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![handle is hein.crs/crsmthaactp0001 and id is 1 raw text is: Legal Sidebar
Another Court Rejects Premium Tax Credits in
Federal Exchanges under ACA
On September 30, 2014, a second court found that the Patient Protection and Affordable Care Act (ACA)
does not authorize the provision of premium tax credits to the millions of individuals currently receiving
them for health insurance purchased through federally run exchanges. In State of klahoma ex rL PrUi v.
Burwell, a federal district court held that an IRS rule permitting premium tax credits for the purchase of
health insurance in federal exchanges is an invalid implementation of ACA. The Pruitt case was brought
by Oklahoma's Attorney General, who argued that based on the language of the Act, only individuals
participating in state-run exchanges could receive these credits, not individuals in the majority of states
(including Oklahoma) where the exchange is run by the federal government. Pruitt comes on the heels of
two contradictory appellate court rulings on this issue, and a fourth case dealing with the IRS rule will soon
be heard in a federal district court in Indiana.
Section 1311 of ACA specifies that each state must establish a health insurance exchange to provide health
coverage to qualified individuals. However, if a state does not establish an exchange, section 1321 of the
Act generally provides that the Secretary of Health and Human Services must establish and operate one
within the state. In order to assist individuals in purchasing health insurance in an exchange, ACA provides
that certain lower income taxpayers may receive a refundable tax credit that is applied toward the cost of
their health insurance premiums. In addressing who may receive a premium tax credit, ACA refers to
individuals who are ... enrolled in [a plan] through an Exchange established by the State under section
1311 of [ACA]... (emphasis added). IRS regulations implementing this section specify that premium tax
credits are available to taxpayers who obtain coverage in exchanges set up by both states and the federal
government.
The meaning of this phrase, an Exchange established by the State under section 1311 of [ACA] is at the
heart of the premium tax credit litigation. Plaintiffs have generally argued that this phrase clearly prohibits
federally run exchanges from offering premium tax credits (i.e., because they are not established by the
state), and nothing else in ACA or its legislative history conclusively indicates otherwise. Conversely, the
Obama Administration has argued, e.g., that this flawed interpretation makes no sense when viewing the
language of the Act as a whole and is in stark contrast to ACA's goal of expanding access to health
insurance.
As discussed in an earlier Legal Sidebar pst, in July 2014, two appeals courts reached opposite conclusions
on the availability of premium tax credits under ACA. In Halbi, v. Burwell a three-judge panel on the U.S.
Court of Appeals for the District of Columbia held that ACA unambiguously restricts the offering of
premium tax credits to health insurance purchased on state-established exchanges. It found that the
applicable language of ACA is plain and clearly distinguishes between the creation of state and federally
created exchanges for purposes of the credit. The Halbig decision was later vacated pending review by the
full appeals court of the D.C. Circuit, and a hearing in the case is scheduled for December 17. Conversely,
on the same day, the Fourth Circuit issued its decision in King v. Burwell, holding that the relevant statutory
language of ACA is ambiguous and subject to multiple interpretations. The court found the IRS regulations
to be a permissible exercise of the agency's discretion and entitled to judicial deference. Plaintiffs in the
King case took a different route than those in Halbig, appealing their case directly to the Supreme Court.
Their petition is currently pending.
In Pruitt, the district court examined these two appellate rulings and found the Halbig decision to be more
persuasive. The court applied the judicial test articulated by the Supreme Court in Cheron, .S.A. Inc. .](ViewImageLocal?handle=hein.crs/crsmthaactp0001&div=1&collection=&method=preview&ext=.png&size=3)