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Halbig and Premium Tax Subsidies in Federally-Facilitated Exchanges

On July 22, 2014, the US Court of Appeals for the DC Circuit ruled 2-1 that premium tax subsidies were not available to health care purchasers in the 36 states that chose not to adopt a state-run health care Exchange under the ACA.  The Act had provided that while all states were required to establish a state Exchange, those that chose not to would have a federally-facilitated Exchange established for them in their place.  According to the ruling, premium tax subsidies were not available to health care purchasers in states that had federally-facilitated exchanges.  To make matters more interesting, two hours later the US Court of Appeals for the Fourth Circuit issued the exact opposite ruling on the same issue.

The ACA had required that all states adopt a health care Exchange.  However, in another section of the Act, it provided that if a state did not establish an Exchange the federal government would do it for them on their behalf.  The key provision under dispute in the Halbig case was that premium tax subsidies were only available to purchasers in Exchanges established by a State. This seeming conflict in the language of the Act itself was resolved in May 2013 by the IRS in its Notice that subsidies would be available on both state-established and federally-facilitated Exchanges.

Halbig challenged the IRS interpretation of the two conflicting provisions ("a state shall be required to establish" and "the federal government shall establish an Exchange if a state does not do so") and lost initially at the US District Court of DC.  The Appeals Court overturned the lower Court's decision.

While some initial media reports called the Appeals Court's ruling "a death blow to the ACA" and worse, it is far more likely that the Obama administration will appeal the decision first to the entire DC Court of Appeals en banc, and then likely the US Supreme Court will have its say.  Stay tuned for more developments.

Posted on July 22, 2014 by Gary B. Kushner, SPHR, CBP, President and CEO

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