Despite Court Ruling, Obamacare Tax Subsidies Are Almost Certainly Here to Stay


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Odds are that a Tuesday D.C. circuit court ruling declaring health care subsidies to be illegal is not a real threat to the Affordable Care Act, but it is an important reminder about the crucial role that tax subsidies play in making health insurance more affordable for millions of Americans and the lengths that some politicians are willing to go to block them.

On July 22, the U.S. Court of Appeals for the District of Columbia Circuit ruled in Halbig v. Burwell that Affordable Care Act (ACA) tax subsidies are illegal in the 36 states that do not have state-run health exchanges. If the D.C. Circuit Court ruling holds, it would mean that 5 million Americans who received subsidies could see their premium costs go up as much as 76 percent.

The case was decided by a three-judge panel, and the decision will likely be reversed when the Obama administration takes the case to the full D.C. Circuit. If the full court upholds the decision, the case could make its way to the U.S. Supreme Court given that just hours after the ruling, the U.S. Court of Appeals for the 4th Circuit ruled in a similar case that the IRS acted appropriately in interpreting slightly ambiguous legislative language to mean Congress's clear intent was to provide subsidies to both the federal and state exchanges. 

While much of the media attention surrounding the ACA up until now has focused on the individual mandate and its related tax penalty, one of the most beneficial aspects of the health care law is the $940 billion in tax subsidies that will be targeted over the next decade to individuals purchasing health insurance. A study from earlier this year found that the average person eligible qualified for an annual subsidy of about $2,890 to purchase health insurance on an exchange.

The D.C. Circuit ruling would upend these important subsidies. While the court declared that congressional intent on the issue of the tax subsidies was not clear, anyone even distantly following the congressional debate surrounding the ACA knows that its writers fully intended the federally-run exchanges to provide the tax subsidies in exactly the same way as the state-run exchanges.

The good news is that the decision does not affect any subsidies being dispensed now.

Even if this or a similar case were to somehow make it to the Supreme Court (the only court that would actually be able to halt the subsidies), it would take years and, as Ezra Klein notes, the Supreme Court would not want to take any part in ripping "insurance from tens of millions of people due to an uncharitable interpretation of congressional grammar." On top of this, if the Supreme Court took the radical step of striking down the tax subsidies following the D.C. court's logic, it is possible that the federal government could simply take administrative actions to work around the ruling by handing the federal government infrastructure behind the federal run state exchanges over to state authorities.

Since the president proposed and Congress passed the Patient Protection and Affordable Care Act of 2010, it has faced criticism and challenges, mostly from the extreme right wing. The U.S. Supreme Court upheld the act as the law of the land in June 2012. In spite of technical glitches when the health exchanges rolled out last fall, millions have enrolled. Consumers can no longer be denied health insurance due to pre-existing conditions, and millions of people under age 26 now have health coverage because they can be on their parents’ plans.

Continual challenges to the law may show just how polarized our nation is, but it doesn’t change the fact that consumers who now have access to health insurance are much better off today than they were four years ago. It would behoove those who continue to raise legal challenges to think about that. 

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