Subsidies Or No Subsidies – That Is The Question
Yesterday, two federal appeals courts issued rulings on cases involving whether subsidies on the exchanges can be given to individuals who are enrolled in a plan on a federally run exchange. The U.S. Court of Appeals for the District of Columbia struck down an IRS ruling authorizing subsidy payments to individuals enrolled in plans on a federal exchange. Just hours later, the Fourth Circuit Court of Appeals reached a very different conclusion upholding the IRS’s ruling and finding that it was “a permissible exercise of the agency’s discretion.” The Fourth Circuit Found that the ACA language is “ambiguous and subject to multiple interpretations.” So who got it right?
I respectfully disagree with the Fourth Circuit that the language is ambiguous. The applicable section from the ACA states that individuals are eligible for subsidies as of the first day of the month the taxpayer, the taxpayer’s spouse, or any dependent of the taxpayer is covered by a qualified health plan . . . that was enrolled in through an Exchange established by the State….” As you have undoubtedly heard, the ACA was a poorly written piece of legislation that according to Nancy Pelosi had to be passed so that Congress could find out what was in it. So while I whole heartedly disagree with the Fourth Circuit that the text is ambiguous, I also don’t believe that the intent of the legislation was to deny subsidies to those who were enrolled in federal exchanges because their states refused to set up a state exchange. My belief, for what it is worth, is that this was just another drafting error in a sloppily written piece of legislation.
While at first glance the decisions may only seem to impact individuals, they actually could have a large impact on employers as well. The no coverage pay or play penalty on employers is only triggered if an employer has at least one individual go to the exchange and qualify for a subsidy. The inadequate coverage penalty is only triggered on those employees who go to the exchange and qualify for a subsidy. Therefore, if the D.C. Circuit Court’s decision is the prevailing opinion, employers in states with a federal exchange, would not be subject to the pay or play penalties for employees living in states with a federal exchange (such as Ohio). But don’t get too excited yet. Now that we have a Circuit split on an issue that could unravel a lot of the ACA, the Supreme Court will likely have the last word. For now, these decisions don’t mean much and employers need to go on planning for the mandates.