Jul 23, 2014

Update: Fourth Circuit Court of Appeals Issues Conflicting Ruling Upholding Federal Subsidies Under the ACA

Late yesterday, a three-judge panel for the 4th Circuit Court of Appeals unanimously ruled that it would defer to the IRS’s determination that individuals who purchased health insurance coverage on both federal and state-run Marketplace Exchanges are eligible to receive federal subsidies.

Specifically, the court stated that the “applicable statutory language is ambiguous and subject to multiple interpretations. Applying deference to the IRS’s determination, however, we uphold the rule as a permissible exercise of the agency’s discretion.”  Because of this ambiguity, the court also held that it is “clear that widely available tax credits are essential to fulfilling the Act’s primary goals and that Congress was aware of their importance when drafting the bill.”

However, earlier yesterday, a three-judge panel at the U.S. Appeals Court for the D.C. Circuit ruled that the IRS lacked the authority to allow federal subsidies to be provided in Marketplace Exchanges not run by the states.  If this ruling is upheld, about 4.7 million people receiving subsidies through the Federal Marketplace Exchange would no longer be eligible for such subsidies. To view a copy of our client alert on this case click here.

Similar cases are pending in lower courts in Oklahoma and Indiana, but the decision by the U.S. Appeals Court for the D.C. Circuit is the first to suggest that federal subsidies being offered on the Federal Marketplace Exchange might be invalid. The competing decisions increase the likelihood that the U.S. Supreme Court will eventually agree to hear the case. The Obama Administration could even seek an expedited U.S. Supreme Court hearing based on the high dollar amount of subsidies currently being provided.

For a copy of the 4th Circuit Court of Appeals opinion, click here.

For more information on the ACA, contact your Executive Compensation and Employee Benefits Counsel at Smith, Gambrell & Russell.

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