IRS Regs Allowing Premium Tax Credit For Federal Exchanges Purchases Did Not Violate ACA, District Court Rules

The Patient Protection and Affordable Care Act (ACA) clearly supports an IRS regulation allowing the agency to issue premium tax credits to individuals enrolled through both federal and state health insurance exchanges, the District Court for the District of Columbia has ruled in Halbig v. Sebelius (No.: 1:13-cv-00623-PLF). The four individuals who brought the lawsuit challenged tax credits for ACA coverage in the 36 states with federal-run health insurance exchanges, contending that the ACA only allows for state-run exchanges to access the tax credits and that Congress purposefully designed the law that way to incentivize states to run their own insurance Exchanges.

ACA tax credits. Under the ACA, the IRS is authorized to provide premium tax credits to individuals whose household incomes fall between 100 percent and 400 percent of the federal poverty level who are not otherwise eligible for Medicare or Medicaid. These tax credits are only available to individuals who purchase coverage through the exchanges. The exchanges are set up either in the state or by the federal government. The IRS regulation allows the tax credits to be awarded to all eligible individuals, whether in a state with a state-run exchange or a state with a federal exchange.

IRS final rule. The IRS, per the ACA, is charged with the distribution of these health insurance tax credits. The IRS issued a final rule granting subsidies in the states where the federally facilitated exchange is the only option for residents to purchase health insurance. According to the rule, these subsidies will be available to anyone “enrolled in one or more qualified health plans through an exchange,” and then defines “state exchange, regional exchange, subsidiary exchange, and federally-facilitated exchange.”

Challenge. The individuals challenging the IRS regulation pointed to two subsections of the provision of the ACA section authorizing premium tax credits. These two subsections provide that tax credits are available for months in which an individual is enrolled in a qualified health plan “through an Exchange established by the State under 1311.” According to the individuals, this bars the IRS from issuing premium tax credits to individuals who enroll in qualified health plans through federal and not state exchanges.

Chevron. Because the individuals challenged the IRS’ interpretation of the ACA, the court noted it must review the statute under the Chevron rule, which was established by the Supreme Court in Chevron v. Natural Resources Defense Council (467 U.S. 837, 1984). Under Chevron, courts must first ask whether Congress spoke to the precise issue in question. If the intent of Congress is clear, then federal agencies must “give effect to the unambiguously expressed intent of Congress.” However, if a statute is silent or unclear, then the court must defer to the agency’s interpretation of the law if the agency’s interpretation is based on “a permissible construction of the statute.”

Statutory language. The court analyzed the statutory language of the ACA and noted that the statute authorizes premium tax credits for “applicable taxpayers.” An “applicable taxpayer” is an individual with a household income between 100 percent and 400 percent of poverty. The statute did not differentiate between taxpayers who live in states with federal exchanges, versus those who live in states with state-based exchanges. Although the court acknowledged that the language of the two provisions identified by the challenging individuals, when “viewed in isolation” appeared to support the plaintiffs’ challenge, he noted that governing case law provides that in addition to looking at the plain language, he must also look at the provision in context.

Purpose of the ACA. In adopting the ACA, the court noted, “Congress believed that the Act would address the lack of access by many Americans to affordable health care.” The court pointed to the heading of Title I of the ACA, which is “Quality, Affordable Health Care for All Americans.” Although the individuals argued that the tax credits are available only for those purchasing insurance from state-run health insurance exchanges, this interpretation is truly the opposite of this central purpose of the ACA, which is clearly to provide affordable health care to virtually all Americans. Any other interpretation would “violate the basic rule of statutory construction that a court must interpret a statute in light of its history and purpose.” The court disagreed that the underlying purpose was not, as the individuals contended, to convince each state to set up its own health insurance exchange.

Congressional intent. The court then looked at congressional intent. The court said an entire reading of the law and congressional intent make clear that the law provides premium tax credits through all exchanges, regardless of who is running them. The court dismissed the individuals’ challenge and held that “the Court finds that the plain text of the statute, the statutory structure, and the statutory purpose make clear that Congress intended to make premium tax credits available on both state-run and federally-facilitated exchanges.”

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