Within a few hours of each other, two federal appeals courts issued conflicting rulings on Obamacare. The final outcome could have major implications for employers.
The legal question of involves whether the Patient Protection and Affordable Care Act allows people to receive subsidies for health plans purchased on federally-run exchanges—covering 34 states and the District of Columbia–or only through state-run exchanges. In a 2-1 decision, the DC Circuit ruled in Halbig v. Burwell that under the law, only those buying through state-run exchanges are eligible.
Judge Griffith wrote in the court’s split opinion:
The fact is that the legislative record provides little indication one way or the other of congressional intent, but the statutory text does. Section 36B plainly makes subsidies available only on Exchanges established by states. And in the absence of any contrary indications, that text is conclusive evidence of Congress’s intent.
Judge Randolph concurred:
[A]n Exchange established by the federal government cannot possibly be “an Exchange established by the State.” To hold otherwise would be to engage in distortion, not interpretation. Only further legislation could accomplish the expansion the government seeks.
A few hours later, in King v. Burwell the 4th Circuit unanimously upheld those same subsidies:
For reasons explained below, we find that the applicable statutory language is ambiguous and subject to multiple interpretations. Applying deference to the IRS’s determination, however, we uphold the rule as a permissible exercise of the agency’s discretion.
Why is it important to know who is eligible for a health plan subsidy? As the DC court’s Judge Edwards explains in his dissent, it triggers the employer mandate, [emphasis mine]:
Specifically, the ACA penalizes any large employer who fails to offer its full-time employees suitable coverage if one or more of those employees “enroll[s] . . . in a qualified health plan with respect to which an applicable tax credit . . . is allowed or paid with respect to the employee.” (linking another penalty on employers to employees’ receipt of tax credits). Thus, even more than with the individual mandate, the employer mandate’s penalties hinge on the availability of credits. If credits were unavailable in states with federal Exchanges, employers there would face no penalties for failing to offer coverage. The IRS Rule has the opposite effect: by allowing credits in such states, it exposes employers there to penalties and thereby gives the employer mandate broader reach.
No subsidies, no employer mandate penalties.
Michael Cannon, the Cato Institute health policy expert, estimates that if the Halbig ruling stands, more than 250,000 firms would not be subject to the employer mandate.
There is no immediate change to the law, since the courts are a long way from settling the subsidies question. There will be appeals, other courts may weigh in with additional rulings, and since two circuit courts issued conflicting rulings, the Supreme Court may hear the case. Also, Congress could pass a bill to clarify the law. Not likely in the current political environment but possible.
What we do know is that the employer mandate imposes complex reporting costs and isn’t necessary. At the same time it gives employers the perverse incentive of either not hiring workers or hiring part-time workers instead of full-time ones. Obamacare is a law packed with problems that needs to be fixed in order to have a health care system that has high quality, expanded access, and lower costs.
EDITORS NOTE: The featured image is of President Obama signing the Patient Protection and Affordable Care Act (A.K.A. “Obamacare”) in 2010. Photographer: Andrew Harrer/Bloomberg.