This post was contributed by Eric N. Athey, a Member in McNees Wallace & Nurick LLC's Labor & Employment Practice Group in Lancaster, Pennsylvania.
On July 22, 2014, a three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit ruled in Halbig v. Burwell that the Affordable Care Act (ACA) authorizes the issuance of tax credits to assist individuals to purchase health coverage only on state-run exchanges. On the same day, a panel of the U.S. Court of Appeals for the Fourth Circuit reached the opposite conclusion in King v. Burwell, holding that ACA tax credits were also available to participants in federally-run exchanges. These decisions raise many questions; however, all that is certain at this point is that these two decisions, both issued by three-judge panels of larger appellate courts, will not be the final word on the subject.
Legislative Intent vs. Plain Language of the Law. At the heart of the Halbig case is a single sentence in Section 36B of the ACA, which states that the amount of a premium tax credit is based on the cost of a health plan that an individual enrolls in "through an Exchange established by the State . . . [under the ACA]." Given the ACA's failure to reference federally-run exchanges in its discussion of tax credits, the Court found that these credits may only be issued for coverage obtained through state-run exchanges. However, the Fourth Circuit and the dissenting judge in Halbig reached the opposite conclusion, reasoning that if one reads the entire text of the ACA, it is clear Congress's intent was to allow credits to be issued to participants in federally-run exchanges as well. As the dissent in the Halbig case argued, it seems unlikely that Congress intended to plant a "poison pill" in Section 36B that could tear down the ACA.
What Happens if the Halbig Decision is Upheld? If the decision stands, this would mean that individuals seeking to purchase coverage through any of the 36 federally-run exchanges (including Pennsylvania's exchange) could not qualify for a tax credit to assist with the cost of the premium. The decision would also have significant ramifications for the ACA's individual mandate and employer mandate. By making exchange coverage unaffordable to many potential purchasers (i.e. costing over 8% of household income), the decision could have the effect of exempting them from the individual mandate penalty. In addition, since employer mandate penalties are triggered when an employee obtains a tax credit to obtain exchange coverage, the elimination of tax credits in 36 states could effectively exempt employers from penalties in those states (including Pennsylvania).
Will the Halbig Decision be Upheld? At this point, the U.S. Department of Health and Human Services (HHS) is likely to pursue one of two options: (1) request an en banc rehearing of the Halbig case by all active judges on the court; or (2) petition for the case to be heard by the U.S. Supreme Court. If HHS chooses to pursue an en banc rehearing, their chances of prevailing are probably good – 7 of the Court's 11 active judges were appointed by Presidents who were Democrats (4 of whom were appointed by President Obama).
If this case eventually winds up in the Supreme Court, it is impossible to predict the outcome. The Supreme Court's recent decision in the Hobby Lobby case demonstrates that the Court is willing to scale back aspects of the ACA. However, the Halbig case has far broader implications and the Court may be reluctant to (in the words of Judge Edwards) "gut" the ACA. If the D.C. Circuit reverses itself en banc, it is also conceivable that the Supreme Court may not agree to hear the case since the two appellate courts to have considered the issue would then be in agreement. However, opponents of the ACA undoubtedly see Supreme Court review as a tantalizing opportunity to upend the law and, regardless of the ultimate decision by the D.C. Circuit, it is a safe bet that one of the parties is going to be seeking review by the high court.