Conflicting rulings on Affordable Care Act federal exchange tax credits

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July 22, 2014

By Phil Heidenreich

The E. Barrett Prettyman Federal Courthouse

Washington, D.C.: Federal tax credits through the Internal Revenue Service were both struck down and upheld in the latest rulings regarding the Patient Protection and Affordable Care Act (Obamacare). The D.C. Circuit of the U.S. Court of Appeals ruled in favor of Halbig in Halbig v. Burwell. The court determined that the law's written language, allowing tax credits to those using exchanges "established by the State," meant that only those using the state exchanges were eligible for tax credits but not those using the federal exchange. Judge Thomas Griffith, who wrote the opinion of the court, explained the discrepancy, writing, "On its face, this provision authorizes tax credits for insurance purchased on an Exchange established by one of the fifty states or the District of Columbia. See 42 U.S.C. § 18024(d). But the Internal Revenue Service has interpreted section 36B broadly to authorize the subsidy also for insurance purchased on an Exchange established by the federal government under section 1321 of the Act." The decision came in at 2-1.[1] Meanwhile, the U.S. Court of Appeals for the Fourth Circuit ruled unanimously in favor of Burwell in King v. Burwell, claiming the language was ambiguous, upholding the legality of the tax credits.[2]

Halbig argued that Congress passed the law with the intention of motivating the states to create their own exchanges by offering them tax credits, with the federal exchange intended as a fallback option. Thirty-six states run through the federal exchange and if the ruling were to withstand review and likely appeals, an estimated 7.3 million people would lose their tax credits, totaling about $36.1 billion.[3]

A U.S. Department of Justice quickly stated that the department would seek an en banc review of the Halbig decision, claiming, "We believe that this decision is incorrect, inconsistent with congressional intent, different from previous rulings, and at odds with the goal of the law: to make health care affordable no matter where people live."[4] Two other similar cases are pending in district courts.[1]

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