Federal Court Ruling on Illegal Subsidies

Today the Halbig v. Burwell Court ruled that a major part of the 2010 health care law relating to tax subsidies in States with government run exchanges are illegal. However, employers should not take any action just yet.

Facts of the Case

Section 36 B of the Internal Revenue Code, part of the Affordable Care Act (ACA), created tax credits to provide a subsidy for individuals who purchase health insurance through marketplaces. The point of contention is that the language of the law said these tax credits are available through marketplaces that are “established by the State under section 1311” of the Act. Section 1311 instructs states to create exchanges, so only these state run exchanges are clearly allowed to provide subsidies. However, the Internal Revenue Service (IRS) interpreted this section to also apply to exchanges established by the federal government.

The case occurred in the D.C. Circuit Court of Appeals with plaintiffs arguing the language of the law barred the government from giving subsidies to people in states with federally run marketplaces (currently there are 27 states this applies to). The plaintiffs were a group of individuals and employers who reside in states that have federally run exchanges and faced potential penalties under the ACA. They believed the IRS’s interpretation of the law was not in accordance with the written law. The Court agreed and ruled that it was illegal.

Effects of the Case

This does not mean that anything will automatically change. There are ways for the federal government to appeal this decision, and it is expected they will do so. Employers should not take any action before a final decision has been decided by a higher court and new guidance has been given.

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About Andie Schieler

Andie is an attorney and works in J.W.Terrill's Compliance division specializing in interpreting the Affordable Care Act and various insurance laws. She advises clients on legal and regulatory issues affecting their employee benefit plans. She obtained her law degree from Saint Louis University and undergraduate from Indiana University Bloomington.

View all posts by Andie Schieler

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