by Timothy S. Jost, the Robert L. Willett Professor of Law, Washington and Lee University School of Law
July 23, 2014 was a momentous day in the history of the Affordable Care Act. Shortly after 10 a.m., a three-judge panel of the District of Columbia Court of Appeals issued a split 2-1 decision striking down an Internal Revenue Service rule that permits federally facilitated exchanges to issue premium tax credits. Two hours later, the Fourth Circuit Court of Appeals in Richmond released a unanimous decision upholding the IRS rule.
The ACA authorizes the IRS to issue premium tax credits to uninsured lower and moderate income Americans through exchanges. The ACA requests that the states establish exchanges, and sixteen states have done so. The ACA also, however, authorizes the federal government to establish fallback exchanges in states that fail to set up their own exchanges, and it has done so in 34 states. The IRS regulation allows premium tax credits to be awarded to eligible individuals by both state-operated exchanges and federally facilitated exchanges.
Two subsections of the ACA, however, seem to provide that tax credits are available for months in which an individual is enrolled in a qualified health plan “through an Exchange established by the State under 1311” of the ACA. The plaintiffs argue that federal exchanges cannot issue premium tax credits tax credits to individuals who enroll through federal, as opposed to state-operated exchanges.
The majority of the D.C. Circuit ruled for the plaintiffs, focusing narrowly on the “established by the State” language, but finding nothing in the ACA to clearly contradict the plaintiffs’ reading of the law. The Fourth Circuit found the law ambiguous, and thus under the Supreme Court’s Chevron rule, deferred to the IRS and its interpretation of the law.