Conflicting Court Decisions in ACA Subsidies Cases
July 24, 2014
In order to keep our clients informed of changes that affect their employee benefit plans, Cottingham & Butler is providing the following Special Update.
Conflicting Court Decisions
A three-judge panel of the U.S. Appeals Court for the D.C. Circuit has ruled that the Internal Revenue Service lacked the authority to allow subsidies to be provided in exchanges not run by the states in the case of Halbig v. Burwell. The issue is whether federally-facilitated insurance exchanges can offer subsidies or if only state-operated exchanges are permitted to provide subsidies under the language in the Affordable Care Act (ACA).
Soon after the D.C. case was released, a three-judge panel for the Fourth Circuit in Richmond, Va., came to the opposite result in King v. Burwell. The Fourth Circuit panel believed that Congress always intended to allow subsidies to be provided in both state and federally run exchanges, despite the wording in the ACA.
What does it mean?
It is widely expected that the D.C. Circuit’s opinion will be appealed by the Obama Administration and that the finding against the ACA will be put on hold during the appeals process. The D.C. case and the Fourth Circuit case are expected to be appealed to the U.S. Supreme Court. How soon the Supreme Court would take up the case is unknown, but it is expected that exchange subsidies will continue uninterrupted in the mean time.
If the D.C. Circuit case is ultimately upheld, it means that insurance exchanges or marketplaces in 32 states would be disrupted. Alabama, Alaska, Arizona, Florida, Georgia, Indiana, Kansas, Louisiana, Maine, Missouri, Montana, Nebraska, New Jersey, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Virginia, Wisconsin, and Wyoming all have federally facilitated exchanges. Arkansas, Delaware, Illinois, Iowa, Michigan, New Hampshire, and West Virginia have state/federal partnership exchanges.
Cottingham & Butler does not believe that subsidies will be interrupted in the short term, nor does it believe that the U. S. Supreme Court will take or decide the case quickly. Our best estimate is that the case would not be decided before next summer at the earliest.
Contact Us if You Have Questions
We will continue to keep our clients informed as further information becomes available. If you have questions, please contact your Cottingham & Butler representative.