On Tuesday, United States Courts of Appeals gave conflicting answers within hours of each other to a single question about the Affordable Care Act: Does an individual who purchases required health insurance under the act qualify for a federal tax subsidy where the purchase is made through an exchange established by the federal government rather than one established by a state?
The D.C. Circuit Court of Appeals answered that question "no." About two hours later, the Fourth Circuit Court of Appeals headquartered in Richmond, Virginia about 100 miles away answered the same question "yes."
The answer matters to lower-income individuals and to their employers. If the federally-facilitated exchanges are not indistinguishable from state-established exchanges, millions of individuals would be exempt from the penalties imposed by the act for failing to have insurance. That is because, without the tax credit, the cost of the health-insurance premium would exceed the eight percent of a large number of lower-income individuals' projected household income. In that case, those individuals would be excused from the federal mandate to buy insurance and the penalty for failing to do so.
The answer matters to the estimated 250,000 employers in the 36 states with federally-facilitated exchanges because employers with at least 50 employees would face no penalties under the Act for failing to offer health insurance. The employer penalty applies only if at least one employee enrolls in a qualified health plan for which the employee receives the tax credit.
At the heart of the matter is a question of power, specifically the power of the last word. The provision in question makes refundable tax credits available to those who purchase health insurance through exchanges "established by the State." Where a state declines to establish such an exchange, the Act requires the U.S. Secretary of Health and Human Services to establish and operate the exchange within the state. The Internal Revenue Service issued a regulation saying that a taxpayer qualifies for the refundable tax credit "regardless of whether the Exchange is established and operated by a State" or by the HHS.
So who decides whether individuals who reside in states that did not establish exchanges qualify for the tax subsidy anyway because the federally-facilitated exchanges were the same thing?
The courts? In the case of the challenges to this part of the ACA, the court's role was to decide who got to decide the answer to the question. The two possibilities were Congress and the IRS.
So does Congress get the last word? Under standard rules of interpretation, if the text of the provision is clear on its face in the context of the full statute, and no absurdity results, the court had to conclude that Congress itself had the last word in deciding whether the tax subsidies extended to those who obtained health insurance through federally-facilitated exchanges.
That's what the D.C. Circuit did. That court held that the language of the provision was clear. Consequently, no agency or court could expand the scope of the provision to extend the tax subsidy to insurance purchased through an exchange established by a non-state, that is, through the exchange established by the federal government.
But is the statute really that clear? If it's not, shouldn't the IRS, charged with enforcing this part of the law and therefore with presumed expertise, have the last word in deciding who qualifies for the tax subsidy? The Fourth Circuit decided that the IRS was indeed entitled to the last word. The court found the statute ambiguous, though it thought the government's position on what the law meant was only "slightly" stronger than the "common-sense" appeal of the plaintiff's literal reading of the statute. The court found other parts of the ACA and the limited legislative history of the provision at issue were inconclusive on the question.
Faced with an ambiguous statute and inconclusive indications of what Congress intended, the Fourth Circuit concluded Supreme Court precedent required deference to the IRS's "entirely sensible" interpretation of the provision. Thus, the Richmond-based court decided that "the statute permits the IRS to decide whether the tax credits would be available on federal Exchanges." The decision of the IRS to extend the tax credits to those who enrolled in federally-facilitated exchanges was reasonable, said the court, and furthered the goals of the statute to expand the number of insured Americans and lower the cost of health insurance.
When the lower courts are split and the stakes are high, the decider of last resort tends to weigh in. It would not be surprising if the Supreme Court resolved this question in the coming term.
Commentary by Dan Eaton, a partner with the San Diego law firm of Seltzer Caplan McMahon Vitek where his practice focuses on defending and advising employers. He also is a professor at the San Diego State University College of Business Administration where he teaches classes in business ethics and employment law. Follow him on Twitter @DanEatonlaw.