Last week, the U.S. Court of Appeals for the D.C. Circuit issued a decision in Halbig v. Burwell (No. 14-5018), which would effectively nullify the employer mandate to provide affordable health coverage in states with federally-run insurance marketplaces. The Affordable Care Act (ACA) requires that every state establish an insurance marketplace, also known as an insurance exchange, where state residents may purchase individual coverage that meets certain minimum standards. Individuals who do not have coverage through a public program such as Medicare or Medicaid, or an employer-sponsored plan, are eligible to receive tax subsidies to assist in their purchase of private insurance in the marketplace. If a state declines to run their own marketplace, the responsibility defaults to the federal government.
The Internal Revenue Service (IRS) interpretation of the relevant section of the ACA would authorize the subsidy in all states, not just those that are run by the states. However, the Court of Appeals determined that the IRS interpretation is inconsistent with the law as written, and determined that the plaintiffs in the case, who are individuals and employers residing in states that have federally-run exchanges, would be subject to penalties under the IRS interpretation. As written, the ACA restricts the subsidy to insurance purchased on exchanges "established by the State", with no mention of federally-run exchanges. The Court found that language to be unambiguous, and so determined that the subsidy could only be applied in states that run their own exchanges.
The mechanism for enforcement of the employer mandate is the qualification for a subsidy. When an employee has an affordable health coverage option available to him through his employer, he has the option of purchasing his own insurance, but would not receive a subsidy to do so. If, however, the employer does not offer affordable coverage and the employee purchases individual insurance on the exchange, he would receive a subsidy. Any employee that receives a subsidy to purchase insurance on the exchange that should be covered by an employer-sponsored plan (employers with more than fifty full-time employees are required to provide coverage), the employer would be required to pay a penalty. By ruling that subsidies are not included for states with federally-run exchanges, the trigger would never be pulled that would incur an employer penalty.
The Department of Justice has said that it will seek a higher level of review of the case. A similar case, King v. Burwell, was heard in the U.S. Court of Appeals for the Fourth Circuit and received a different ruling. The plaintiffs in that case have requested the Supreme Court to hear the case. A ruling from the Supreme Court on the issue would be the definitive answer to the question of whether the IRS overstepped its bounds in making its interpretation to allow the subsidies in all states. Unless and until the Supreme Court makes such a determination, the lower court rulings stand in their jurisdictions.