ACA Split Court Decision/Subsidy Eligibility

On July 22, 2014, two separate U.S. appellate courts issued contrasting rulings pertaining to a key aspect of the Affordable Care Act (ACA).  The issue at hand is language contained in the 2,700 page law addressing eligibility for subsidies (or tax credits) for those unable to afford the premiums for INDIVIDUAL health insurance.  Specifically, the cases hinge of just four words – “…established by the state”, or in its entirety – “[ACA] subsidies shall be available to persons who purchase health insurance in an exchange established by the state”. 
Since the overwhelming majority of states opted to defer to a federal or hybrid federal/state exchange (36) the language presented a significant problem.  In effect, the language meant that only eligible individuals residing in one of the 14 states that opted to establish a state based exchange would be eligible for subsidies. 
Enter the Internal Revenue Service (IRS), who shortly after passage of the ACA, issued a ruling stating the subsidies would be available for coverage purchased either on a state-based or federally facilitated exchange.  The D.C. based court struck down the IRS’ ruling, while the Richmond, VA based court upheld the ruling.  With so much at stake given the interpretation of these four words and the resultant impact on millions of Americans, a group of plaintiffs challenged the IRS’ ability to: a. determine Congress’ intent behind the drafted language; and b. issue a ruling that had the force of law in dramatically increasing the number of individuals eligible for subsidies.
Here’s what interested readers and stakeholders need to know about the impact of the D.C. based appellate court’s (often referred to as the “2nd highest court in the land”) ruling:
  1. At this point the ruling is an “opinion” which must be settled either by the lower court, an expanded version of this court, or most likely, the U.S. Supreme Court.
  2. The opinion does not have the force of law so subsidies will continue to flow to eligible individuals in all 50 states while these cases make there way through the legal process.
  3. If the D.C. court’s opinion becomes the final word (or law), a number of dramatic changes to the ACA would occur, including most importantly:
    • the millions of individuals receiving subsidies would cease receiving them and in many cases, no longer be able to afford their coverage
    • providers would likely not receive payment for services provided to affected patients that cancel/lose their coverage
    • since the individual mandate specifically does not apply to individuals whose cost of coverage exceeds 8% of their income, there would be a very large segment of the population exempt from the individual mandate
    • the employer mandate would also be greatly affected (see )
      • the “tack hammer” penalty ($3,000 per employee that purchases subsidized coverage on the exchange) would cease to apply/exist since there would no longer be “subsidized coverage”; and
      • employers would still face the “sledge hammer” penalty (i.e., $2,000 per employee starting with the 31st full time employee) if they didn’t offer minimum essential coverage; but this exposure can be eliminated by offering a low cost, bare bones plan (see )