Healthcare Business News

Obamacare tax credits for plans upheld by second judge

By Joe Carlson
Posted: February 19, 2014 - 6:00 pm ET

A second federal judge has sided with the Obama administration in a legal battle whose ultimate outcome may determine whether Obamacare coverage is affordable for millions of Americans.

U.S. District Judge James Spencer, appointed by President Ronald Reagan, ruled this week (PDF) that the Internal Revenue Service has congressional authority to give premium tax credits to Americans in 36 states who buy coverage through the federally operated insurance exchange.

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At least four federal lawsuits have been filed in courts around the country alleging that the IRS's interpretation conflicted with the plain language of the Patient Protection and Affordable Care Act. The legal question in these cases centers on the precise wording in the section of the ACA that describes eligibility for the premium subsidies. The law says tax credits to purchase insurance through an exchange will be provided to individuals and families who got insurance “through an exchange established by the state.” The IRS issued a rule interpreting that to mean any health insurance exchange, not just the state-run exchanges.

Experts say blocking people in the 36 states served by the federal exchange from qualifying for premium subsidies would be a huge blow to the healthcare reform law because it would greatly reduce the law's coverage expansion.

In King v. Sebelius, Spencer, who sits in Richmond, Va., ruled that the larger context of the law makes clear that Congress intended to allow as many people as possible to use the exchanges and get federal premium subsidies in order to expand insurance coverage. He rejected the argument, advanced by the plaintiffs, that the wording of the law was intended to entice states to build their own exchanges or risk losing subsidies for their residents.

“What is clear,” the judge wrote, “is that there is no direct support in the legislative history of the ACA for plaintiffs' theory that Congress intended to condition federal funds on state participation.”

The ruling is similar to U.S. District Judge Paul Friedman's recent decision in Halbig v. Sebelius. In that case, the trial court in Washington, D.C. said the IRS had congressional authority to offer subsidies through any exchange. The ruling by Friedman, who was appointed by President Bill Clinton, has been appealed to the U.S. Circuit Court for the District of Columbia. The court scheduled arguments in the appeal for March 25.

The plaintiffs in King are four residents who say they do not want to be forced to buy health insurance. In Halbig the plaintiffs are a mix of people and businesses that also say they do not want to be forced to participate in the system. In addition, two states—Indiana and Oklahoma—have sued the federal government seeking to overturn the IRS rules using the same legal theories in King and Halbig.

The case Pruitt v. Sebelius, pending in federal court in Muskogee, Okla., survived an initial review and is now awaiting a ruling on summary judgment motion. The case Indiana v. IRS, pending in federal court in Indianapolis, is still awaiting an initial conference and settlement discussion, court files on the cases say.

Follow Joe Carlson on Twitter: @MHJCarlson

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