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Opposing Court Ruling Lead to Confusion Over Health Insurance Subsidies

A goal of the Affordable Care Act (ACA) is to provide more Americans with access to affordable health care.

One of the ways the ACA attempts to make health care affordable is through federal subsidies that reduce insurance premiums and out-of-pocket costs for eligible consumers who purchase health insurance through either state-based or federal exchanges. Two opposing federal appeals court rulings have called the legality of these subsidies into question. How might these court decisions affect you?

What is the issue?

At issue is a provision in the ACA authorizing subsidies "through an exchange established by the State." The IRS has interpreted the law to include subsidies for health insurance purchased through either state-based exchanges or federal exchanges. However, the plaintiffs in both cases allege that the IRS interpretation is wrong and that these subsidies should be available only to eligible consumers who purchase insurance through state-based exchanges and not for consumers who purchase insurance through federal exchanges.

What did the courts decide?

In a 2-1 decision, the U.S. Court of Appeals for the District of Columbia Circuit, in Halbig v. Burwell, held that subsidies are available only to consumers who purchase health insurance through state-based exchanges and not through federal exchanges.

However, within a few hours of the Halbig decision, a three-judge panel of the U.S. Court of Appeals for the Fourth Circuit in Virginia ruled, in the case King v. Burwell, that subsidies are available to eligible consumers who purchase insurance through either state-based exchanges or federal exchanges.

Which states have their own exchanges?

According to the Kaiser Family Foundation, 16 states and the District of Columbia operate their own state-based exchanges. These states include California, Colorado, Connecticut, Hawaii, Idaho, Kentucky, Maryland, Massachusetts, Minnesota, Nevada, New Mexico, New York, Oregon, Rhode Island, Vermont, and Washington.

The federal government operates exchanges in the remaining states. Most consumers access federal exchanges through the federal government website,www.healthcare.gov.

Will I lose my subsidies?

It appears that nothing will change in the short term. The D.C. Circuit court has suspended its ruling pending an appeal by the federal government, which said it intends to appeal to the full D.C. Circuit court (11 presiding justices). In addition, the White House has said subsidies will continue to be offered to those who are eligible through both state-based exchanges and federal exchanges.

What might happen next?

Aside from a presumed federal government appeal to the full D.C. court, the issue may ultimately be decided by the U.S. Supreme Court, which has already ruled twice on other issues relating to the ACA. Also, two federal lawsuits on the same issue are currently pending in Indiana and Oklahoma.

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Kenneth S. Rakes has 25 years of experience in public accounting and is a graduate of John Carroll University. Ken provides tax planning and preparation services for individuals, partnerships, corporations, estates, and trusts. Ken is a Personal Financial Specialist (PFS) providing retirement, estate, investment, insurance, and education planning for individual clients with an emphasis on the tax implications of planning decisions. Ken's other areas of expertise include: Manufacturing, Wholesale, Retail and Service Industries, Non-Profit Organizations and Sub-Chapter "S" Corporations.