Halbig v. Sebelius, Civil Action No. 13-0623 (PLF)
| Decision Date | 15 January 2014 |
| Docket Number | Civil Action No. 13-0623 (PLF) |
| Parties | JACQUELINE HALBIG, et al., Plaintiffs, v. KATHLEEN SEBELIUS, U.S. Secretary of Health and Human Services, et al., Defendants. |
| Court | U.S. District Court — District of Columbia |
JACQUELINE HALBIG, et al., Plaintiffs,
v.
KATHLEEN SEBELIUS, U.S. Secretary
of Health and Human Services, et al., Defendants.
Civil Action No. 13-0623 (PLF)
UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA
DATE: January 15, 2014
On May 23, 2012, the Internal Revenue Service issued a final rule implementing the premium tax credit provision of the Patient Protection and Affordable Care Act (the "ACA" or "Act"). In its final rule, the IRS interpreted the ACA as authorizing the agency to grant tax credits to certain individuals who purchase insurance on either a state-run health insurance "Exchange" or a federally-facilitated "Exchange." Plaintiffs contend that this interpretation is contrary to the statute, which, they assert, authorizes tax credits only for individuals who purchase insurance on state-run Exchanges. Plaintiffs therefore assert that the rule promulgated by the IRS exceeds the agency's statutory authority and is arbitrary, capricious, and contrary to law, in violation of the Administrative Procedure Act.
This matter is now before the Court on the parties' cross-motions for summary judgment. The Court heard oral argument on the motions on December 3, 2013. After careful consideration of the parties' papers and attached exhibits, the Act and other relevant legal authorities, the regulations promulgated by the IRS, and the oral arguments presented by counsel
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in open court, the Court will grant the defendants' motion, deny the plaintiffs' motion, and enter judgment for the defendants.1
On March 23, 2010, Congress enacted the Patient Protection and Affordable Care Act, Pub. L. No. 111-148, 124 Stat. 119 (2010), with the aim of increasing the number of Americans covered by health insurance and decreasing the cost of health care. Nat'l Fed'n of Indep. Bus. v. Sebelius, 132 S. Ct. 2566, 2580 (2012).2 Under the ACA, most Americans must either obtain "minimum essential" health insurance coverage or pay a tax penalty imposed by the Internal Revenue Service. 26 U.S.C. § 5000A; see Nat'l Fed'n of Indep. Bus. v. Sebelius, 132 S. Ct. at 2580. Uninsured individuals who might otherwise have difficulty obtaining health
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insurance are provided certain tools to facilitate the purchase of such insurance. Specifically, the law provides for the establishment of "Exchanges," through which individuals can purchase competitively-priced health insurance. See 42 U.S.C. §§ 18031, 18041. The Act also authorizes a federal tax credit for many low- and middle-income individuals to offset the cost of insurance purchased on these Exchanges. 26 U.S.C. § 36B. Large employers are expected to share the costs of health insurance coverage for their full-time employees, and employers who do not provide affordable health care may be subject to an "assessable payment" or tax. 26 U.S.C. § 4980H.
At issue in this case is whether the ACA allows the IRS to provide tax credits to residents of states that declined to establish their own health insurance Exchanges, that is, in states where the federal government has stepped in and is running the Exchange. Because this dispute necessitates a careful examination of certain features of the ACA - in particular, the Exchanges, the Section 36B tax credits, the minimum insurance requirement for individuals, and the Section 4980H assessment imposed on some employers - these features are described in more detail below.
The ACA provides for the establishment of American Health Benefit Exchanges, or "Exchanges," to facilitate the purchase of health insurance by private individuals and small businesses. See 42 U.S.C. § 18031(b)(1); 42 U.S.C. § 300gg-91(d)(21). The Department of Health and Human Services ("HHS") has described an Exchange as "a mechanism for organizing the health insurance marketplace to help consumers and small businesses shop for coverage in a way that permits easy comparison of available plan options based on price, benefits and services, and quality." Centers for Medicare & Medicaid Services, Initial Guidance to
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States on Exchanges, http://www.hhs.gov/cciio/resources/files/guidance_to_states_on_ exchanges.html (visited Jan. 5, 2014); see also H.R. REP. NO. 111-443, pt. II, at 976 (March 17, 2010) (describing an Exchange as "an organized and transparent 'marketplace for the purchase of health insurance' where individuals and employees (phased-in over time) can shop and compare health insurance options") (internal quotation omitted).
