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Life Health > Health Insurance > Health Insurance

Appeals court nixes subsidies for HHS exchange users

By Allison Bell

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A three-judge panel at the D.C. Circuit Court of Appeals has issued a decision that could block efforts to expand access to private health coverage in states that decline to set up state-based insurance exchanges.

The judges ruled 2-1 in Jacqueline Halbig et al. vs. Sylvia Mathews Burwell et al. (Case Number 14-5018) that the Internal Revenue Service (IRS) has no authority under the Patient Protection and Affordable Care Act (PPACA) to provide premium tax credit subsidies for users of the PPACA public exchanges run by the U.S. Department of Health and Human Services (HHS).

The subsidies have helped cut the amount QHP buyers pay out-of-pocket for premiums to an average of less than $50 per month.

See also: The potential to sink PPACA?.

See also: Appeals court hears PPACA exchange subsidy challenge

PPACA created a premium tax credit subsidy for people who buy qualified health plan (QHP) coverage through the exchanges by adding Section 36B to the Internal Revenue Code (IRC).

PPACA lets HHS set up public exchanges in states that decline to set up their own exchanges. IRC Section 36B talks about providing credits to users of state-based exchanges and makes no mention of any credits to be provided for people who buy QHP coverage through the HHS-run exchanges, Circuit Judge Thomas Griffith writes in an opinion for the majority.

“The fact is that the legislative record provides little indication one way or the other of congressional intent, but the statutory text does,” Griffith writes. “Section 36B plainly makes subsidies available only on exchanges established by states. And in the absence of any contrary indications, that text is conclusive evidence of Congress’s intent.”

Griffith notes that Congress explicitly imposed some key PPACA commercial health insurance provisions, such as guaranteed issue and community rating requirements, on federal territories without providing full exchange subsidy funding for the territories.

PPACA implements some health insurance requirements, such as the community rating requirements, by making changes to the federal Public Health Services Act. HHS last week decided that, because the territories are not going to receive full PPACA expansion funding, the Public Health Services Act excludes territories from its definition of “state,” and the PPACA insurance requirements seem to be destabilizing the territories’ health insurance markets, the territories can be exempt from the PPACA rules that were set by changing the Public Health Services Act.

Griffith wrote his opinion before HHS exempted the territories from the PPACA provisions that changed the Public Health Services Act. He cites an HHS refusal to exempt the territories from the PPACA underwriting requirements as a justification for the possibility that Congress could have imposed those requirements on some states without providing coverage expansion funding for those states.

A. Raymond Randolph, a senior circuit judge, concurred in the Griffith opinion. He argued that a court has no power to help the government fill in accidental gaps in statutes. Harry Edwards, another senior circuit judge, called the majority opinion a “not-so-veiled attempt to gut the Patient Protection and Affordable Care Act.”

In a 1984 ruling on Chevron U.S.A. Inc. vs. Natural Resources Defense Council Inc., the U.S. Supreme Court called for courts to defer to a federal agency’s construction of a statute as long as the agency’s construction of the statute is “permissible,” Edwards writes.

The IRS interpretation of IRC Section 36B clearly squares with the intent of PPACA, given that the drafters clearly wanted the exchange QHP buyers to be able to get subsidies, Edwards says.

There is no “credible evidence that any state even considered the possibility that its taxpayers would be denied subsidies if the state opted to allow HHS to establish an exchange on its behalf,” Edwards say. “The majority opinion ignores the obvious ambiguity in the statute and claims to rest on plain meaning where there is none to be found.”

Steve Wojcik, a vice president at the National Business Group on Health, predicted that the Obama administration will appeal the ruling. His group is still reviewing how the ruling might affect individuals and employers if the Supreme Court lets it stand as is.

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