“Under the 2010 Affordable Care Act, most Americans must carry health insurance or face a tax penalty. To ease the financial burden, the law provided for subsidies to make coverage more affordable to low- and middle-income individuals.
The plaintiffs in the lawsuit include four people who don’t want to buy the level of health insurance required by the law.
The act says people can qualify for subsidies if they buy health insurance through an exchange “established by the state.” A majority of states, however, chose not to set up their own marketplaces, leaving the federal government to run some or all of the exchanges in 36 states.
The challengers contend the subsidies don’t apply to consumers who buy insurance through federally run exchanges. And they say the Internal Revenue Service contravened the text of the law when it said last year that the subsidies would be available to individuals who bought insurance on either type of exchange.
The Justice Department, defending the law in court, argued Congress plainly intended for the subsidies to be available to all consumers. The department said challengers shouldn’t be allowed to proceed with a legal effort that runs counter to the law’s aim of making insurance affordable.” - Judge Allows Suit Challenging Health-Law Subsidies, WSJ, 10/22/2013
“Under the Affordable Care Act, subsidies are only available for state exchanges. But through regulation the Internal Revenue Service has extended subsidies to federal exchanges too.”
The text of the Affordable Care Act states that people who buy health insurance from state exchanges get subsidies if they earn under 400% of the poverty line, currently $94,000 for a family of four. Most applicants will qualify for some subsidy.
According to the law, subsidies are available to those who get their health insurance “through an Exchange established by the State under section 1311 of the Patient Protection and Affordable Care Act.” Or, in another section, those “enrolled in through (sic) an Exchange established by the State under section 1311.”
Congress put state subsidies in place to encourage states to set up exchanges. Still, only 16 states and the District of Columbia took the carrot and set them up, fewer than anticipated.
A different section of the act (Section 1321) allows the federal government to set up exchanges in states that have not done so. It is these federal exchanges that have made headlines due to their technical problems. But nowhere does the law say that people on these federal exchanges can receive tax subsidies.
No problem, said the IRS in a May 2012 ruling. The IRS extended the subsidies to those getting health insurance on any exchange by defining an exchange as a “State Exchange, regional Exchange, subsidiary Exchange, and Federally-facilitated Exchange.”
This IRS ruling may have had the unintended consequence of discouraging states from setting up exchanges. States had nothing to gain, and a lot to lose, if the exchanges did not work efficiently. Governors may well have calculated that if Uncle Sam were going to set up exchanges and give their residents the same level of subsidy, why set up their own exchanges? If problems occur, as is happening now, the federal government takes the blame, not the governor or Legislature.
Two groups of Virginia and District of Columbia residents are suing the government, arguing that extending the subsidies to federal exchanges puts them at a disadvantage.
Without the subsidy, their attorneys argue, the cost of health insurance would be greater than 8% of their income, meeting the definition of unaffordable coverage. This would enable them to receive a certificate of exemption from the requirement to purchase health insurance. It would also enable them to buy catastrophic health insurance, low-cost insurance against major illness.
Otherwise, lower cost catastrophic health insurance is only available to those under 30 years of age.
In response, the Department of Justice stated that the law is ambiguous, so the IRS had the right to extend subsidies to the federal exchanges. Plus, the government attorneys say, the plaintiffs are not being hurt by being provided with subsidized insurance. With the subsidies in the federal exchanges, the plaintiffs would pay $20 monthly for insurance, rather than hundreds of dollars monthly for catastrophic health insurance.
Judge Friedman disagreed with the Justice Department. Ruling from the bench, he denied the request for a preliminary injunction to block the subsidies, but made it clear that he understands the timing and intends to expedite the case to final judgment. That is the ideal approach, because it means he will rule on the merits by mid-February, and whoever loses can appeal to the D.C. Circuit Court of Appeals.
The denial of the government’s motion to dismiss was the important development, because the government was desperate to avoid having any court consider the merits of the case. However Friedman and Spencer resolve the issue, it will ultimately be up to the appellate court (or Supreme Court) to decide. This week’s actions ensure that will happen in the next two months, rather than in six months, or a year, or in 2017 (as the government wanted).
One major question is spending authority. If Congress did not authorize subsidies for federal exchanges, does the IRS have the right to spend the money? - Court could block Obamacare subsidies in 34 states, WSJ, Market Watch, 10/25/2013
Link to the above articles appear below:
http://online.wsj.com/news/articles/SB10001424052702303448104579151511784321686?mod=wsj_streaming_stream
http://www.marketwatch.com/story/court-could-block-obamacare-subsidies-in-34-states-2013-10-25?link=MW_story_popular
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