Health care reform
On Tuesday, July 22, a three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit ruled the government can’t provide tax credits to individuals buying coverage on the federally run Health Insurance Marketplace. Hours later, the Fourth Circuit Court of Appeals ruled that those same tax credits are legal. On Friday, August 1, the Obama administration appealed the ruling by the three-judge panel, asking the full D.C. appeals court to reverse the panel's decision. It will be several weeks before the court decides whether to hear the appeal, and longer before the issue is definitively resolved.
What's in question?
Language in the PPACA legislation says that tax credits or subsidies must be administered "through an exchange established by the state."1
When the law was written, the administration thought that most states would implement their own exchanges2 (now called Marketplaces) — but so far only 14 states and Washington, D.C. have done so.3 The rest have opted to use the federal exchange.
In 2012, the Internal Revenue Service ruled that tax credits could be awarded to individuals who accessed coverage through the federal exchange, despite the "state exchange" language. The court decisions handed down on July 22 were related to lawsuits challenging the IRS’s authority to make that decision.4
Why is it important?
The tax credits are at the core of PPACA's aim of broadening insurance coverage in the U.S. Without them, many people could not afford to purchase plans that include essential health benefits, as defined by the law. Under current regulations, people with incomes between $23,850 and $95,400 (for a family of four) are eligible for tax credits to help pay insurance premiums for coverage purchased through an exchange.
In addition, tax credits trigger the penalties under the employer mandate. Large employers that do not offer health insurance to their employees pay no penalties until at least one of their employees receives a tax credit for coverage purchased through an exchange. It is unclear how the employer mandate would work in states using the federal Marketplace if tax credits were not available.
If the D.C. appeals court ruling stands, it may have a significant effect on the employer mandate in states without their own exchanges. Further clarification will be required to determine whether employers in those states will need to provide insurance coverage to their employees.
According to the U.S. Justice Department, nothing will change immediately for people who are currently receiving tax credits to purchase insurance on the federal Marketplace.5 These credits will remain available while the issue is being resolved. However, if the D.C. appeals court ruling stands, more than half the people who signed up for coverage on the federal Marketplace could lose their eligibility for tax credits to help them pay for health insurance.6
Read the decisions
You can read the decision from the U.S. Appeals Court for the District of Columbia here, and the decision from the U.S. Court of Appeals for the Fourth Circuit here.