WASHINGTON – Yesterday, two U.S. Courts of Appeals issued conflicting rulings on the availability of subsidies to individuals who purchase healthcare coverage through federal exchanges created under the Affordable Care Act (also known as “Obamacare”). As the two cases continue to wind their way through the federal court system, they are unlikely to change how Obamacare will be implemented until they reach a final resolution, potentially by the Supreme Court.
At issue in both cases is a provision in the Affordable Care Act (ACA) that permits individuals to receive subsidies if they enroll in healthcare coverage “through an Exchange established by [a] state….” The Internal Revenue Service (IRS) has issued regulations that make subsidies available to individuals who enroll through exchanges established by states and the exchange established by the federal government.
In both cases, the parties challenging the IRS regulation argued for a strict interpretation of the law (i.e., it only permits subsidies for individuals who enroll in a state exchange, not a federal exchange). The government, on the other hand, argued that viewed in the context of the entire statute and the law’s underlying purposes (namely to provide subsidies to individuals who cannot afford to purchase their own coverage), the ACA should be read to permit subsidies for coverage purchased through either a state or federal exchange.
The D.C. Circuit Court of Appeals ruled that a federal exchange is not an “Exchange established by [a] State” and therefore the IRS was not authorized to provide for tax credits for insurance purchased through federal exchanges. Just hours later, a panel of the 4th Circuit Court of Appeals ruled the other way, finding that “the applicable statutory language is ambiguous and subject to multiple interpretations,” ultimately deferring to the IRS’s determination.
How this matter is ultimately resolved will have important implications for convenience store owners’ potential liability under the ACA’s “employer mandate.” If subsidies are no longer permitted to flow through federal exchanges, employers that operate in the 27 states participating in the federal exchange would be effectively free of the employer mandate if they only have employees in those states. This is because employers are only penalized under the law when their employees receive a subsidy to purchase coverage through an exchange; if subsidies aren’t available, employers will not be subject to penalties. (Companies would still be subject to the mandate if they operate in other states that have established their own exchanges.)
Beyond the employer mandate, the law’s controversial individual mandate would be dramatically curtailed as well. Individuals are only penalized for failing to obtain health coverage if the least expensive coverage available, less any tax credits, would exceed 8% of their projected household income. The availability of credits often determines on which side of the 8% threshold individuals will fall. Eliminating the subsidies in 27 states therefore would decrease the number of people who face a penalty for failing to purchase insurance, which will have a ripple effect on insurance risk pools and throughout the entire insurance market.
NACS will continue to closely monitor legal and legislative developments pertaining to healthcare reform implementation. Along those lines, NACS was also one of the 170-plus signatories on a letter sent this week to Senator Johnny Isakson, in support of the Auto Enroll Repeal Act (S. 2546), which he introduced to repeal the automatic enrollment provision under the ACA (section 1511).
To learn more about how NACS members are handling the transition to Obamacare, read "Survey Says..." in the July issue of NACS Magazine.