WASHINGTON — Two federal appeals courts issued conflicting decisions Tuesday on whether the Affordable Care Act allows Oklahomans and people in 35 other states to receive tax credits for health insurance purchased on federal exchanges.
The high-stakes dispute seems destined for the U.S. Supreme Court, which already has issued major rulings this year and in 2012 on the health care law. The tax subsidy issue threatens the economic framework of the law, which uses tax incentives and penalties to increase the number of insured Americans.
Libertarian and conservative opponents of the law discovered what they considered a fatal flaw in the wording regarding the tax subsidies and challenged it in three states and the District of Columbia.
One of the states is Oklahoma, where Attorney General Scott Pruitt has been fighting the Obama administration in federal court in Muskogee.
But the Oklahoma judge has been slow in comparison to ones in Washington, D.C., and in Virginia. Federal district judges in both jurisdictions ruled months ago that tax subsidies were available for policies bought on state exchanges or from the federal exchanges; those decisions were then immediately appealed.
On Tuesday, appeals courts here and in Richmond, Va., split on the matter. The D.C. circuit court ruled 2-1 that the tax subsidies are available only for insurance bought on exchanges established by states. The 4th U.S. Circuit Court of Appeals ruled 3-0 that the law allows subsidies for insurance purchased on state or federal exchanges.
White House spokesman Josh Earnest said Tuesday that “it’s important for people all across the country to understand that this (D.C. court) ruling does not have any practical impact on their ability to continue to receive tax credits right now.”
The U.S. Justice Department likely would ask the full D.C. circuit court to revisit the case, Earnest said, and the administration feels confident its argument — that Congress intended subsidies for both state and federal exchanges — ultimately would prevail.
“We feel strongly about the sound legal reasoning” of the administration’s case, Earnest said.
Pruitt said Tuesday that he expects a decision soon from a federal judge in Muskogee in the Oklahoma case.
He said the decision in the D.C. appeals court “is a victory for Oklahoma’s lawsuit and others challenging the law. Our lawsuit challenges the administration’s attempt to ‘fix’ the health care law through executive fiat.
“This ruling gives us great confidence that Oklahoma’s lawsuit will prevail.”
The Oklahoma Policy Institute, which supports the Affordable Care Act, estimated Tuesday that 55,000 Oklahomans received tax subsidies when they purchased coverage on the federal exchange.
“With hundreds of thousands of Oklahomans still unable to afford health care, our state leaders should not be fighting to make the number of uninsured even larger,” the Oklahoma Policy Institute said in a statement.
Credits and penalties
The Affordable Care Act requires most people to obtain health insurance and imposes a penalty on those who don’t. However, the penalty doesn’t apply to people who would have to spend over a certain percentage of their income to buy insurance.
If the subsidies are no longer available in 36 states with federal exchanges, many people will be able to opt out of buying insurance and not face the penalty under the individual mandate.
Employes with at least 50 workers in those federal exchange states would also escape penalties under the law if the subsidies were scrapped.
A section of the law says the tax subsidies are available to people who buy insurance “through an Exchange established by the State.”
The IRS, in writing a rule to implement the law regarding subsidies, made no distinction between state-established exchanges and federal ones.
In its decision on Tuesday, the D.C. court said, “We conclude that the appellants have the better of the argument: a federal Exchange is not an ‘Exchange established by the State,’ and section 36B does not authorize the IRS to provide tax credits for insurance provided on federal Exchanges.”
The two judges in the majority on that case were nominated by Republican presidents.
The 4th Circuit Court ruled that the language of the law was ambiguous and that it made sense for the IRS to include subsidies for federal exchanges since the point of the law was to expand health insurance coverage.
“Confronted with the Act’s ambiguity, the IRS crafted a rule ensuring the credits’ broad availability and furthering the goals of the law ... we must defer to the IRS Rule,” the 4th Circuit’s decision says.
The unanimous ruling included two judges nominated by Democratic presidents and one nominated by a Republican.