As the Affordable Care Act (ACA) continues to operate, there continue to be legal challenges. The ACA, also known as ObamaCare, faces legal challenges from states and employers over a number of key provisions.

The rulings of July 22, 2014 are a perfect example of this conflict. Two different courts of appeals issued contradictory rulings about the legality of the tax subsidies offered by ObamaCare. The ACA reads, in part, that subsidies are available in marketplaces established by a state. Some opponents of the law are using this to argue that the tax subsidies available in the federal Marketplace in states that don’t establish their own system are illegal.

The Importance of Tax Subsidies 

Tax subsides offered by the Marketplace are a key piece of the ACA. Because the law requires all Americans to purchase insurance, or pay a penalty, health insurance must be made more affordable to more Americans. The way this is accomplished is by providing those with lower incomes a tax credit that is applied toward the monthly premium of Marketplace insurance plans. This makes the portion of the premium owed by the citizen less.

Americans who earn between 100% – 400% of the federal poverty level are eligible for some kind of assistance with monthly insurance premiums. Those who earn between 100% – 250% are additionally eligible for assistance with cost-sharing, such as copayments and deductibles. For the 2014-2015 enrollment period, the 2014 poverty level will be used, which is $23,850 for a family of four.

Without the tax subsidies, the ACA cannot function because the private health insurance offered will be unaffordable to the majority of Americans. Opponents of the law know this and have used the verbiage of the ACA to legally challenge the tax subsidies in states that use the federally-facilitated Marketplace rather than a state-run system.

Conflicting Rulings on ObamaCare Subsidies 

On July 22, 2014, two separate cases were ruled on by appeals courts. A D.C. appeals court panel ruled in Halbig v. Burwell that the federal government does not have the authority to provide subsidies in Marketplaces that are not run by individual states. This ruling was a split 2 – 1 decision.

Several hours later, a unanimous decision was reached in a Virginia appeals court in the case of King v. Burwell. This court ruled that Congress had intended for subsidies to be available both in federally-facilitated and state-run Marketplaces. Because Congress was aware of the importance of subsidies to the overall bill, it could be concluded that subsidies are legal in both types of Marketplaces.

The Obama administration asked the entire D.C. appeals panel, all 11 justices, to review the Halbig case. However, the court is not required to rehear the case. Should it agree to, because the full panel is dominated by Democrat-appointed judges, some observers anticipate the ruling would be reversed. Depending on the outcome of these legal proceedings, the Supreme Court may eventually agree to hear the tax subsidies issue.

It’s important to note that nothing will change about subsidies until the legal challenges finish working through the courts, which will be a matter of months or years. Opponents of the ACA will likely be in court for several years. While the exact results of these legal challenges are not yet known, it is clear that there will be a large body of legal precedent standing behind the ACA if it survives.

Sources: 

http://aspe.hhs.gov/poverty/14poverty.cfm

http://www.kaiserhealthnews.org/Stories/2014/July/22/Halbig-v-Burwell-federal-appeals-court-exchanges-marketplaces-IRS.aspx

http://www.kaiserhealthnews.org/Stories/2014/July/22/Halbig-FAQ-insurance-subsidies-federal-marketplace-exchange.aspx