)
An appeal is expected in the case, and lawsuits involving the same issue are pending in Indiana, Oklahoma and Virginia federal courts. Experts say it's possible that the U.S. Supreme Court ultimately will decide the issue.
This is from law Professor Timothy Jost:
The issue is this: The ACA authorizes the IRS to provide premium tax credits to individuals with household incomes between 100 and 400 percent of the federal poverty level who are not eligible for other minimum essential coverage (such as affordable and adequate employer coverage, Medicaid, or Medicare). Premium tax credits are, however, only available to individuals who purchase coverage through the exchanges. The ACA requests that the states establish exchanges, and sixteen states have done so. The ACA also, however, authorizes the federal government to establish exchanges in states that fail to set up their own exchanges. The federal government has done so in 34 states. The IRS regulation allows premium tax credits to be awarded to eligible individuals in both states with state exchanges and states with federal exchanges.
Two subsections of the provision of the ACA section authorizing premium tax credits, however, provide that tax credits are available for months in which an individual is enrolled in a qualified health plan “through an Exchange established by the State under 1311” of the ACA. The plaintiffs in Halbig argued that this provision bars the IRS from issuing premium tax credits to individuals who enroll in qualified health plans through federal, as opposed to state, exchanges.
This is from Business Insurance:
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. ...
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.
Employer implications
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.
From The Hill:
... "This [suit] was probably the most significant existential threat to the Affordable Care Act. All the other lawsuits that have been filed really don't go to the heart of the ACA, and this one would have."
The Halbig suit was the brainchild of Michael F. Cannon, the Cato Institute's director of health policy. Cannon and the plaintiffs vowed to appeal Friedman's decision to the U.S. Court of Appeals for the District of Columbia.
"This ruling will not be the last word," Cannon said Monday, calling the government's position "untenable."
"The court acknowledged the tax rules are clear, yet overrode that clear language based on the absurdity that an exchange established by the federal government was actually 'established by the state.' "
From Harris Meyer at Modern Healthcare:
... The legal question in the Halbig case centered on the precise wording in the section of the Affordable Care Act that describes eligibility for the subsidies. The law says subsidies to purchase insurance through an exchange will be provided to individuals and families who got insurance “through an exchange established by the state.” The IRS issued a rule interpreting that to mean any health insurance exchange, not just the state-run exchanges.
The plaintiffs argued that they should not be eligible for the subsidies because they live in states where the federal government, not the states, are running the exchanges. The imposition of subsidies to purchase insurance “injures” the individuals because the subsidies increase the plaintiffs' income to the point that they cannot qualify for an exemption from the reform law's requirement that nearly all Americans purchase insurance, the lawsuit says.
Friedman wrote that the plain language of the law, “viewed in isolation,” appears to support the plaintiffs' interpretation. But, he continued, “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.”
He added that Congress has directly spoken to the precise question of whether an exchange under the law includes federally-facilitated exchanges. “And that must be the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress.”
From UPI:
Families USA Executive Director Ron Pollack told reporters on a conference call the lawsuit constituted "probably the most significant existential threat to the Affordable Care Act. All the other lawsuits that have been filed really don't go to the heart of the ACA, and this one would have."Here was a video summary on the case compiled by Fox News:
From Kelly Phillips at Forbes:
... The Court also dipped its toe into the “payment” versus “tax” argument, finding that “the natural conclusion to draw … is simply that Congress saw no distinction between the two terms.” The Court went on to cite Cohen v. United States, 650 F.3d at 731 where “A baker who receives an order for ‘six’ donuts and another for ‘half-a-dozen’ does not assume the terms are requests for different quantities of donuts. . . . Different verbal formulations can, and sometimes do, mean the same thing.”
With respect to the tax question, it came down to what they referred to as a “modified” version of the “now-infamous ‘duck test’”:
WHEREAS it looks like a duck, and WHEREAS it walks like a duck, and WHEREAS it quacks like a duck, and WHEREAS it is called a duck by Congress on multiple occasions, “[THE COURT] THEREFORE HOLD[S] that it is a duck.”
All of that to say that for purposes of the Anti-Injunction Act, the assessable payment could be considered a tax, meaning that certain of the plaintiffs could not make a case under that Act. That did not, however, result in a complete dismissal. The Court found that it had “jurisdiction over at least one of the individual plaintiffs’ claims” and would therefore make a decision on the merits.
After a lengthy examination of the arguments made in the complaint (including a detailed analysis of the Chevron issues), the Court found that there is no evidence that Congress intended to make the tax credits dependent upon whether a state participated in the exchanges. “To the contrary,” the Court found, “Congress assumed that tax credits would be available nationwide.” The Court went on to write that the IRS Rule is “consistent with the text, structure, and purpose of the Affordable Care Act.” The plaintiffs’ claims were, therefore, dismissed. ...
