Tag Archive: Halbig v. Burwell

ACA’s Multi-State Plan provision could aid government’s case in King v. Burwell

The issue before the U.S. Supreme Court in King v. Burwell is whether the U.S. Treasury Department properly interpreted the intent of the drafters of the Patient Protection and Affordable Care Act regarding the availability of tax credit subsidies for health plans sold on state health benefit exchanges. More specifically, whether Treasury is correct in determining the subsidies are available to qualified individuals regardless of whether an exchange is established by a state or if the federal government operates the exchange under a default provision of the Affordable Care Act if a state opts not to do so.

The high court could look to other parts of the statute for context as it discerns Congress’s intent regarding the availability of the subsidies. One element of the law that could support Treasury’s position is at Section 1334 of the Affordable Care Act. Section 1334 creates a federally-chartered Multi-State health plan (MSP) that must be offered in all state exchanges by 2017. The policy intent is to bolster competition and consumer choice, particularly in states with smaller populations and fewer plan issuers.

In the context of the question before the Supreme Court in King, the government might argue Congress could not have intended that the subsidies are available only for MSPs offered in states that chose to establish an exchange but not in those that did not. Especially given the objective of MSPs to make individual and small group health coverage more widely available. In a proposed rulemaking issued last week, the federal Office of Personnel Management (which charters MSPs) noted it “intends to ensure that MSP coverage is available as expansively and as soon as practicable.”


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

If Halbig becomes law of the land, flight to bronze and cat plans could result

One potential outcome should the federal courts ultimately determine that advance income tax credit premium subsidies are available only to eligible households purchasing individual coverage in state-based health benefit exchanges and not in states that have opted to have the federal government run their exchanges is a flight to bronze. Bronze as in the metallic value of qualified health plans that have around a 60 percent actuarial value (AV), meaning they cover on average 60 percent of expected costs in a plan year. (Click here for more background the Halbig ruling)

Individuals may find the only way to comply with the requirement they have some form of health coverage or pay a tax penalty is to buy a bronze-rated plan since these plans offer the lowest premiums compared to richer plans with silver (70 percent AV), gold (80 percent AV) and platinum plans (90 percent AV). For many individuals and families not covered by employer-sponsored or government health plans, bronze plans may be the only ones they can afford without the offsetting effect of the premium subsidies — particularly older people in the top one third of the age rating bands who pay the highest premiums.

In addition to bronze plans, there could also be a growth market in catastrophic plans that are rated below 60 percent AV. These plans are available to those aged 30 and under and households that would have to spend more than eight percent of their income to buy the lowest cost bronze plan offered. The Patient Protection and Affordable Care Act also provides an exemption from the tax penalty for these households, which could result in some requesting the exemption and going without coverage, undermining the law’s policy goal to reduce the number of medically uninsured Americans.

A flight to bronze plans could also give a boost to direct primary care (DPC) where patients pay advance monthly or annual fees for primary care since bronze and catastrophic plans aren’t designed for those who are frequent users of primary care services.


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

Contradictory exchange language in Affordable Care Act causes latest uncertainty over law

Today’s 2-1 ruling by the District Of Columbia Circuit U.S Court of Appeals in Halbig, et al v. Burwell holding that the Internal Revenue Service incorrectly interpreted Patient Protection and Affordable Care Act provisions governing advance tax credits for individual health plans purchased though state health benefit exchanges — regardless of whether a state has opted to operate its own exchange or defaulted to having the federal government do so — stems from two contradictory provisions in the law.

Section 1311(b)(1) of the law requires all states to establish an exchange, stating that “Each State shall, not later than January 1, 2014, establish an American Health Benefit Exchange (referred to in this title as an ‘‘Exchange’’) for the State…” (Emphasis added)

When the word “shall” appears in a statute, it’s a mandate or obligatory requirement. It’s not an option or a suggestion.

However, the Court of Appeal also reviewed another section of the Affordable Care Act at Part 3 that gives the states flexibility in implementing the exchange mandate. This is where the trouble lies. Section 1321(b) states:

 (b) STATE ACTION.—Each State that elects, at such time and in such manner as the Secretary may prescribe, to apply the requirements described in subsection (a) shall, not later than January 1, 2014, adopt and have in effect—

(1) the Federal standards established under subsection (a);
(2) a State law or regulation that the Secretary determines implements the standards within the State. (Emphasis added)

Among the federal standards established under subsection (a) is the establishment and operation of exchanges.

Note the use of the word “elects.” Elect means to choose or opt to take (or not take) an action. It is not a requirement unlike the clear “shall” of a mandate. That implies that despite the clear mandate of Section 1311(b)(1), a state could theoretically opt not to establish an exchange under Section 1321(b).

The Court of Appeal apparently picked up on this distinction in its ruling:

The crux of this case is whether an Exchange established by the federal government is an exchange established by the State under section 1311 of the [ACA].” We therefore begin with the provisions authorizing states and the federal government to establish Exchanges. Section 1311 provides that states “shall” establish Exchanges. 42 U.S.C. § 18031(b)(1). But, as the parties agree, despite its seemingly mandatory language, section 1311 more cajoles than commands. A state is not literally required to establish an Exchange; the ACA merely encourages it to do so. And if a state elects not to (or is unable to), such that it “will not have any required Exchange operational by January 1, 2014,” section 1321 directs the federal government, through the Secretary of Health and Human Services, to “establish and operate such Exchange within the State.” Id. § 18041(c)(1).

This is likely to be a critical analysis determining the fate of the subsidies in the three dozen states that have elected not to operate their own exchanges as the case moves forward to a potential en banc review by the District Of Columbia Circuit U.S Court of Appeals. The matter could end up before the U.S. Supreme Court after another circuit of the Court of Appeals panel today unanimously upheld the IRS’s interpretation of the advance tax credit subsidies as applying to all states, regardless of whether they elected to establish their own exchanges. That ruling was in King et al v. Burwell. The conflicting rulings leave a cloud of uncertainty hanging over the federally operated exchanges that is unlikely to be resolved in the less than four months remaining to plan year 2015 enrollment that opens November 15.

The potential for the Supreme Court to intervene increases in light of this analysis by the law firm of Epstein Becker Green noting similar cases pending before other federal appellate courts that could leave the issue unresolved:

The Obama administration has already indicated it will seek en banc review of the Halbig decision by the entire D.C. Circuit. If the full D.C. Circuit reverses the Halbig panel decision, the existing “circuit split” would be resolved, potentially making Supreme Court review less likely. It should be noted that there are similar cases pending in district courts in the 10th and 7th Circuits, that if decided in favor of the challengers could create a circuit split even if the full D.C. Circuit reverses Halbig.

If issue comes before the Supreme Court and it upholds Halbig, it would throw the individual health insurance market in the majority of states with federally-operated exchanges back into market failure since without the advance tax credit subsidies that are propping it up, low and moderate income earners would once again be priced out of the market, especially those in the highest age rating bands. It could also severely erode the Affordable Care Act’s shared responsibility provisions by exempting individuals from the coverage mandate based on unaffordable premiums and mooting fines levied on large employers that don’t offer minimum affordable coverage and an employee obtains subsidized individual coverage in a state health benefit exchange since the subsidies would no longer be available in the federally-operated exchanges.


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

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