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Split decisions rendered on Obamacare tax subsidies

by Chris Casteel Modified: July 22, 2014 at 1:20 pm •  Published: July 22, 2014
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WASHINGTON _Two federal appeals courts issued contradictory decisions Tuesday on whether the Affordable Care Act allows people to get tax credits for health insurance purchased on federal exchanges.

The circuit court based here ruled 2-1 that the tax subsidies are available only on policies bought on exchanges established by states.

However, the 4th U..S. Circuit Court of Appeals, based in Richmond, VA, ruled hours later that the law also allows subsidies for insurance purchased  on federal exchanges.

The U.S. Supreme Court may ultimately have to determine which interpretation stands. A ruling that the tax subsidies are only available on state exchanges would be a severe blow to the law’s intent of providing insurance to millions more Americans. Only 14 states and the District of Columbia have established exchanges.

The Affordable Care Act requires people to buy 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.

Since penalties under the employer mandate _ which applies to companies with at least 50 employees _ are also linked to subsidies, A decision against the subsidies would effectively kill the employer mandate as well in states with federal exchanges.

The Obama administration may ask that the DC case be reconsidered by the entire appeals court, and the issue is likely to wind up eventually before the U.S. Supreme Court.

White House spokesman Josh Earnest said Tuesday that the decision would have no practical effect and that the administration feels confident its argument _ that Congress intended subsidies for both state and federal exchanges _ would ultimately prevail.

“We feel strongly about the sound legal reasoning” of the administration’s case, Earnest said.

Oklahoma Attorney General Scott Pruitt has been pursuing a nearly identical case in federal court in Oklahoma, arguing that the plain language of the 2010 health care law only allows financial subsidies for insurance bought on state exchanges.

There is also a case in Indiana.

Pruitt was also one of several Republican attorneys general who entered a brief in the DC case challenging the subsidies on federal exchanges.

Section 36B of the law says that the subsidies, in the form of tax credits, 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 DC 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.”

In a statement, 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 DC appeals court “is a victory for Oklahoma’s lawsuit and others challenging the law. Our lawsuit challenges the 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.”

 

 

 

 

by Chris Casteel
Washington Bureau
Chris Casteel began working for The Oklahoman's Norman bureau in 1982 while a student at the University of Oklahoma. After covering the police beat, federal courts and the state Legislature in Oklahoma City, he moved to Washington in 1990, where...
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