This has been cross-posted for a more general audience at ACSblog. Though it contains more background than most healthlawprof readers will need, analysis comes after the jump.
The D.C. Circuit held in Halbig v. Burwell that the IRS cannot provide tax credits to individuals who purchase private health insurance in states with federally-run insurance exchanges, potentially depriving millions of middle and low income Americans access to affordable health insurance. Improbably, while the blogosphere lit up, the Fourth Circuit held in King v. Burwell that the IRS properly interpreted the Affordable Care Act (ACA) to provide tax credits in all exchanges whether run by a state or the federal government. Members of the Obama Administration immediately declared they will seek rehearing by the D.C. Circuit en banc. The standard of review for petitions for rehearing is rigorous, but given the importance of the case, and the new circuit split, rehearing is conceivable. Further, it is not unreasonable to anticipate that the Supreme Court ultimately will grant a petition for certiorari in either or both of these cases. If it is upheld, Halbig could be the most damaging decision in the ACA litigation wars yet. For those not mired in the details of the ACA and its ongoing legal challenges, here’s why.
The ACA attempts to create near-universal insurance coverage by making Americans insurable and by commanding insurers to play by uniform rules. The ACA was created because, in 2008, one in five Americans did not have health insurance coverage. To make this number tangible, imagine everyone you know with blue eyes… and now imagine they do not have health insurance. That’s how many were uncovered, and the lack of coverage was just about that random too. In the United States, if you don’t have health insurance, you don’t have access to consistent healthcare. The ACA has clear goals, but it is a muddy scrum of legislative drafting that never underwent a conference committee process, and that imprecision has facilitated the litigation in these cases.
To avoid adverse selection (the problem of free riding), the ACA requires Americans to carry minimum essential coverage or face a tax penalty (upheld in NFIB v. Sebelius); however, if insurance premiums would cost more than 8% of an individual’s income, then no tax penalty will be assessed. To facilitate health insurance coverage, the ACA created health insurance exchanges, also called marketplaces, where individuals and small groups can purchase health insurance that provides standardized benefits without exclusions for preexisting conditions and other disequalizing prohibitions. People who earn 100-400% of the federal poverty level are eligible for federal tax credits that assist in paying premiums for private insurance on the exchanges (“premium assistance tax credits,” codified at 26 U.S.C. 36B), increasing substantially the number of people who can afford to purchase private health insurance.
States were given a choice to create exchanges with federal funding under ACA section 1311, and if they opted not to, then the federal government would create “such” exchange in the state under ACA section 1321. Sixteen states and D.C. created their own exchanges before January 1, 2014, so currently two-thirds of states have federally-run exchanges. This landscape is shifting slightly as some states’ exchanges fail and they move to federal mechanisms, while other states are still eyeballing the federal money available until 2015. What matters here is that the majority of exchanges were federally-run on the day that Halbig was decided.