Contradictory Court Rulings on ACA Tax Subsidies

July 23, 2014

pic-supreme-courtOn Tuesday, July 22, 2014, the U.S. Court of Appeals for the District of Columbia Circuit ruled that, under the Patient Protection and Affordable Care Act, the IRS is not authorized to provide subsidies to individuals in the federal exchange. Shortly after that ruling was handed down, the Fourth Circuit Court of Appeals offered its own decision in a different case over the same issue and upheld how the Obama administration has been treating the tax subsidies: individuals in both state and federal exchanges are eligible for the tax subsidies.

According to the D.C. court of appeals majority ruling, the law only authorized the tax subsidy to individuals in those states which created their own health care exchange—not those in states which opted out of creating an exchange and instead utilize the federal marketplace, 36 states in total.

What this means in effect, is that approximately 4.5 million people who have enrolled in the federal exchange and are eligible for the subsidy could now lose out on that subsidy if the court’s 2-1 ruling isn’t overturned. Not surprising, the administration was critical of the court’s finding, and the Justice Department is expected to seek a full review by the entire appeals court, rather than just the three-member panel that handed down this ruling. A spokesperson with the Justice Department said they will “…immediately seek further review…” and clarified that “…people getting premium tax credits should know that nothing has changed. Tax credits remain available.”

Contrary to the D.C. court’s finding, the Richmond, Va.-based U.S. Court of Appeals for the Fourth Circuit found in their unanimous decision that, “It is therefore clear that widely available tax credits are essential to fulfilling the Act’s primary goals and that Congress was aware of their importance when drafting the bill.” This court cited the ambiguity in how the law was crafted when it comes to the tax subsidies and therefore gave the IRS the leeway to allow the subsidies in both state and federal exchanges.

These opposing cases could force the Supreme Court to intervene and issue its third ruling on PPACA. If, however the D.C. appeals court agrees to have the case heard by the full panel, if overturned, it could resolve the issue without going to the Supreme Court.