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Rebecca Farley

Director, Policy & Advocacy, National Council for Behavioral Health

Two Courts Issue Conflicting Rulings on Legality of Federal Insurance Subsidies

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Tuesday, two appeals courts issued conflicting decisions on a central piece of the Affordable Care Act: the availability of federal insurance subsidies to help lower-income Americans purchase insurance in their state’s health insurance exchange.

At issue is whether these subsidies are allowable only in states that opted to run their own health insurance exchanges, or whether the government may also offer them to plan enrollees in states using the federally-run exchange. The Affordable Care Act authorizes subsidies in “an exchange established by the state,” leading the plaintiffs in each case to argue that the Internal Revenue Service violated the law by extending financial assistance to people using the federally-run exchanges. Defenders of the ACA said that interpretation is too narrow, and that Congress clearly intended for the subsidies to be available to all Americans.

A three-judge panel for the U.S. Court of Appeals in Washington, DC ruled that subsidies may not be offered in the federally-run health insurance exchange, overturning a lower court ruling. Just hours later, the Fourth Circuit Court of Appeals in Richmond, Virginia said that the IRS did nothing wrong and that the subsidies comply with Congressional intent in crafting the law.

If the federal subsidies are ultimately found to be against the terms of the law, it could make health insurance unaffordable to more than 7 million Americans who relied on the subsidies to purchase insurance in the 36 states that decided not to run their own exchanges. Such a decision would come as a major blow to the Affordable Care Act.

Yet, the case will likely be tied up in legal limbo for some time, perhaps years. Both sides will appeal the respective decisions that didn’t go their way, with the Obama Administration likely to appeal the DC Appeals Court decision to the full panel of all 11 judges on the court. Meanwhile, in the absence of a legal injunction, the government may continue to offer subsidies to individuals purchasing insurance in the federally-run exchanges.