By Travis Walker, Law & Bioscience Fellow
Lost in the grandeur of National Federation of Independent Business[1] and Hobby Lobby[2] is a provision of the Affordable Care Act that may[3] send the law tumbling down. This summer, two federal circuits split on whether individuals can receive subsidies to help purchase health insurance in states that failed to create their own marketplace. In Halbig v. Burwell,[4] the U.S. Court of Appeals for the District of Columbia Circuit rejected a lower court ruling that Congress intended to make the subsidies available in both state-run and federally-facilitated exchanges, citing Section 1311 of the Affordable Care Act’s delegation to the “states” to create health insurance exchanges before January 1, 2014.[5] Writing for the 2-1 majority, Judge Griffith held in Halbig that the federal government did not act as “the state” when it created marketplaces in states that failed to do so, despite Section 1321 of the Affordable Care Act’s direction that the Secretary of Health and Human Services “establish and operate such Exchange,”[6] or those referenced in Section 1311 as created by the states.
Under Section 36B of the Federal Tax Code, “subsidies are available only for plans ‘enrolled in and through an Exchange established by the State under section 1311 of the [Affordable Care Act].’”[7] Consequently, the literal reading of Section 1311 in Halbig also rejected the Internal Revenue Service rule allowing tax credits “for insurance purchased on either a state- or federally-established exchange.”[8] Under the plain meaning[9] and whole act rule,[10] the U.S. Court of Appeals for the District of Columbia Circuit concluded that its statutory interpretation did not produce an absurd result,[11] and that it had no obligation to correct “gaps” or oddities in the Affordable Care Act’s subsidy tax credit text.[12]
Hours after Halbig, the U.S. Court of Appeals for the 4th Circuit wrote in King v. Burwell that although “a literal reading of the statute undoubtedly accords more closely” that the federal government is not a “state,” the intent of Congress is not “so clear and ambiguous that it ‘foreclose[d] any other interpretation.’”[13] Under Chevron deference, U.S. Court of Appeals for the 4th Circuit held 3-0 that the Internal Revenue Service acted appropriately when it determined that “widely available tax credits” were “essential to fulfilling the [Affordable Care] Act’s primary goals,” and “that Congress was aware of their importance when drafting the bill.”[14] Without legislative history that Congress “conditioned the availability of the credits”[15] only to the states, however, the U.S. Court of Appeals for the 4th Circuit dismissed the plaintiffs’ arguments, holding that the Internal Revenue Service’s use of subsidies in state or federal health insurance markets is a “permissible construction of the statutory language”[16] and coincides with the Affordable Care Act’s purpose of “increasing the number of Americans covered by health insurance and decreasing the cost of health care.”[17]
Although the U.S. Court of Appeals for the District of Columbia Circuit has since decided to rehear Halbig v. Burwell en banc, a circuit split may still exist. Under the “D.C. Circuit’s rules, the decision to grant en banc review” vacates the “panel’s judgment, but not its opinion.”[18] Once the case is re-heard in December, a favorable ruling for the Affordable Care Act is nevertheless expected. The D.C. Circuit has 7 judges appointed by Democratic presidents, including 4 judges recommended by President Obama while in office.[19]
Disregarding Halbig, a circuit split may develop elsewhere. In Oklahoma v. Burwell, a United States District Court held that “Section 36B [of the Internal Revenue Tax Code] unambiguously forecloses the interpretation embodied in the [Internal Revenue Service] rule and instead limits the availability of premium tax credits to state-established Exchanges.”[20] Writing in September, Judge White criticized the King decision, calling the U.S. Court of Appeals for the 4th Circuit’s unanimous support of Chevron deference a “legal fiction.” Notwithstanding, Oklahoma v. Burwell notes that “[s]uch a case (even if affirmed on the inevitable appeal) does not … ‘destroy’ anything. On the contrary, the court is upholding the Act as written. Congress is free to amend the [Affordable Care Act] to provide for tax credits in both state and federal exchanges, if that is the legislative will.”[21]
Beyond the issue of statutory interpretation, the question remains open whether Congress will act to provide national subsidies to help purchase health insurance. Experts forecast that after the November elections, both the United States House of Representatives and the United States Senate will have Republican majorities,[22] placing the Affordable Care Act within their purview. Although a complete repeal of the Affordable Care Act appears unlikely due to insufficient votes to override a presidential veto,[23] allowing states who failed to create exchanges to suffer financial consequences may have political ramifications in 2016. Because the Affordable Care Act passed in 2010 a without a single Republican vote in the United States House or Senate,[24] a Republican-controlled Congress could choose to amend the Affordable Care Act as a critique of the Democrat’s past governance, or pass a spending bill authorizing tax credit subsidies to current and future individuals who purchase health insurance through a state-run and federally-facilitated exchange.
