The Affordable Care Act authorizes the IRS to issue premium tax credits to uninsured lower and moderate income Americans who purchase health insurance through exchanges. The statute provides that each state "shall" set up an exchange, but provides that if a state decides not to, the federal government will set up a fallback exchange in that state. The federal exchange takes the place of the state exchange and fulfills all of its functions, including determining eligibility for premium tax credits. Nearly 4.8 million Americans have been found eligible for tax credits in the 36 states served by federally facilitated exchanges, reducing their insurance premiums by three quarters.
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Buried deep in the premium tax-credit section of the law are two subsections that seem to say that tax credits are available only for months in which an individual is enrolled in a health plan "through an exchange established by the state." The CEI lawsuits claim that this means that federal fallback exchanges cannot issue tax credits. Two of the judges of the D.C. Circuit panel bought this argument.
If that court's decision were to be accepted as law, millions of Americans would lose their tax credits, and in all likelihood their insurance coverage. Since the enforceability of the employer and individual mandate each depend on the availability of tax credits, these could also disappear or be seriously undermined in two-thirds of the states. It is likely, moreover, that premiums in the general individual market would rise sharply. Insurers must cover Americans with pre-existing conditions and without premium tax credits and a robust individual mandate only the sickest would purchase insurance. The individual insurance market in two thirds of the states could simply collapse.
It is impossible to believe that a Congress that fought so hard to extend coverage to uninsured Americans would have, in the words of Judge Edwards' dissent, prescribed "a poison pill to the insurance markets in the States that did not elect to create their own Exchanges." There is in fact not a shred of evidence that Congress meant to do this, other than the four words phrase on which the CEI built its lawsuit. Again, in Judge Edwards words, "no legitimate method of statutory interpretation ascribes to Congress the aim of tearing down the very thing it attempted to construct."
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But these four words were enough for two conservative D.C. Circuit judges. They brushed aside other provisions of the statute that indicate that the federal exchange in fact becomes the state-established exchange when a state chooses not to operate its own exchange, as well as provisions explicitly requiring federal exchanges to report the premium tax credits they award. They ignored statements by the members of Congress who in fact drafted the law that federal exchanges could grant premium tax credits.
Fortunately for millions of Americans, the Fourth Circuit, equal in authority, upheld the IRS rule later in the day, holding that Congress authorized the IRS to interpret the statute and its interpretation was permissible. Judge Davis, concurring, went further, saying the rule was "required as a matter of law."
The government will request a rehearing by all judges of the D.C. Circuit of the two judge's decision. If the D.C. Circuit agrees to rehear the case, as seems likely, it will vacate that decision. It may take months to resolve these cases. In the meantime, premium tax credits will continue to flow through the federal exchanges.
It is to be hoped that in the end the courts will refuse to help the CEI, in the words of Judge Davis, to "deny to millions of Americans desperately-needed health insurance through a tortured, nonsensical construction of a federal statute whose manifest purpose, as revealed by the wholeness and coherence of its text and structure, could not be more clear."