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Federal Courts Spar over Affordable Care Act Tax Credits

Today, two U.S. Courts of Appeal issued contradictory rulings on a key aspect of the Affordable Care Act.  At issue in both cases was whether tax credits would be available for individuals purchasing health insurance outside of a state-run exchange.

The source of this inter-court squabbling can be found in the text of the Affordable Care Act and in an implementing regulation issued by the Internal Revenue Service.  The ACA provided on its face that tax credits were available to individuals who purchased health insurance through an exchange “established by the State.”  However, the IRS issued a regulation that granted tax credits regardless of whether the health insurance was purchased at the state or federal level. 

The D.C. Circuit Court of Appeals held that the plain language of the Affordable Care Act offers tax credits only to individuals who sign up for health care through these state-run exchanges.  This would mean that individuals in 36 states that did not implement state-run exchanges would not be eligible for these tax credits.

The Fourth Circuit Court of Appeals examined the very same question but found ambiguity in the language of the Affordable Care Act.  Since it was ambiguous, the court reasoned it best to defer to the expertise of the Internal Revenue Service who implemented the rule offering tax credits broadly.   

Ultimately, this sort of Circuit split will need to be reviewed by the Supreme Court to give final guidance about how best to interpret the statutory language and implementing regulations surrounding the ACA.  If the Supreme Court agrees with the D.C. Circuit’s interpretation narrowing available tax credits, this will likely give Congress the impetus to revisit and substantially revise the Act.

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Wednesday, 23 August 2017
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