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July 25, 2014

Conflicting Court Decisions on the Affordable Care Act's Premium Assistance Subsidy

On July 22, 2014, two federal appellate courts reached different conclusions in cases concerning the federal Premium Assistance Tax Credits (known informally as subsidies) under the Affordable Care Act,1 which provide assistance to individuals who purchase coverage in the individual Exchanges (renamed “Marketplaces” by the federal government). At issue was whether those credits are available only in state-based Exchanges2 or also in the federally facilitated Marketplace. An Internal Revenue Service (IRS) regulation provides currently that the subsidy is available regardless of whether coverage is purchased on a state-based Exchange or federally facilitated Marketplace.3

The Decisions

A three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit (the DC Circuit) held that the Affordable Care Act unambiguously restricts the subsidies to insurance purchased on Exchanges “established by the State.” The decision vacated the IRS’s regulation.4

In contrast, a three-judge panel of the U.S. Court of Appeals for the Fourth Circuit upheld the IRS regulation as a permissible exercise of the IRS’s discretion.5


The decisions obviously have tremendous implications for the Exchanges and the availability of subsidized coverage. They also have an impact on the employer penalty because, if the subsidies are not available to people residing in states covered by the federal Marketplace, the employer penalty would not be triggered. This is because the penalty is only triggered when a full-time employee receives subsidized coverage.

Obama Administration spokespersons and legal commentators agree that the subsidies will continue uninterrupted at this time. This is because the DC Circuit decision is not considered implemented under federal law, and a request for a rehearing would likely stay the decision until the rehearing is complete.

What May Happen Next?

While we do not know how the cases will proceed, it is likely that the federal government will seek a rehearing before the full DC Circuit. The losing parties in the Fourth Circuit case are also likely to appeal, and might seek review by the U.S. Supreme Court.

As important developments occur, Sibson will share that news.

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As with all issues involving the interpretation or application of laws and regulations, plan sponsors should rely on their legal counsel for authoritative advice on the interpretation and application of the Affordable Care Act and related guidance, including the court decisions mentioned in this Capital Checkup. Sibson Consulting can be retained to work with plan sponsors and their attorneys on compliance issues.


1 The Affordable Care Act is the shorthand name for the Patient Protection and Affordable Care Act (PPACA), Public Law No. 111-48, as modified by the subsequently enacted Health Care and Education Reconciliation Act (HCERA), Public Law No. 111-152. (Return to the Capital Checkup.)

2 The Kaiser Family Foundation has created a chart listing which Exchanges are state-based and which are part of the federally facilitated Marketplace. Note that “Partnership” Marketplaces noted on this list are also considered federally facilitated. (Return to the Capital Checkup.)

3 The final IRS regulations were published in the May 23, 2012 Federal Register. (Return to the Capital Checkup.)

4 The decision is available on the Court’s website. (Return to the Capital Checkup.)

5 The decision is available on the Court’s website. (Return to the Capital Checkup.)


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