Conflicting U.S. court of appeals rulings issued today further muddy the waters over the future of the federal health reform law colloquially known as Obamacare. The fight involves whether individuals enrolled in medical insurance through a federally-operated public health insurance exchange like HealthCare.gov are eligible for subsidies. A panel of three judges for the federal Court of Appeals for the District of Columbia Circuit ruled 2-1 that subsidies are not available through federally-run exchanges, while a panel of three Fourth Circuit Court of Appeals judges unanimously reached the opposite conclusion.
Most states have opted for the federally run exchange as opposed to establishing their own exchange, which means the D.C. Court of Appeals ruling, if it stands, threatens to cripple Obamacare and adversely affect millions of Americans who have already received subsidies for coverage obtained through HealthCare.gov.
Today’s decisions turn on how federal regulators have interpreted the Tax Code section that makes subsidies available to individuals enrolled through “an Exchange established by the State. . . .” Federal regulators concluded that a holistic reading of the legislation and legislative history compels them to interpret this phrase to mean that subsidies are available in the federally-run exchange in addition to state-run exchanges, under the theory that the federally-operated exchange is merely acting as an agent for those states that declined to establish their own exchange.
Individuals and business entities challenged the regulatory interpretation as overly broad, and argued that allowing subsidies through the federal exchange subjects them to undue penalties. For example, the pay-or-play penalties applicable to certain businesses apply only if one or more full-time employees of the business receives a subsidy through an exchange. If subsidies are not available through the federal exchange, then businesses may be able to avoid substantial penalties with respect to their full-time employees who obtain health insurance through the exchange.
It is unclear whether these arguments will make it before the Supreme Court. The Obama administration has already announced its intent to ask the full D.C. Circuit Appeals Court to review and overturn today’s ruling by the court’s three-judge panel. If that occurs, challengers will hope one of the other similar cases making their way to other courts of appeals will create a conflict and force the Supreme Court to hear their case.
In the meantime, with Congressional action unlikely, individuals and businesses are left to wait on additional guidance from regulators as to how subsidies and penalties will be calculated. However, any such guidance is not likely to be issued until there is more clarity from the courts.