The September 30, 2014 decision of a United States District Judge for Eastern District of Oklahoma in the case of State v. Burwell adds an interesting wrinkle to the debate over whether the provision in the Affordable Care Act that authorizes federal subsidies (tax credits) applies to individuals who are covered by a qualified health plan that is enrolled through an Exchange established by the Federal government, not a State. An IRS Rule (26 C.F.R.§ 1.36B-1(k)) allows this, while the ACA itself bases eligibility on participation in a plan that was "enrolled in through an Exchange established by the State . . . ." 26 U.S.C. §36B(b)(2)(A). These provisions also affect ACA subsidies that relate to employers. Holding to the literal language of Affordable Care Act itself, the Oklahoma District Court held that the IRS rule was unlawful.
As we've previously noted, there had been a split in the United States Courts of Appeals created on the same day when a panel of the DC Circuit took the same literalist approach in Halbig v. Burwell as did the District of Oklahoma, but the 4th Circuit ruled in King v. Burwell that "Exchange" meant any Exchange and held that the ACA subsidies were available to anyone who was a subscriber to a health plan in a state that had not established its own Exchange but where the Federal government had. This split, however, was quickly erased when the DC Circuit, as a whole, vacated the panel's decision and voted to rehear the case en banc, which it has yet to do. Without any split to rely upon, a factor that increases the probability of Supreme Court review, the 4th Circuit plaintiffs nevertheless have petitioned for cert., claiming that the case should be taken because it presents an important question of federal law that must be resolved at some point. The Supreme Court has not yet acted on that petition.
The District Court in Oklahoma stayed its order and the Obama administration will file an expedited appeal. If the 10th Circuit affirms the case quickly, that would create a new Circuit split and very well could serve as a catalyst for Supreme Court review. We'll keep you posted as this is a matter that affects both employers and employees in the States that have not established Exchanges.
- Member of the Firm