Premium Tax Credits at Risk After Circuit Split

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Two federal appeals courts issued conflicting rulings on a key provision of the Patient Protection and Affordable Care Act (PPACA) relating to the availability of premium tax credits and cost-sharing subsidies on the federally facilitated exchanges. First, the U.S. Court of Appeals for the D.C. Circuit, in Halbig v. Burwell, overturned this provision, stating that PPACA does not authorize the Internal Revenue Service (IRS) to provide premium tax credits and cost-sharing subsidies for insurance purchased on the federally facilitated exchanges (as the law does for insurance purchased on state-established exchanges). Shortly thereafter, the U.S. Court of Appeals for the Fourth Circuit, in King v. Burwell, upheld the same PPACA provision, stating that PPACA does authorize the IRS to provide premium tax credits and cost-sharing subsidies on federally facilitated exchanges. Parties in both cases plan to appeal the rulings, and the cases appear to be headed to the U.S. Supreme Court, particularly with the circuit split.

If the provision is struck down, there could be deep ramifications for PPACA. To begin with, individuals who purchase exchange coverage in states with federally facilitated exchanges would not be able to qualify for premium tax credits or cost-sharing subsidies. Thus, costs for those individuals would increase dramatically. Second, qualification for either a premium tax credit or a cost-sharing subsidy may trigger employer mandate penalties. Without premium tax credits and cost-sharing subsidies, the employer mandate may be rendered ineffective. Other PPACA provisions also rely on the provision, and if it is struck down, PPACA itself may be seriously threatened.

While the eventual ramifications may drastically alter PPACA’s future, today’s rulings do not immediately change anything regarding the distribution of premium tax credits and cost-sharing subsidies, the operation of the federally facilitated exchanges or enforcement of the employer mandate. Employers should continue their efforts to comply with the employer mandate by the appropriate effective date (Jan. 1, 2015, unless the employer qualifies for a delayed effective date), as well as other PPACA obligations. NFP Benefits Compliance will continue to monitor developments on this issue.

Halbig v. Burwell 

King v. Burwell 

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