Yesterday, federal appeals courts issued conflicting decisions concerning whether consumers who purchase health insurance through exchanges set up by the federal government are eligible for subsidies under the Affordable Care Act. Thirty-six states have exchanges set up by the federal government, while the remainder exercised the option of setting up their own state-run health insurance exchanges. In Colorado and other states that chose to set up their own exchanges, the availability of subsidies is not in dispute.
Plaintiffs in both cases were individuals opposed to the mandate that they purchase insurance, and all were from states that had chosen not to set up their own health care exchanges. Those individuals argued, in essence, that the subsidies available made insurance affordable under ACA rules — so much so that they could not exempted on the grounds of hardship from the mandate to purchase insurance. As they were not exempt from the mandate, the refusal to purchase insurance left them subject to penalties.
In both cases, three-judge panels — one from the 4th Circuit and one from D.C. Circuit — examined language in the ACA regarding subsidies and the Internal Revenue Service regulations that authorize subsidies in states whose health care exchanges were set up by the federal government.
Both courts acknowledged that the text of the ACA states that people are eligible to receive subsidies for enrolling in plans “through an Exchange established by the State under section 1311” of the ACA. However, they disagreed as to the import of that language. First, the two circuit courts took opposing views on whether it was clear that Congress intended to refer to all exchanges, or only to those established by states. Next, they differed as to whether and how much deference should be given to the IRS’s interpretation of ACA provisions regarding subsidies.
The 4th Circuit panel decided unanimously in King v. Burwell that subsidies were legal in all states. The ACA read in its totality makes it clear that despite the plain language of the provision in question, the intent of Congress was to provide subsidies to purchasers in both state-established and federally-established exchanges. In support of that argument, the court cites statements made by senators regarding the goals of the ACA. Further, the panel follows precedent that says an agency’s interpretation — in this case, the IRS’s regulation and guidance — should receive deference “so long as the interpretation is not arbitrary, capricious or manifestly contrary to the statute.”  The court found that the IRS was entitled to deference as it had behaved in an “entirely sensible way.”
By a vote of 2-1 in Halberg v. Burwell, on the other hand, the D.C. Circuit returned repeatedly to the literal text of the single provision regarding subsidies, made light of other references in the ACA that equated exchanges established by states and those established by the federal government, and reasoned that Congress may well have intended to bar subsidies for those who purchase insurance in states that did not set up their own exchanges. Such an interpretation by the court would be considered impermissible if that interpretation led to “absurd results.” And though insurance under the ACA would in fact be made unaffordable for the millions who stood to lose subsidies, the court chose to call that result no more than “odd.”
As reported by several major news outlets, White House press secretary Josh Earnest stated, “You don’t need a fancy legal degree to understand that Congress intended for every eligible American to have access to tax credits that would lower their health care costs, regardless of whether it was state officials or federal officials who were running the marketplace.”
These decisions have no immediate impact on consumers, as the government will continue paying subsidies to insurance companies on behalf of eligible consumers in all states, including those states with federally-run exchanges. The U.S. Justice Department has requested review of the D.C. Circuit decision by the full panel of judges; if the decision still stands after the full review, the case is likely to end up before the U.S. Supreme Court. And if subsidies are denied to those in states with federal exchanges, one result may be significantly higher rates of uninsured in those states that have not created their own exchanges.
In the short term, the decision contributes to an air of uncertainty as the nation moves toward the next enrollment period, and distracts from the substantial work being done by states, advocates and consumers to improve the implementation of the ACA.
 Chevron U.S.A. Inc. v. Natural Resources Defense Council, 456 US 837 at 844.
By Bethany Pray