Congress’s power may be limited, however, because of the Supreme Court decision in National Federation of Independent Business,[25] which classified the “penalty”[26] imposed for non-compliance with the individual mandate as a non-tax.[27] Unlike state governments which retain plenary power,[28] the United States House and Senate are restricted by the 10th Amendment,[29] and thus may be unable to exercise legislative power to correct subsidies given incorrectly in the past to health insurance purchasers.
Of the 5.4 million currently insured by the Affordable Care Act, some 87 percent bought insurance with the help of subsidies.[30] A decision to stop subsidies in states that failed to create their own marketplace could impact the economic reality of health care. Under the Affordable Care Act, the average tax credit each month is $276, reducing the standard premium of $345 to $69 for 30 days of coverage.[31]
A decision to leave the subsidy problem unresolved until 2016 may also affect the “employer mandate” of the Affordable Care Act. Under Section 2980(H) of the Internal Revenue Code, an employer with at least 50 employees is penalized if it fails to “offer its full-time employees suitable coverage” in “a qualified health plan with respect to which an applicable tax credit … is allowed or paid with respect to the employee.”[32] An employer would thus “face no penalties for failing to offer coverage” if “credits were unavailable in states with federal exchanges.”[33]
With the U.S. Court of Appeals for the District of Columbia Circuit and the Oklahoma Federal District Court’s rulings stayed, the immediate impact on the financial availability of the Affordable Care Act is yet to be felt. Future court action could affect whether subsidies are made available through the federal marketplace, which has its annual open enrollment from November 15, 2014 through February 15, 2015.
What remains certain is that a provision of the Affordable Care Act may have a larger effect on health care than National Federation of Independent Business or Hobby Lobby. When the Affordable Care Act was created, most policy analysts predicted that the states would create their own exchanges, preferring autonomy over a health law passed by a Democratically-controlled United States House and Senate. At the time of Halbig and King, however, only fourteen states and the District of Columbia had state exchanges, leaving the federal government to establish marketplaces under Section 1321 of the Affordable Care Act in the remaining thirty-six states.[34] Whether opponents push to have subsidies heard in the United States Supreme Court, or decline to resolve the issue through legislative action, the financial toll of the Affordable Care Act near an election year may cause the act to tumble and give those who lost in Congress and the courts a new chance to win.[35]
Travis Walker is currently a second year law student at the University of Utah S.J. Quinney College of Law. Travis graduated from the University of Utah in 2011 with a B.A. in Political Science, B.S. in International Studies, and a B.A. in Communications. He also worked for the United Nations and graduated from the London School of Economics with a B.S. in Sociology before returning to Utah. His legal interests are Health Care Law and Politics. Travis owns a golden retriever and enjoys camping with his family in the mountains by Park City.
[1] Nat’l Fed’n of Indep. Bus. v. Sebelius, 132 S. Ct. 2566 (2012).
[2] Burwell v. Hobby Lobby Stores, Inc., 134 S. Ct. 2751 (2014).
[3] This argument suggests that if tax credit subsidies are limited only to states that created a marketplace by January 1, 2014, most insurance plans purchased through the federal exchange will be unaffordable. Over time, the financial impact may cause political backlash and give Republicans legislators the power to amend or repeal the Affordable Care Act.
[4] Halbig v. Burwell, 758 F.3d 390 (D.C. Cir. 2014) reh’g en banc granted, judgment vacated, No. 14-5018, 2014 WL 4627181 (D.C. Cir. Sept. 4, 2014).
[5] Id. at 394 (noting that under Printz v. United States, 521 U.S. 898 (1997), Congress cannot require a state to implement federal law).
[6] Id. (emphasis added).