Each health insurance plan offered through an Exchange must provide certain minimum benefits, as set forth in regulations promulgated by HHS. 42 U.S.C. §§ 18021(a)(1), 18022. In addition to serving as a marketplace for health insurance, an Exchange can determine an individual's eligibility to obtain an advance payment of a federal premium tax credit and his or her eligibility to be deemed exempt from the individual minimum coverage requirement. See 42 U.S.C. § 18031(d)(4).
Section 1311 of the ACA provides that "[e]ach State shall, not later than January 1, 2014, establish an American Health Benefit Exchange (referred to in this title as an 'Exchange')[.]" ACA § 1311(b)(1), codified at 42 U.S.C. § 18031(b)(1). If, however, a state decides not to establish its own Exchange, or fails to establish an Exchange consistent with federal standards, Section 1321 of the Act directs HHS to step in and establish "such Exchange" in that state. ACA § 1321(c)(1), codified at 42 U.S.C. § 18041(c)(1); see 45 C.F.R. § 155.105(f). While sixteen states and the District of Columbia have elected to set up their own Exchanges, thirty-four states rely on federally-facilitated Exchanges. Seven of these thirty-four states have chosen to assist the federal government with its operation of federally-run Exchanges, while twenty-seven states have declined to undertake any aspect of Exchange implementation. See State Decisions for Creating Health Insurance Marketplaces, Kaiser State Health Facts, http://kff.org/health-reform/state-indicator/health-insurance-Exchanges/ (visited Jan. 5, 2014).
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The Act authorizes tax credits for many low- and middle-income individuals who purchase health insurance through the Exchanges. The Exchanges administer a program to provide advance payments of tax credits for eligible individuals; where an advance payment is approved, the Exchange arranges for the payment to be made directly to the individual's insurer, lowering the net cost of insurance to the individual. 42 U.S.C. §§ 18081-18082. The section of the Act setting forth how this tax credit is determined - ACA § 1401, codified at 26 U.S.C. § 36B - calculates this credit based in part on the premium expenses for the health plan "enrolled in [by the individual] through an Exchange established by the State under [42 U.S.C. § 18031]." 26 U.S.C. § 36B(b)(2)(A); see also 26 U.S.C. § 36B(c)(2)(A)(i).
As an example, amicus Families USA calculates that a single parent with two children in Florida, earning $41,000, would likely be charged about $5700 per year for a "silver-level" insurance plan on the federally-facilitated Exchange operating in that state. If the tax credit is available, the family would pay approximately $2700 for this insurance, after receiving a tax credit of about $3000. If the tax credit is unavailable, the family would bear the full cost of health insurance. Brief of Amicus Curiae Families USA 7 (citing Kaiser Family Foundation, Subsidy Calculator, available at http://kff.org/interactive/subsidy-calculator).
Under the Act, most individuals must obtain health insurance or face a tax penalty imposed by the IRS. This penalty in 2014 is one percent of an individual's yearly income or $95 for the year, whichever is higher, 26 U.S.C. § 5000A(c)(2)-(3), but it "cannot exceed the cost of 'the national average premium for qualified health plans' meeting a certain level of coverage." Liberty Univ., Inc. v. Lew, 733 F.3d 72, 84 (4th Cir. 2013) (quoting 26 U.S.C.
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§ 5000A(c)(1)(B)). Individuals unable to afford coverage, however, are exempt from the minimum insurance requirement, and therefore can avoid the tax penalty. 26 U.S.C. § 5000A(e). The unaffordability exemption generally is available to an individual whose health insurance costs exceed eight percent of his or her annual household income. 26 U.S.C. § 5000A(e)(1)(A). An individual's costs are determined with reference to the price of the relevant insurance premium minus the tax credit described above. 26 U.S.C. § 5000A(e)(1)(B)(ii).
Under the ACA, many or most employers are expected to offer health insurance plans to their employees, and large employers who do not offer affordable health insurance coverage to their full-time employees are subject to an "assessable payment" or tax under 26 U.S.C. § 4980H. Imposition of the Section 4980H assessment is triggered when a full-time employee purchases subsidized coverage on an Exchange. 26 U.S.C. § 4980H(a)-(b). After an employee purchases insurance, the Exchange determines whether the employer failed to offer affordable health insurance to that employee. If so, and if the employee meets the income requirements and other criteria, the employee will be deemed eligible for a...
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