Halbig, King Decisions Overturning Subsidies May Hinder ACA Implementation

The ultimate outcomes of Halbig v Burwell and King v Burwell, remain to be seen. However, the overturn of 26 USC Sec. 36B that may result is predicted to “broadly undermine the implementation” of the Patient Protection and Affordable Care Act (ACA), according to a report by the Urban Institute and the Robert Wood Johnson Foundation. Consequences of the possible overturn of Sec. 36B, which provides premium subsidies for plans on the federally facilitated Marketplaces (FFMs), are likely to include increases in premiums and uninsured rates.

Recent decisions. In Halbig, the Court of Appeals for the D.C. Circuit vacated the IRS regulation that provides for federal funding for subsidies to aid in the purchase of health insurance through the FFMs, stating, “[W]e conclude that the ACA unambiguously restricts the section 36B subsidy to insurance purchased on Exchanges ‘established by the State.’” Previous oral arguments turned on whether the legislative history showed intent to use premium tax subsidies as an incentive for states to create their own Exchanges. The D.C. Circuit had been dubious of the government’s arguments against such an interpretation of the legislative intent—especially considering that the words “established by the state” appeared in the statute’s language eight or nine times.

In contrast, the Fourth Circuit in King found the ACA’s language—which the D.C. Circuit purported to limit such tax credits to state-run Exchanges—“ambiguous and subject to multiple interpretations,” and gave the IRS deference its application of tax credits to FFMs.

Implications in coverage and subsidies. According to the report, which was written before the release of the King and Halbig decisions, nearly 12 million enrollments are expected in the 34 FFMs in 2016. Of those enrollments, an estimated 7.3 million individuals will receive federal subsidies to aid in the purchase of health insurance through the Marketplaces, and many are expected to pay lower copayments, deductibles, and coinsurance through cost-sharing subsidies. If Sec. 36B is ultimately overturned, it would “[translate] into a loss of $36.1 billion in 2016 of funds that would otherwise go to individuals and families with incomes below 400 percent of the federal poverty level.”

The effects of the overturn of Sec. 36B also are predicted to cause spillover effects to state economies, which will likely experience a loss of federal funding, according to the report. The study estimated losses as high as $4.8 billion in Florida and $5.6 billion in Texas. Twenty-four of the 34 states are already foregoing federal funding in choosing not to expand Medicaid under the ACA. The report suggests that the 34 FFM states consider creating their own state-based Marketplaces to avoid the consequences of an overturn of Sec. 36B.

Effects on other ACA components. According to the report, the elimination of the premium tax subsidies “would have a domino effect on other components of the ACA, as well.” Among the effects predicted in the report is an increase in the number of uninsured as a result of unaffordable premium costs in the absence of subsidies, resulting in an increase of individual mandate penalties. The report also suggests that the shrinking of the insurance pool is likely to result in insurers advocating for the repeal of anti-discrimination regulations.

For more information, visit http://www.rwjf.org/en/research-publications/find-rwjf-research/2014/07/halbig-v-burwell–potential-implications-for-aca-coverage-and-su.html.

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