Insurers’ ObamaCare escape hatch
Insurers wouldn’t participate in the federal health exchange without an escape clause protecting them from the possibility that IRS subsidies would be ruled illegal, according to industry news. It was a smart move, as that possibility just got more likely in recent weeks. At issue is what the plain text of Section 1401 of the Affordable Care...
Insurers wouldn’t participate in the federal health exchange without an escape clause protecting them from the possibility that IRS subsidies would be ruled illegal, according to industry news. It was a smart move, as that possibility just got more likely in recent weeks.
At issue is what the plain text of Section 1401 of the Affordable Care Act, or ACA, means. Even though the text of the law states that the subsidies are available “through an Exchange established by the State under 1311 of the Patient Protection and Affordable Care Act,” the IRS, without congressional authorization, allowed federal subsidies to flow into states participating in the federal exchange when it implemented the law.
At present, there are four legal challenges based on this dispute: State of Indiana v. IRS, King v. Burwell, Halbig v. Burwell and Pruitt v. Burwell.
While these judicial challenges will take many months to be resolved, it is interesting that the same insurance industry that was complicit in crafting this calamitous law might soon seek shelter from it. Too bad Illinoisans don’t have the same escape hatch from the law’s many impacts of increasing premiums, cancelled policies, and not being able to keep providers.
In State of Indiana v. IRS, oral arguments were heard in federal district court earlier this month. In the King v. Burwell challenge, the 4th U.S. Circuit Court of Appeals upheld the legality of the IRS subsidies.
The Halbig v. Burwell challenge is currently being reheard by the full D.C. Circuit Court. The court originally upheld the legality of the IRS subsidies, but the Appeals Court for the D.C. Circuit ruled that the IRS subsidies were not legal in states that did not establish their own exchanges. The Obama administration petitioned the D.C. Circuit for an en banc review, and were granted one, meaning the case will be reheard and a new ruling will be issued.
But a recent ruling on Oklahoma Attorney General Scott Pruitt’s legal challenge to the law, Pruitt v. Burwell, just increased the likelihood that the U.S. Supreme Court will hear the case. On Sept. 30, an Oklahoma federal district court ruled that the law should be applied as written. This case will eventually be heard by the U.S. 7th Circuit Court of Appeals.
If upheld in appellate court, the ruling could have serious implications for both the law’s implementation in states that did not establish their own health insurance exchanges, as well as the likelihood that the case would be ultimately be settled in the Supreme Court. There are currently 34 states that have not yet established state-based health insurance exchanges. If upheld, there will be a conflicting decision among the federal courts – making a Supreme Court decision on the matter necessary.
An important implication of these challenges for Illinois is that, if the plaintiffs in these cases were to ultimately prevail, the IRS would not have the ability to subject approximately 16,000 Illinois employers (employing 3.8 million Illinoisans) and 455,000 Illinois individuals to IRS penalties under the ACA.
The looming judicial threats to the law, as well as its negative impact on Illinois employers and individuals, provide another important reason why it is time to go back to the drawing board to craft health-care solutions that give greater control to individuals and families.