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Courts Disagree Over Obamacare Subsidies

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Two separate federal appellate courts issued contradicting decisions this week that could potentially impact how millions of people pay for health insurance.

Details on the Decisions

While the Affordable Care Act originally envisioned the states establishing and operating their own health insurance exchanges, it gave each state the option to allow the federal government to run the exchange in its place. As a result, the federally facilitated marketplace - a.k.a. HealthCare.gov - functioned as the online insurance exchange for 36 states that did not create their own, when open enrollment launched last October.

Tuesday morning, a panel of three judges from the U.S. Court of Appeals for the District of Columbia Circuit ruled on the legality of issuing tax subsidies through the federal marketplace, as opposed to subsidies issued for plans purchased through a state-based marketplace like Covered California. According to the court's majority opinion, insurance plans procured through HealthCare.gov are ineligible for tax subsidies that lower the cost of health coverage. The 2-1 decision was issued on the basis that the text of the law grants the ability to offer such subsidies only "through an exchange established by the state." The case, known as Halbig v. Burwell, could potentially invalidate tax subsidies for about 5 million people who qualified for lower-cost health coverage in the 36 states that used the federally-facilitated marketplace.

But, just hours after that ruling, a separate federal appellate court in Virginia offered its opinion on a nearly identical case. The panel of three judges from the U.S. Court of Appeals for the Fourth Circuit unanimously determined that insurance policies purchased through the federal marketplace are indeed eligible for tax subsidies. The majority opinion determined the language of the law was ambiguous, and therefore, the court should defer to the IRS as the agency charged with implementing the law -- and the IRS allows for such subsidies. Interestingly enough, the third judge found the language was unambiguous and allowed for availability of subsidies on the federal marketplace, which is the exact opposite interpretation of the DC Circuit.

What is at Stake

The potential long-term impact of this issue is significant because it could change how much people pay for individual or family health coverage. The tax subsidies at issue - officially known as "Advance Premium Tax Credits" - were intended to make health coverage more affordable. Without these tax credits, many people who enrolled in individual health insurance this year would have to pay substantially more for their coverage. For example, on the federal marketplace, the average monthly premium is $346, but with tax subsidies the average monthly premium that a consumer pays out-of-pocket is only $82.

What happens next?

The legal battle is still unfolding and with such a contentious issue, there is a good chance this case will make its way to the Supreme Court. First, however, the Justice Department is expected to ask the full D.C. Circuit Court to review the panel's decision. If the D.C. Circuit agrees to the en banc review, then popular opinion suggests that the decision will be reversed when reviewed by all 11 judges. Regardless of the D.C. Circuit Court's actions, the high court is likely to get involved, given the conflicting ruling out of Virginia and the fact that there are two similar cases pending in District Courts located in Oklahoma and Indiana.

While the Supreme Court is expected to resolve this issue conclusively, a resolution is not on the immediate horizon. A lengthy legal process lies ahead, and it could be several months before the issue reaches its finality.

The Impact on the Public

People should know that their health plans and the price they pay for them are not going to suddenly change while this matter is pending in the courts. Despite the recent rulings, the law remains intact until a final decision is made. Emily Pierce, Deputy Director of the Justice Department's Office of Public Affairs said, "In the Meantime, to be clear, people getting premium tax credits should know that nothing has changed; tax credits remain available."

Although Halbig has the potential to impact how consumers pay for coverage, the law currently remains unchanged and any subsidized health insurance plans purchased through the marketplaces are still valid. The federal and state marketplaces are still offering subsidies to eligible consumers shopping for health coverage today. These rulings do not invalidate the Affordable Care Act, and the next open enrollment period is still scheduled to begin November 15th. Until then, people looking for health insurance that have a qualifying life event, such as loss of employer-sponsored coverage, can still shop and enroll in subsidy-eligible plans. For people who do not have a qualifying life event, short-term medical plans remain an option to fill the gap until they can enroll in a health plan during the open enrollment period. It is important for people who need coverage to know that these recent rulings do not affect the current availability of coverage options, and they should consult with a licensed agent or other professional if they have questions.