Full DC Circuit to Rehear ACA Premium Tax Credit Case

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Overview


In Depth


The full U.S. Court of Appeals for the D.C. Circuit has vacated the 2-1 panel decision issued July 22, 2014, in Halbig v. Burwell, which struck down the Internal Revenue Service (IRS) Rule providing for Affordable Care Act (ACA) premium tax credits to be available to lower income exchange customers, regardless of their state of residence. The plaintiffs’ brief is due October 3, 2014, and the government’s opposing brief is due a month later on November 3, 2014, to precede oral arguments on December 17, 2014. It is likely that the full D.C. Circuit would not render its opinion before mid- to late Spring 2015. This has the effect of preserving the status quo with respect to the availability of premium tax credits, at least until the full D.C. Circuit renders its decision.

Meanwhile, the plaintiffs have sought review by the Supreme Court of the United States in King v. Burwell, Halbig’s sister case in which the U.S. Court of Appeals for the Fourth Circuit upheld that same IRS Rule. The Clerk of the Supreme Court has granted the government an extension until October 3, 2014, to respond to the petition for certiorari. The plaintiffs have urged the highest court render its decision as quickly as possible to resolve the circuit split. If the Supreme Court accepts King for review before mid-January, it could issue a ruling in the current term, which is scheduled to end in late June 2015.

Among the highest profile legal challenges to the ACA, Halbig and King seek to invalidate a May 2012 IRS Rule providing that health insurance premium tax credits will be available to all taxpayers nationwide, regardless of whether they obtain coverage through a state-based exchange or a federally facilitated exchanges (FFE). The plaintiffs (represented by the same lawyers in both cases) argued that the plain language of the ACA limits the availability of premium tax credits to only those taxpayers who reside in the 14 states (plus the District of Columbia) that set up their own exchanges, and thus nullifies the IRS Rule’s application to the 36 states operating exchanges through the FFE. Plaintiffs’ argument is based on language providing that premium tax credits are only available for plans “enrolled in through an Exchange established by the State under section 1311 of the [ACA].” ACA § 1401(a), enacting 26 U.S.C. § 36B(c)(2)(A)(i) (emphasis added). The government counters that other provisions of the ACA make clear that the subsidies are to be made available in the FFE states as well.

There are also two similar cases awaiting decisions by federal trial courts on motions for summary judgment. First, in Pruitt v. Burwell, pending in federal district court in Muskogee, Oklahoma, the state complains that the availability of the premium tax credit in FFE states forces the state to choose between the costs of providing coverage to its employees or paying the IRS a significant financial penalty. Second, in Indiana v. IRS, pending in federal district court in Indianapolis, the state and 39 of its public school districts argue that the IRS Rule directly injures the state and school districts in their capacities as employers by subjecting them to increased compliance costs and administrative burdens. On August 12, 2014, the plaintiffs survived the government’s motion to dismiss based upon lack of standing in Indiana v. IRS, although the court dismissed one aspect of the case because of the delay in enforcing the employer mandate. Oral arguments on the merits are set for October 9, 2014.

The McDermott Difference
McDermott Will & Emery filed amici curiae (“friend of the court”) briefs in both Halbig and King on behalf of 34 deans, chairs and faculty members from schools of public health across the country, arguing that the IRS rule permitting tax credits should be upheld. We will continue to monitor these cases closely. If you have any questions, please contact your regular McDermott lawyer or an author.