On Jan. 15, the U.S. District Court for the District of Columbia held that the IRS can issue premium tax credits (under the Affordable Care Act) to individuals whether they enrolled for coverage through a federally or state-run health insurance exchange.
The complaint was brought by three employers and four individuals, including Jacqueline Halbig, who is named in Halbig v. Sebelius, 13-CV-0623 (D. D.C., Jan. 15, 2014). They argued that a statutory provision bars the IRS from issuing premium tax credits to individuals who enroll in qualified health plans through federal, as opposed to state, exchanges.
Halbig contended that language of the ACA allowed premium subsidies (tax credits) only if coverage was issued by an exchange that was run by a state. An IRS final rule from May 23, 2012 (77 Fed. Reg. 30377) authorizing payments for coverage through federally run exchanges arbitrarily and capriciously violated the plain language of the statute, she said.
But Judge Paul Friedman said when a statutory interpretation is being disputed, courts should first ask whether Congress spoke directly to the issue in question. If congressional intent is clear, federal agencies must effectuate that clear intent. If a statute is silent or ambiguous, however, Congress delegates the job of fleshing out details to the appointed federal agencies, and courts must defer to those agency interpretations, provided they are based on “a permissible construction of the statute.”
Friedman said Congress’ intent was clear, so he did not have to question the IRS interpretation of it. The legislative history showed the authors’ intent was that subsidies should be available to policy holders from all exchanges, including ones that are federally run and facilitated. (Note: Sixteen states have set up their own exchanges, and the federal government has set up exchanges in 34 states.) He said that the phrase “Exchange established by the State” was being read in isolation to make subsidy recipients ineligible. In fact, reading that phrase in the fuller context of the overall statute shows that Congress called all exchanges “state-established,” whether federal authorities help with, or even create, them.
Statutory purpose
Halbig had argued that another purpose of Congress was to compel the states to establish exchanges, and thus the law threatened states that failed to do so with the loss of tax credits for their residents. But Friedman rejected that.
First, Halbig failed to present evidence in the statute or legislative history that Congress had that purpose. Second, Congress’ primary intent was trying to expand coverage, and it included flexibility in running exchanges so Americans would not be left out. Finally, restriction to state-run exchanges was found in only one place while the goal of expanding coverage to consumers in all states was found throughout the statute, Friedman wrote.
The congressional record and statements by legislators during the statute’s development also indicated congressional intent not in harmony with Halbig’s interpretation. Early versions of the statute had federal authorities creating all exchanges, the judge noted. That was dropped in favor of a choice by states to either create exchanges or allow federal authorities to do so on their behalf. Also, the Congressional Budget Office assumed tax credits would be available everywhere, Friedman noted.
Had the court sided with Halbig, health care reform’s individual mandate would have been dealt a major blow. Some of the consumers in federally run exchanges could have lost subsidies buying insurance on exchanges and gone uninsured as a result. Consumers in 34 states would have to pay out of pocket for government-mandated insurance, and that economic pain would have certainly stoked opposition to the law.
The plaintiffs say they plan to appeal the ruling.
Position previously argued
This is not the first time these arguments had been made. They hearken back to the state of Indiana, which argued that states that rejected health care reform made a public policy decision to alleviate regulatory burdens on employers, but that federal tinkering with the statute was thwarting that decision. Making subsidies available to workers in states opposed to reform enabled federal authorities to burden business even in states that want to protect business from the employer mandate, Indiana argued. The state of Oklahoma made similar arguments a month earlier.