Federal courts split on legality of subsidies in federal exchange

Two U.S. appeals courts Tuesday reached opposite conclusions about the legality of subsidies in the federally operated health insurance exchange (Source: “Appeals Courts Split On Legality Of Subsidies For Affordable Care Act,” Kaiser Health News, July 22, 2014)

In Washington, a three-judge panel at the U.S. Appeals Court for the D.C. Circuit ruled that the Internal Revenue Service lacked the authority to allow subsidies to be provided in exchanges not run by the states.

That 2-1 ruling in Halbig v. Burwell could put at risk the millions of people who bought insurance in the 36 states, including Ohio, where online insurance marketplaces are run by the federal government. Judge Thomas Griffith, writing the majority opinion, said they concluded "that the ACA unambiguously restricts" the subsidies to "exchanges 'established by the state.' "

But within hours, a unanimous three-judge panel for the Fourth Circuit in Richmond, Va., ruled exactly the other way in King v. Burwell – that Congress always intended to allow subsidies to be provided in both state and federally run exchanges. 

"It is therefore 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," said the decision written by Judge Roger Gregory.

The Obama administration said it will appeal the Halbig decision.  Similar cases are pending in lower courts elsewhere around the country, but the decision by the District of Columbia court is the first to suggest that subsidies being offered the federal exchange might be invalid.