[7] Id. (emphasis added).
[8] Id. at 395.
[9] Id. at 408.
[10] Halbig v. Burwell, 758 F.3d 390, 400-01 (D.C. Cir. 2014) reh’g en banc granted, judgment vacated, No. 14-5018, 2014 WL 4627181 (D.C. Cir. Sept. 4, 2014).
[11] Id. at 403.
[12] Id. at 403 (quoting Sierra Club v. EPA, 294 F.3d 155, 161 (D.C. Cir. 2002) that “[b]ecause our role is not to ‘correct’ the text so that it better serves the statute’s purposes, we will not ratify an interpretation that abrogates the enacted statutory text absent an extraordinarily convincing justification”).
[13] King v. Burwell, 759 F.3d 358, 369 (4th Cir. 2014).
[14] Id. at 374.
[15] Id. at 375.
[16] Id. at 376.
[17] Id. at 363.
[18] Michael F. Cannon, Yes, Virginia, There’s Still a Circuit Split Between ‘Halbig’ and ‘King,’ Forbes (Oct. 14, 2014 2:38 PM), http://www.forbes.com/sites/michaelcannon/2014/10/14/yes-virginia-theres-still-a-circuit-split-between-halbig-and-king/.
[19] Judges in Health Care Rulings Vote Party Line, Yahoo News (July 23, 2014), http://news.yahoo.com/judges-health-care-rulings-vote-party-line-071447742–finance.html.
[20] Oklahoma ex rel. Pruitt v. Burwell, 2014 U.S. Dist. LEXIS 139501, at *17 (E.D. Okla. Sept. 30, 2014) (emphasis added).
[21] Id. at *24-5.
[22] Brett Neely, Experts: GOP Senate Win Won’t Change Business in Congress, MPR News (Oct. 28, 2014), http://www.mprnews.org/story/2014/10/28/experts-take-on-election-projections.
[23] Even with a Republican controlled United States House and Senate, the President still retains the power of veto. In order to override a Presidential veto, a two-thirds majority vote in both houses of Congress is required.
[24] Shailagh Murray& Lori Montgomery, House Passes Health-Care Reform without Republican Votes, Wash. Post (Mar. 22, 2010), http://www.washingtonpost.com/wp-dyn/content/article/2010/03/21/AR2010032100943.html.
[25] Nat’l Fed’n of Indep. Bus. v. Sebelius, 132 S. Ct. 2566 (2012).
[26] See How Big is the ACA Tax Penalty? Brookings Inst., http://taxpolicycenter.org/taxfacts/acacalculator.cfm (last visited Nov. 1, 2014) (noting that in 2014 the penalty is “the greater of a) 1.0 percent of income (net of specified deductions) or b) $95 per adult plus $47.50 per child, up to a maximum of $285 per family,” and capped at the national average premium for bronze level insurance plans on healthcare.gov, which in 2014 is $3,600 per adult plus $1,900 per child).
[27] See Nat’l Fed’n of Indep. Bus. v. Sebelius, 132 S. Ct. 2566, 2583 (2012).
[28] Plenary power permits the states to retain and exercise power not otherwise granted to the federal government by the Constitution.
[29] U.S. Const. amend. X.
[30] Amy Goldstein, Federal Insurance Exchange Subsidies Cut Premiums By Average of 76%, HHS Reports, Wash. Post (June 18, 2014), http://www.washingtonpost.com/national/health-science/federal-insurance-exchange-subsidies-cut-premiums-by-average-of-76percent-hhs-reports/2014/06/17/4f31b502-f650-11e3-a3a5-42be35962a52_story.html.
[31] Id.
[32] Halbig v. Burwell, 758 F.3d 390, 395 (D.C. Cir. 2014) reh’g en banc granted, judgment vacated, No. 14-5018, 2014 WL 4627181 (D.C. Cir. Sept. 4, 2014).
[33] Id. (emphasis added).
[34] Id. at 394.
[35] See Celeste Mora, Frank Underwood’s Best Monologues in ‘House of Cards’ Season 2, Bustle (Feb. 17, 2014), http://www.bustle.com/articles/15757-frank-underwoods-best-monologues-in-house-of-cards-season-2 (referencing the dramatic line, “She lost, but she played to win”).