Court Ruling Against Premium Tax Credits on Federal Exchange

October 1, 2014

court_rulingYesterday, a federal district judge in Oklahoma added yet another ruling against the premium tax credit lawsuit. This was the second ruling against the legality of premium tax credit availability in the federally-facilitated exchanges. In July, two U.S. Appeals Courts issued conflicting rulings on the legality of the Affordable Care Act’s Premium Tax Credits in the federally-run exchanges.

Background on the Premium Tax Credit Lawsuits

There were 36 states that opted not to set up exchanges; citizens of these states were defaulted to use the federal exchange. The legal issue lies within eligibility for the premium tax credits. The argument is that people in states without exchanges, who received tax credits through the federal exchange were not eligible to receive these credits.

The ACA includes a provision that says that the premium tax credits are available to enrollees of “state-run exchanges.” Supporters of eligibility for premium tax credits on the federal exchange argue that this statement was a drafting error. Opposers of this issue argue that the provision was intended to limit the premium tax credits to state-run exchanges.

The U.S. Court of Appeals in Washington D.C. ruled that the tax credits are not valid in any of the states that do not have state exchanges set up, while the U.S. Court of Appeals in Richmond, VA ruled in favor of the tax credits being distributed through federally-facilitated exchanges.

The case will be heard again in Washington D.C. when the full panel of judges is available. The plaintiffs in the Virginia case have appealed to the Supreme Court, rather than asking for a rehearing in the circuit court.

The Ruling in Oklahoma

Yesterday, Judge Ronald A. White of the Federal District Court in Muskogee, Oklahoma ruled that the federal government could not subsidize health insurance in the 36 states that did not establish their own exchange.

According to Judge White’s ruling, the premium tax credits apply only to consumers in the 14 states that have set up exchanges. This could potentially affect the lives of an estimated 4.7 million Americans who receive premium tax credits through the federally-facilitated exchanges.

White argued that the administration’s decision to allow enrollees in the federally-facilitated exchanges to receive subsidies is an improper reading of the ACA. In fact, in his ruling, White wrote that “the court holds that the IRS rule is arbitrary, capricious, an abuse of discretion or otherwise not in accordance with law.”

While this marks the second ruling against distributing premium tax credits through the federally-facilitated exchanges, White argued that his ruling would not destroy the ACA as it stands. White pointed out that, “the court is upholding the act as written. Congress is free to amend the Affordable Care Act to provide for tax credits in both state and federal exchanges, if that is the legislative will.”

What This Means for Premium Tax Credits

The rulings do not impact the premium tax credits immediately, and clients or consumers getting premium tax credits should know that the tax credits are still available.

Read more about the conflicting rulings on the premium tax credits.

Read more about the Halbig vs. Burwell ruling here.

What do you think about the court rulings? Leave a comment below. 

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