Appeals courts issue conflicting rulings on Affordable Care Act subsidies

The D.C. Circuit invalidated the regulation, while the 4th Circuit voted to uphold the regulation

When the Obama Administration passed the Affordable Care Act in 2010, one of the key pieces of the law allowed for subsidies to qualifying middle- and low-income consumers, if they purchased coverage through a state or federally run exchange. But is that particular provision, written into a law as an Internal Revenue Service regulation, actually legal?

That depends who you ask, as two federal appeals courts reached completely opposite conclusions in decisions both released on July 22.

At issue in two different cases was an interpretation of the law allowing subsidies when customers purchase insurance on exchanges “established by the state.” 36 states did not implement such exchanges, instead relying on the federal government to establish the exchanges. This raised the issue on whether customers are still eligible for subsidies in these states.

In a decision issued in the morning, the U.S. Court of Appeals for the District of Columbia Circuit ruled 2-1 to invalidate the regulation on the basis that allowing subsidies is not a permissible interpretation of health care law. “We reach this conclusion, frankly, with reluctance,” wrote Judge Thomas Griffith, noting that many people would be affected by the invalidation.

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However, in a decision released two hours later, a three-judge panel for the U.S. Court of Appeals for the 4th Circuit voted unanimously to let the subsidies stand, saying that language in the Affordable Care Act was purposefully ambiguous and did not explicitly outlaw subsidies. “Applying deference to the IRS's determination, however, we uphold the rule as a permissible exercise of the agency's discretion,” wrote Judge Roger Gregory.

The judges in these cases voted strictly down party lines, based on the President that nominated them. The two judges invalidating the regulation in the D.C. Circuit were appointed by President George W. Bush, while the dissenting judge was appointed by President Carter. Of the three judges in the 4th Circuit to rule, one was appointed by President Clinton, while the two others were appointed by President Obama.

It’s likely that no final decision will be in place by November 15, 2014, when open enrollment is scheduled to begin under the Affordable Care Act. The losing parties in both cases are expected to appeal. The Obama Administration also said that it would ask the full D.C. Circuit, rather than just one three-judge panel, to consider the case.

Assistant Editor

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Zach Warren

Zach Warren is Assistant Editor of InsideCounsel magazine, where he oversees online content submissions and administers InsideCounsel's enewsletters. Zach specializes in new media and multimedia...

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