January 17 update: Resources on interim payment process for insurers and other subjects. On January 9 and again on January 16, 2014, HHS posted a number of frequently asked questions, about 50 in total, on its Regtap.info website.  To find these, log in, (register first if you haven’t already) at regtap.info, click on the icon for FAQs, and search for FAQs between January 9 and the present.  The FAQs address a variety of topics, including more detail on the 834 enrollment reconciliation process, enrollee premium payment requirements, SHOP exchange enrollment, and the premium tax credit payment reconciliation process.  FAQ 636, for example, addresses partial premium payments and FAQ 639 payment by credit and debit cards, while FAQ 640 discusses the question of how to handle an enrollee who moves out of a QHP’s service area (the insurer cannot simply assign the enrollee to one of its plans in that service area, but must refer the enrollee to the federal exchange, where the enrollee might pick a different plan). Most of these FAQs tend to be very technical and will not be discussed here. 

FAQs 665-678, however, are of particular interest, however, as they offer a detailed description of the interim plan payment process.  HHS will be making estimated advance premium tax credit and cost-sharing reduction payments to qualified health plan insurers in late January based on enrollment data submitted for December 15, 2013.  Obviously, these payments will not cover enrollees who enrolled late in December.  When insurers file their enrollment reports in mid-January for payment in February, therefore, they must restate their January data to get paid for these late enrollees for January.  In February, insurers will update and restate January and February enrollment to ensure full payment, and so on until the permanent payment process is available.  At that point, actual member enrollment data will be used to reconcile payments back to January 1, 2014 to ensure that insurers receive full payment of advance premium tax credit and cost-sharing reduction payments for all actual members. 

On January 17, 2014, HHS released a series of resources for agents and brokers who are using the federal exchange. These include an agent and broker training summary, tips for agents and brokers assisting consumers with enrollment, and a list of resources for agents and brokers.  Agents and brokers are playing a key role in getting Americans signed up for coverage through the exchanges, and HHS is facilitating their efforts to do so.

On January 15, 2014, the Affordable Care Act won a very important legal victory in Halbig v. Sebelius.  Judge Paul Friedman of the District Court for the District of Columbia held that the ACA unambiguously supports an IRS regulation allowing the agency to issue premium tax credits to individuals enrolled through federal, as well as state, exchanges.

This is the first ruling in a series of challenges to the IRS rule brought by individuals and employers in the District of Columbia and Virginia, as well as the attorneys general of Oklahoma and Indiana.  The plaintiffs have already reportedly appealed Judge Friedman’s decision, but his reasoning is persuasive, and I expect that not only will his decision be upheld but that the judges in the other cases will follow his reasoning.

The issue is this:  The ACA authorizes the IRS to provide premium tax credits to individuals with household incomes between 100 and 400 percent of the federal poverty level who are not eligible for other minimum essential coverage (such as affordable and adequate employer coverage, Medicaid, or Medicare).  Premium tax credits are, however, only available to individuals who purchase coverage through the exchanges.  The ACA requests that the states establish exchanges, and sixteen states have done so.  The ACA also, however, authorizes the federal government to establish exchanges in states that fail to set up their own exchanges. The federal government has done so in 34 states.  The IRS regulation allows premium tax credits to be awarded to eligible individuals in both states with state exchanges and states with federal exchanges.

Two subsections of the provision of the ACA section authorizing premium tax credits, however, provide that tax credits are available for months in which an individual is enrolled in a qualified health plan “through an Exchange established by the State under 1311” of the ACA.  The plaintiffs in Halbig argued that this provision bars the IRS from issuing premium tax credits to individuals who enroll in qualified health plans through federal, as opposed to state, exchanges.

The stakes.  A ruling for the plaintiffs would have been a major setback for the ACA.  Not only would it have barred millions of Americans who live in states that have federal exchanges from receiving premium tax credits to make health insurance affordable, it would have also rendered the employer mandate unenforceable in those states.  Employers that fail to provide minimum essential coverage or fail to provide affordable and adequate coverage are only subject to a tax penalty if one of their employees receives premium tax credits for the purchase of a qualified health plan through an exchange.  It also would have weakened the individual mandate, as many individuals who may owe a tax under the individual mandate are individuals for whom coverage would be unaffordable — and who would thus be exempt from the mandate — were it not for the assistance they will receive for purchasing insurance through premium tax credits.

Moreover, there is good reason to believe that the individual insurance market would collapse in federal-exchange states if the ACA’s market reform provisions (which are not challenged in this litigation) remained in place in those states — requiring insurers to cover individuals with pre-existing conditions without increased premiums — but individuals in those states could not get premium tax credits, the employer mandate did not apply, and the individual mandate did not fully apply.  It might become impossible for anyone in the federal exchange states to purchase individual insurance.  This is what has reportedly happened in some of the territories where the market reforms apply but premium tax credits are not available and  there is no individual or employer mandate.  This litigation poses a very serious challenge to the ACA.

Judge Friedman, however, had little trouble disposing of plaintiffs’ arguments.  When the rules of federal agencies are challenged, courts review them under the Chevron rule, established by the Supreme Court in Chevron v. Natural Resources Defense Council.  Chevron provides that that courts should first ask whether Congress spoke directly to the issue in question.  If the intent of Congress is clear, federal agencies must effectuate the “unambiguously expressed intent of Congress.”  If a statute is silent or ambiguous, however, courts must defer to an agency’s interpretation of the law if the agency’s interpretation is based on “a permissible construction of the statute.”  Judge Friedman did not need to reach the question of whether the IRS construction of the statute was permissible, or whether the IRS reached its construction through reasoned decision-making, because, the judge held, the ACA unambiguously authorizes federal exchanges to issue premium tax credits.

