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Q&A: Legality of Some Obamacare Subsidies

Jul 22, 2014
By:
Elisabeth Donahue
Source:
Woodrow Wilson School
Tags: 
Health
The legality of some subsidies offered under the Affordable Care Act is now an open question. The U.S. Circuit Court of Appeals for the District of Columbia found that the government cannot subsidize insurance for people in states that use the federal exchange, while the U.S. Court of Appeals for the Fourth Circuit, in Richmond, upheld these subsidies.
 
We sat down with Heather Howard, lecturer at the Woodrow Wilson School, affiliate in the Wilson School's Center for Health and Wellbeing and director of the State Health Reform Assistance Network, to try to make sense of these rulings.

 
Q. A lot has happened this week regarding the ACA! Can you walk us through the action in the courts?
 
Howard: There were two decisions released by federal appellate courts, which considered related challenges to the Affordable Care Act (ACA). Here’s the question at the core of each: under the ACA, can the government offer health insurance premium subsidies to enrollees in the federal exchange (also known as Healthcare.gov)? Halbig v. Burwell, which ruled against the Obama Administration, came from the D.C. Circuit Court of Appeals. King v. Burwell, decided by the Fourth Circuit Court of Appeals, found for the Administration.
 
Q. In a nutshell, what does the decision in Halbig v. Burwell say?
 
Howard: A panel of the D.C. Circuit Court of Appeals, by a 2-1 majority, ruled that the language of the ACA explicitly allows the provision of subsidies or cost-sharing reductions for enrollees in State-based exchanges, but does not allow the federal government to provide financial assistance to enrollees in the federal exchange. According to the majority, “We conclude that appellants have the better of the argument: a federal Exchange is not an ‘Exchange established by the State,’ and section 36B does not authorize the IRS to provide tax credits for insurance purchased on federal Exchanges.”
 
Q. What about King v. Burwell?
 
Howard: On the same day, a panel of the Fourth Circuit, based in Richmond, unanimously upheld the Obama Administration’s interpretation of the law. According to the Court, “It is...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.” In other words, the IRS had been correct in interpreting the statute as making financial assistance available to all income-eligible enrollees in the health insurance exchanges, regardless of whether they are run by the states or the federal government.
 
Q. Why did drafters of the Affordable Care Act include financial assistance to enrollees?
 
Howard: Subsidies, also known as premium tax credits, help lower- and middle-income families afford health insurance, many for the first time ever. The financial help is also an important way to ensure that healthy people get covered, making sure the risk pool is as broad and sustainable as possible.
 
Q. Who do these cases apply to?
 
Howard: They concern residents of 34 states that rely on the federal exchange. During the first open enrollment period, which closed in late March, millions of people enrolled through the federal site, with the majority acquiring subsidized coverage. If Halbig stands, 7.3 million people could ultimately lose out on this financial assistance.
 
Q. So what does Halbig mean for people already receiving subsidies in those states?
 
Howard: Nothing yet. The DC Circuit decision didn’t go into immediate effect, and as I mentioned earlier, the Fourth Circuit released a conflicting ruling. Subsidies in the federal exchange haven’t gone anywhere, but this decision is not the final word on the subject. If Halbig were upheld, it would be highly disruptive.
 
Q. What about states with their own exchanges?
 
Howard: The 17 state-based exchanges are untouched by either of these decisions. Even if Halbig ultimately stands, enrollees in states that built their own exchanges will not lose their subsidies.  If the decision is ultimately upheld, however, we could see more states pursuing the creation of their own exchanges so that their residents can access the subsidies.
 
Q. What’s next?
 
Howard: The Administration is appealing Halbig to the full D.C. Circuit. It is unclear if the plaintiffs in King will seek en banc review by the full Fourth Circuit. Ultimately, a split among the circuits could invite Supreme Court review. Even with coinciding opinions, the Supreme Court might potentially be interested, given the importance of the case. If a federal subsidy case makes it all the way to the Supreme Court, though, a final decision would probably be at least a year away. 
 
These are two of the many cases challenging parts of the ACA, implementation of which has been very politicized. 
 
WWS Reacts is a series of interviews with Woodrow Wilson School experts addressing current events.