Benefits Buzz

Conflicting Rulings on ACA Exchange Subsidies

Posted on August 1st, 2014

July 22nd was quite an eventful day as it relates to the Affordable Care Act (ACA). On the same day, two different U.S. Courts of Appeals came to opposite conclusions as it relates to the ability for federally-facilitated Exchanges to provide subsidies to enrollees. 

The issue at hand is that specific language in the ACA law states  that subsidies are available to those that “enrolled through an Exchange established by the State.” Based on that text, lawsuits were filed which  contend that  subsidies are only available to individuals who enroll in coverage through the state-based Exchanges and cannot be provided through the federally-facilitated Exchanges. The plaintiffs claim that this distinction in the law  was meant  to incentivize states to run their own Exchanges in order to obtain federal subsidies for their residents.  
Last week, a U.S. Court of Appeals in Washington D.C. ruled in favor of the plaintiffs. However, just a few hours later, a U.S. Court of Appeals in Virginia hearing a similar case ruled against the plaintiffs. Now there is a great deal of uncertainty from the conflicting decisions, and it is likely that this issue will be escalated to a higher court for review. In the interim, the Obama administration has indicated it plans to continue to act according to its’ interpretation that the law allo ws for premium subsidies to be provided to individuals in both the state-based and federally-facilitated Exchanges.
The final ruling on this issue will have significant implications to residents in states that have defaulted to the federally-facilitated Exchange. Currently, about two-thirds of U.S. states have defaulted to them (including Illinois) and it’s estimated that about 5.4 million people have enrolled in coverage through them, most of whom received a subsidy. 
Many large employers are also following this issue closely as it  impacts potential liability under the Employer Mandate. The penalties (for not offering coverage or for not offering coverage that is affordable and/or provides minimum value) are only  triggered if a full -time employee receives a premium tax credit  through an Exchange. If subsidies could not be provided through the federally-facilitated Exchange, that means employers will face different exposure to penalties based on where  their employees live and whether there is a federally-facilitated or state-based Exchange in the  employee’s state of residence.  
This may end up being another ACA issue that has to be decided by  the U.S. Supreme  Court, and if goes that far, it doesn’t sound like a final decision would come any earlier than 2015. 
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The materials contained within this communication are provided for informational purposes only and do not constitute legal or tax advice. 


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