ACA Ruling Upholds Subsidy Distribution on Federal Insurance Exchange

The Obama Administration avoided a major setback to its health care reform efforts yesterday when a federal judge upheld an IRS rule allowing subsidies to be distributed to those who buy health coverage on the federal insurance exchange. The availability of such subsidies are “consistent with the text, structure, and purpose” of the Affordable Care Act (ACA), the judge concluded. The IRS rule at the center of the lawsuit permits eligible individuals purchasing coverage through the state and federal exchanges to receive subsidies for such coverage.

The plaintiffs in the case maintained that the language of the ACA only allows subsidies in state exchanges, and the IRS exceeded its authority in expanding the subsidies to individuals enrolling through the federal exchange. The Obama Administration successfully argued, however, that the IRS rule is consistent with Congress’s intent and a reading of the law as a whole. “[W]hile there is more than one plausible reading” of the statute, the judge wrote, “the ACA’s structure and purpose all evince Congress’s intent to make premium tax credits available on both state-run and federally-facilitated exchanges.”

Had the court ruled that the law does now permit subsidies for individuals enrolling in federal exchanges, it would have caused serious implementation issues for the Obama Administration. Not only would a sizeable portion of the population be ineligible for subsidies – causing significant market disruption – but large employers in states using the federal exchange would not be subject to pay-or-play penalties because such penalties are triggered by employees receiving subsidies for exchange coverage. The plaintiffs have reportedly already appealed the case to the D.C. Circuit; it will likely take anywhere between four and twelve months for the appeals court to decide the case.

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