Earlier today, two circuits of the U.S. Court of Appeals handed down conflicting rulings regarding the legality of insurance subsidies offered in connection with federally facilitated exchanges. The controversy surrounding these subsidies involves language found in the Affordable Care Act (“ACA”) which provides that subsidies are available to individuals purchasing insurance through exchanges “established by the State.” The IRS interpreted this language broadly to allow for subsidies to be offered with both state and federally facilitated exchanges. The plaintiffs in both cases believe that the IRS exceeded its authority in expanding subsidies to states with federally facilitated exchanges, thereby unfairly exposing applicable large employers in those states to shared responsibility penalties.
In Halbig v. Burwell, the U.S. Court of Appeals for the District of Columbia held that the language of the ACA allowing for insurance subsidies in state operated exchanges did not apply to federally facilitated exchanges. However, only hours later, in King v. Burwell, the Fourth Circuit sided with the government and upheld the legality of insurance subsidies in connection with federally facilitated exchanges.
The conflicting results are due to differing interpretations of the statutory language. The Halbig Court, which struck down subsidies in connection with federal exchanges, relied on the actual language of the statute. This court determined that the language was unambiguous and restricted subsidies to insurance purchased on exchanges “established by the State.” Conversely, the King Court found the language of the statute to be ambiguous and “subject to multiple interpretations.” Due to this, the Court gave deference to the government’s broad interpretation of the language, and upheld the IRS final rule on the issue, which allowed for subsidies to be provided on both state and federal exchanges.
Both of today’s decisions will be appealed. In addition, we are still awaiting a decision from the federal court in Indianapolis in State of Indiana v. IRS, which involves similar arguments raised by the state and thirty-nine Indiana public schools. The public schools in State of Indiana v. IRS are represented by Bose McKinney & Evans LLP. (State v. IRS – Amended Complaint) For now, employers should continue to assume that the shared responsibility penalties will be effective January 1, 2015. Ultimately, the United States Supreme Court may need to determine whether the IRS may validly impose penalties upon employers located in states that do not operate a state-based exchange.