Dueling Rulings on ACA Subsidies for Federally Run Exchanges

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Dueling Rulings on ACA Subsidies for Federally Run Exchanges
Calendar22 July 2014

Two federal appeals courts have reached opposite conclusions on whether the IRS exceeded its authority in issuing a rule allowing federal tax subsidies for health coverage not obtained from a state-run exchange. One decision (King v. Burwell) finds the Affordable Care Act (ACA) is open to multiple interpretations and can be reasonably read to allow individuals with insurance policies from federally run exchanges to receive IRS subsidies to help pay for premiums (and sometimes cost sharing). The other decision by the DC Circuit (Halbig v. Burwell) concludes the ACA’s plain language unambiguously fails to authorize subsidies for coverage not obtained from a state-run exchange.

The Obama administration has said that it will request the full DC Circuit to review the Halbig decision and expects subsidies to continue under the existing IRS rule for now. If review is granted, the full DC Circuit could affirm or reverse today’s decision by a three-judge panel. Any ruling eliminating subsidies for all coverage from federal exchanges would have a significant impact on many people and essentially gut the employer play-or-pay rules in states with federally run exchanges.

Regulators last week responded to the Supreme Court’s Hobby Lobby ruling with Frequently Asked Question (FAQ) guidance requiring ERISA plans of closely-held firms to specify in their SPDs if the plan excludes any contraceptive services. The FAQ reminds sponsors that plans which reduce or stop such coverage after providing it generally must inform their participants within 60 days after adopting the plan change. The guidance came as the Senate failed to advance a bill (S 2578) offered by Democrats that would require employers to cover contraception regardless of their religious beliefs.

The Obama administration said last week that certain health care arrangements in five US territories would not have to comply with the ACA’s major insurance requirements, including guarantee issue, modified community rating, rate review, and medical loss ratio requirements. Territories will have to return unspent funds but can keep grant money already spent to prepare for the law. The territories had raised concerns that complying with the law’s insurance reforms in the absence of its individual mandate and insurance subsidies is destabilizing their insurance markets. The exemption applies to Puerto Rico, Guam, U.S. Virgin Islands, Northern Mariana Islands and American Samoa.

This week in Congress, a House panel will hold hearings examining the impact of the ACA on Medicare Advantage and whether the Department of Health and Human Services has sufficient capability to ensure that subsidies are not improperly provided or susceptible to fraud.

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