BY LINDA BENTLEY | DECEMBER 31, 2014
SCOTUS to hear oral arguments on Obamacare in March
‘The longer this litigation drags on, the more money is unlawfully spent without congressional approval – a very serious matter indeed’
WASHINGTON – On Nov. 7, the Supreme Court of the United States granted a petition to review a controversy over the Affordable Care Act (ACA), or Obamacare as it has become known, to decide whether the federal government can expand the program of subsidies to those who purchase health insurance in federally-run exchanges, despite the ACA explicitly stating such tax credits are only available to those who purchase insurance on state-run exchanges.
And, just a few days before Christmas, the court set the case for oral arguments on March 4, 2015.
Plaintiffs, David King, Douglas Hurst, Brenda Levy and Rose Luck, all residents of Virginia, which declined to establish its own exchange, petitioned the Supreme Court in July, following a Fourth Circuit ruling in the government’s favor, and because that court’s ruling conflicts with another circuit court, to settle the question as to whether the IRS may, via its own rulemaking, extend tax-credit subsidies through exchanges established by the federal government under section 1321 of the ACA.
While the plain language of the ACA states the subsidies apply only to those who purchase health insurance through state-run exchanges, the IRS has expanded that to include federally-run exchanges.
Because two courts of appeals are divided over the “most consequential regulation promulgated” under the ACA, plaintiffs stated, “The resulting uncertainty over this major plank of ACA implementation means that millions of people have no idea if they may rely on the IRS’s promise to subsidize their health coverage, or if that money will be clawed back. Employers in 36 states have no idea if they will be penalized under the ACA’s employer mandate, or are effectively exempt from it. Insurers have no idea if their customers will pay for health coverage in which they enrolled, or if large numbers will default. And the Treasury has no idea if billions of dollars being spent each month were authorized by Congress, or if these expenditures are illegal. Only this court can definitively resolve the matter; it is imperative that the court do so as soon as possible.”
Although a bill was initially passed by the U.S. House of Representatives, under which the federal government would create a national exchange, the Senate found that provision unacceptable, with Sen. Ben Nelson, D-Neb., whose vote was critical to passage, calling it a “deal-breaker” while expressing concerns that federal involvement at that level would “start us down the road of … a single-payer plan.”
It was important to Nelson and other swing-vote senators for states to take the leading role, and, given the “constitutional bar on compulsion, required serious incentives to induce state participation,” who believed the conditioning of tax credits on state-run exchanges were sufficient to do so.
As Prof. Jonathan Gruber, one of the ACA’s architects, explained in January 2012, “[I]f you’re a state and you don’t set up an exchange, that means your citizens don’t get their tax credits … I hope that’s a blatant enough political reality that states will get their act together and realize there are billions of dollars at stake here in setting up these exchanges and that they’ll do it.”
Congress never expected the states would turn down federal funds but as it turned out only 14 states set up exchanges.
And, Congress never appropriated any funds in the ACA for Health and Human Services (HHS) to build exchanges, while it appropriated unlimited funds to help states establish theirs.
Despite the ACA’s text, in 2011 the IRS proposed regulations, which it promulgated in 2012, requiring the Treasury to grant subsidies for coverage purchased through all exchanges, not just those established by states, contradicting the statutory text restricting subsidies to exchanges “established by the state under section 1311.”
Additionally, after the IRS announced subsidies would be available to taxpayers whether or not their state established exchanges, 34 states declined to establish exchanges, while two states failed to establish exchanges by the 2014 deadline.
Because the IRS’ rule expanded subsidies to coverages purchased on HHS federal exchanges, it triggered ACA mandates and penalties for millions of individuals, who would otherwise be exempt, as well as thousands of employers in the states served by the federally-run HealthCare.Gov.
Because eligibility for a subsidy triggers the individual mandate penalty for those who would otherwise be exempt, by declaring the tax credit allowable in states served by federal exchanges, many individuals previously eligible for exemption are no longer free to forgo coverage, or purchase “catastrophic” coverage, otherwise limited to individuals under 30 years old.
The plaintiffs do not wish to comply with the individual mandate to purchase insurance and, because of their low incomes, would not be subject to penalties for failing to do so, except for the IRS Rule, which renders them eligible for subsidies that would reduce the net cost of their coverage to below 8 percent of their projected income and disqualify them from the hardship exemption.
In other words, as a result of the IRS Rule, they will incur either the financial cost of being forced to purchase insurance they cannot afford or pay the penalty for not complying with the individual mandate.
A split decision in the D.C. Circuit Court of Appeals held the IRS Rule to be directly contrary to the unambiguous text of the ACA and ordered the Rule to be vacated.
Just a couple of hours after the D.C. Circuit issued its opinion, the Fourth Circuit Court of Appeals issued an opinion affirming the government’s position and stating the ACA was ambiguous as to whether a HHS exchange is “established by the state.”
Referring to the Fourth Circuit opinion, plaintiffs wrote, “To resolve this supposed ambiguity, the court applied deference. It reasoned, ‘the importance of the tax credits to the overall statutory scheme” makes it ‘reasonable to assume that Congress created the ambiguity’ intentionally, so that the IRS could resolve it.”
They go on to argue the need for timeliness in resolving the conflicting opinions, and stated, “The two conflicting Circuit decisions have created intolerable uncertainty over a major component of the ACA’s implementation. If this court ultimately agrees with the D.C. Circuit that the IRS Rule is contrary to law, as is highly likely, the consequences for individuals, employers, insurers, states, and federal spending will be vast—and the longer that the lawless IRS Rule is in effect, the greater the upheaval when it is ultimately vacated.
“Further, millions of Americans are in the same position as Petitioners here — namely, subject to the Act’s individual mandate only if the IRS Rule stands. In light of the conflicting rulings, these individuals have no idea whether they are required to purchase comprehensive health coverage (which they may well not want) or are free instead to forgo coverage or buy only catastrophic coverage. Nor do they know if they will be subject to fines if they fail to purchase ACA-compliant coverage.”
The brief goes on to argue all that is at stake.
As far as employers are concerned, the conflicting court opinions means hundreds of thousands of employers in three dozen states have no idea whether or not they are required to provide ACA-compliant coverage to their employees, effective January 1, 2015.
Insurers are also in a bind without clarification on the validity of the IRS Rule, affecting their ability to budget, plan and set rates for future coverage, whereas, if the Rule is found to be invalid, that will have a substantial effect on the makeup and revenue of the insurance pool.
States need resolution as well since the issue will have a dramatic impact on incentives for establishing their own exchanges or, as some states are now considering, shutting down their exchanges in favor of HealthCare.Gov.
Last, and probably most important, taxpayers are affected as billions of taxpayer dollars are currently pouring out of the federal Treasury under the authority of the IRS Rule, with the government’s estimated cost for subsidies at approximately $150 billion per year.
Citing a 1986 case: Brock v. Pierce Cnty., plaintiffs state, “Because ‘the protection of the public fisc is a matter that is of interest to every citizen,’ there is thus an enormous public interest in ensuring that these funds are not illegally disbursed. The longer this litigation drags on, the more money is unlawfully spent without congressional approval – a very serious matter indeed,” and urged the court to “strive to provide a definitive resolution as quickly as possible.”
