Courts issue conflicting decisions on US health exchange subsidies

Two federal appeal courts issued conflicting rulings on 22 July about whether the Obama administration can subsidize premiums for health insurance bought from federally run health insurance exchanges created by the Affordable Care Act.

The exchanges were established to create competitive marketplaces where people with no other coverage could compare and shop for health insurance. To make the coverage affordable, premium subsidies were offered to people with incomes below $45 960 (£27 000; €34 000) for individuals and $94 200 for a family of four.

Nearly seven million people have bought coverage through the exchanges, of whom more than 80% have qualified for subsidies, which averaged about $2 900 per person. However, opponents of the health reform law have noted that its wording said that subsidies would be available only on exchanges “established by a state”—but only 16 states had so far elected to set up their own exchanges, leaving it to the federal government to set up exchanges in the remaining 34 states.

In both lawsuits heard by the appeal courts, plaintiffs argued that the US Internal Revenue Service (IRS), which administers the subsidy program, had incorrectly ruled that the subsidies would be available on the federally run exchanges, as well as on those run by states. In the first decision announced on 22 July, a three judge panel of the US Court of Appeals for the District of Columbia Circuit, in a 2-1 decision, agreed with the plaintiffs.

“We reach this conclusion, frankly, with reluctance,” Judge Thomas Griffith wrote in the majority opinion. “At least until states that wish to can set up exchanges, our ruling will likely have significant consequences both for the millions of individuals receiving tax credits through federal exchanges and for health insurance markets more broadly.” However, he argued that it was the job of Congress, not the courts, to clarify the law’s meaning.

If the DC Circuit court’s ruling prevails it would likely be a death blow to the Affordable Care Act, since the loss of subsidies would make insurance too expensive for most low and moderate income US residents who have obtained coverage through federal exchanges. In his dissenting opinion, Judge Harry T Edwards called the lawsuit a “not so veiled attempt to gut the Patient Protection and Affordable Care Act.”

However, several hours later the US Court of Appeals for the Fourth Circuit in Richmond, Virginia, issued a unanimous decision rejecting a similar argument. The court found that, although it could not “discern whether Congress intended one way or another to make the tax credits available” on the federally run exchanges, the IRS’s decision to extend subsidies to federal exchanges was a “permissible exercise of the agency’s discretion” to interpret the “broad policy goals of the act”—namely, to reduce the number of people without health coverage nationwide.

The US Department of Justice said that it would appeal the DC Court of Appeals’ ruling to the full panel of the DC Circuit. The full panel, which comprises seven judges appointed by Democrat presidents and four by Republican presidents, is expected to be more likely to favor the administration’s view. Ultimately, however, the issue may go before the US Supreme Court for its final resolution.