NCPA - National Center for Policy Analysis

Court of Appeals Strikes Down Obamacare Subsidies

July 23, 2014

In a long-awaited decision, the D.C. Circuit Court of Appeals struck down an Internal Revenue Service Regulation granting subsidies to low-income purchasers of insurance on the federal exchange, the Wall Street Journal reports.

The text of the Affordable Care Act grants subsidies to qualifying consumers who purchase insurance from exchanges "established by the State." But, contrary to that language, the Obama administration made health insurance subsidies available to all low- and middle-income purchasers, whether they purchased insurance from exchanges established by a state or established by the federal government.

The plaintiffs -- four individuals and three employers -- challenged the administration's decision to give subsidies to all enrollees, arguing that the law only provided for subsidies when insurance was purchased on state exchanges. The D.C. Circuit agreed, ruling plainly that "a federal Exchange is not an 'Exchange established by the State'" and deeming the IRS regulation an impermissible reading of the Affordable Care Act.

The federal government runs some or all of the insurance exchanges in 36 states. Of the 5 million Americans who have selected insurance plans through federal health exchanges, the majority of them have received subsidies. On average, the subsidies reduce their monthly premiums to $82, 76 percent less than the full cost of the premium.

The ruling has implications beyond mere inappropriate receipt of subsidies. The ACA also forces penalties on employers who fail to offer affordable coverage when those employees receive federal subsidies on an exchange.

The Obama administration plans to ask for a rehearing of the case with all judges on the D.C. Circuit court participating.

Soon after the decision, the Fourth Circuit Court of Appeals issued its own decision in a separate case upholding the IRS rule.

NCPA Senior Fellow John Graham responded to the decision on the Health Policy Blog.

Source: Brent Kendall, "Court Deals Blow to Health-Law Subsidies on Federal Exchanges," Wall Street Journal, July 22, 2014.


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