Much of Judge Friedman’s decision deals with jurisdictional issues.  Judge Friedman had earlier refused to dismiss the case at the government’s request, rejecting the government’s argument that the plaintiffs were not injured by the rule and thus had no “standing” to challenge it.  Judge Friedman held that at least one plaintiff, David Klemencic was able to challenge the regulation because if he were eligible for a premium tax credit, it would make health insurance affordable to him, and thus he would have to either purchase it or pay the individual mandate penalty.  Judge Friedman also held that Mr. Klemencic’s right to pay the penalty and then file for a tax refund, challenging the IRS rule at that point, was not an adequate substitute for being able to challenge the IRS rule on its face up front.  Judge Friedman did dismiss the employer plaintiffs, however, holding — contrary to an earlier opinion from the Fourth Circuit federal appeals court — that the tax anti-injunction act bars employers from challenging the employer mandate before a tax penalty is actually assessed.  Since at least one plaintiff had standing to challenge the regulation, however, the court proceeded to decide the challenge.

Statutory language.  Judge Friedman began with the language of the statute.  He noted that the statute authorizes premium tax credits for “applicable taxpayers,” that is, taxpayers with household incomes between 100 and 400 percent of poverty, not distinguishing between taxpayers who live in federal or state exchange states.  He then turned to the language that plaintiffs based their challenge on, which is found in two subsections dealing with calculation of the tax credit amount.  He acknowledged that the language “viewed in isolation” appeared to support the plaintiffs’ challenge.

Governing case law, however, provides that judges should not limit themselves in interpreting a statute to reading a particular provision in isolation — they must also look at the provision in context.  In particular, it is necessary to consider other provisions in the statue dealing with exchanges.  The ACA does ask states to establish exchanges.  It expressly provides, however, that if states decline the invitation to establish the “required exchange”, the federal government must establish “such” exchange in the state.  Effectively, Judge Friedman held, the federal government establishes an “Exchange established by the state” on behalf of the state.

Judge Friedman proceeded to consider other provisions of the ACA, again reading the entire statute, trying, as directed by ruling precedent, to “fit, if possible, all parts into a harmonious whole.”  He noted that the government had identified numerous provisions of the ACA that only make sense if the federal exchanges can issue premium tax credits. For one, the statute requires federal exchanges as well as state exchanges to report to the IRS information on taxpayers who receive advance premium tax credits through the exchange.  This makes no sense if enrollees through federal exchanges cannot receive premium tax credits.  Moreover, the ACA defines qualified individuals who can purchase insurance through exchanges as individuals who “reside in a state that established an Exchange.”  If HHS cannot establish a federal exchange that effectively becomes an exchange “established by the state,” the federal exchange could  not even enroll individuals in insurance; the entire statutory scheme becomes absurd.  Various other provisions, the judge notes, also assume that an exchange will be established in every state, and make no sense if a federal exchange cannot carry out the functions of an exchange.

Statutory purpose.  Judge Friedman turned next to the purpose of the statute, noting that a statue must be construed in light of its history and purpose.  The purpose of the ACA was to provide “near-universal” coverage, not just to cover Americans living in some states.  The plaintiffs had argued that another purpose of Congress was to compel the states to establish exchanges, and thus the law threatened states that failed to do so with the loss of tax credits for their residents.  The plaintiffs, however, presented no evidence in the statute itself or in the legislative history that Congress had this purpose.  Moreover, their argument did not make any sense:  If Congress was trying to expand coverage, why would it leave so many Americans out?  And why would it hide its intent in a subsection dealing with calculation of the amount of a tax credit?  Congress does not, as Judge Friedman pointed out, quoting a Supreme Court case, “hide elephants in mouseholes.”

Legislative language.  Lastly, Judge Friedman turned to the legislative history.  In recent years federal courts have paid less attention to legislative history, which can often be manipulated to support various interpretations of a statue, but Judge Friedman only turned to it having already reached the conclusion that the statute unambiguously supported the government’s position.  He pointed to several statements of key legislators during the legislative process supporting the arguments that the federal government could establish exchanges in states that refused to do so, thus ensuring that Americans everywhere would have access to tax credits.  He also noted that the Congressional Budget Office assumed tax credits would be available everywhere.  He could find no evidence that Congress ever considered making premium tax credits depend on whether an exchange was state or federal.  The plaintiffs had argued that I had at one point suggested that Congress could withhold tax credits in states that failed to establish exchanges, but, Judge Friedman noted, there is no evidence that anyone in Congress paid any attention to anything I wrote.

The court concluded:

In sum, the Court finds that the plain text of the statute, the statutory structure, and the statutory purpose make clear that Congress intended to make premium tax credits available on both state-run and federally-facilitated Exchanges. What little relevant legislative history exists further supports this conclusion and certainly – despite plaintiffs’ best efforts to suggest otherwise – it does not undermine it. The Court therefore concludes that “Congress has directly spoken to the precise question” of whether an “Exchange” under 26 U.S.C. § 36B includes federally-facilitated Exchanges. . . . And that must be “the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress.” . . . The IRS has done exactly that by promulgating regulations authorizing the provision of tax credits to individuals who purchase health insurance on federally-facilitated Exchanges as well as to those who purchase insurance on state-run Exchanges.

Up next.  The next judge to rule on this issue will be Judge James Spencer in Richmond, Virginia, who is considering King v. Sebelius, which has been fully briefed and is awaiting a decision.  I will be surprised if he reaches a different result.