Conflicting Court Rulings Could Affect Health Care Subsidies

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July 23, 2014 — Indiana Public Broadcasting’s Brandon Smith reports.

INDIANAPOLIS – Federal appeals courts handed down conflicting rulings Tuesday on whether residents in some states – including Indiana – qualify for government subsidies to pay for heath insurance.

A three-judge panel of the D.C. Circuit Court of Appeals said no, ruling that the federal Affordable Care Act limits the subsidies only to residents of places with state-run online insurance marketplaces, which are called health exchanges.

Indiana lets the federal government run its exchange.

That decision would strike a blow to the Obama’s administration’s implementation of the federal Affordable Care Act – although federal officials say they are planning to seek a review by the full D.C. Court of Appeals.

But the 4th District Court of Appeals found the opposite. In its ruling Tuesday, that court said the language of the federal law is “ambiguous and subject to multiple interpretations” that would allow for the subsidies.

The law says the subsidies – a key part of the effort to make insurance affordable for all Americans – are available to people in states that run their own health care exchanges. But the Internal Revenue Service has interpreted the law broadly to include those who purchase insurance through exchanges run by the federal government.

Indiana and the other 35 states that have left the job of operating the exchanges to federal officials are affected by the IRS rule, which impacts more than just the subsidies.

The rule also means that companies that opt not to provide insurance – which pushes their employees on to the exchange – are subject to tax penalties. And it makes it more likely that individuals who don’t buy insurance will also face tax penalties.

Some of those businesses and individuals sued in several federal courts, saying the IRS interpretation makes them subject to penalties. The D.C. Court of Appeals ruled in their favor, saying the Affordable Care Act “unambiguously restricts” the subsidies to insurance purchased on exchanges run by states.

But the 4th District Court of Appeals deferred to the IRS and said its rule is a “permissible exercise of the agency’s discretion.”

Indiana Gov. Mike Pence, a Republican, said on Tuesday that he “stands by the decision” not to create a state-run exchange despite the appeals court ruling. He said it was “the right thing for Indiana.”

According to the Kaiser Family Foundation, more than 132,000 Indiana residents have purchased insurance through the federal exchange and another 100,000 could be eligible – however not all would meet the income guidelines for subsidies.

The D.C. appeals court ruling could cut the number of Hoosiers who will face penalties if they don’t buy insurance. The Affordable Care Act generally requires all Americans to have insurance but makes exceptions for those for whom the annual cost of the cheapest plan – less any tax credits – would exceed 8 percent of their household incomes.

“By making tax credits available in the 36 states with federal exchanges, the IRS rule significantly increases the number of people who must purchase health insurance or face a penalty,” the court said.

It also means businesses would not face penalties for opting not to provide insurance.

Neither appeals court ruling directly affects Indiana. However, state Attorney General Greg Zoeller and 39 school districts filed a similar lawsuit in federal court.

“The fact that one federal appeals court has ruled in favor of plaintiffs and another for the federal government underscores the need for the United States Supreme Court ultimately to decide whether the IRS exceeded the authority Congress granted it under the ACA,” Zoeller said in a statement.

In addition to the subsidy arguments, Indiana’s suit also questions whether federal officials can impose an employer mandate and a tax penalty on state and local governments.

Zoeller said his suit is meant to get public-sector employers “out from under the draconian tax penalties of the employer mandate.”

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