Skip to Content

Filter by:

Washington Highlights

Federal Courts Diverge on Subsidies for Low-Income Individuals in Federal Exchanges

July 25, 2014—Two federal courts July 22 issued conflicting opinions about whether the Affordable Care Act (ACA, P.L. 111-148 and P.L. 111-152) gives the Internal Revenue Service (IRS) authority to provide government subsidies in the form of tax credits to low-income individuals to help them pay their premiums if they purchase insurance on a federally-facilitated health insurance “Exchange.”

In Halbig v. Burwell, the majority of a panel of three judges on the U.S. Court of Appeals for the D.C. Circuit decided that the IRS does not have the authority to make tax credits available to low-income individuals who purchase insurance in the 36 states that rely on the federal government to operate their health insurance Exchange instead of establishing a state-run Exchange. 

A few hours after the Halbig opinion was released, the U.S. Court of Appeals for the Fourth Circuit issued a contradictory opinion in King v. Burwell holding that the IRS did in fact have the statutory authority to make tax credits available nationwide, regardless of whether the low-income individuals purchase insurance on a state-run or federally run Exchange.

The government has already requested an en banc panel review of the Halbig decision by all of the judges on the D.C. Circuit Court of Appeals. The full panel may reach a different conclusion than the three-judge panel that decided the July 22 case.  Should that happen, there would not be a split in the circuits, making it less likely that the Supreme Court would accept the case.

At the same time, this issue is likely to come up in other circuit courts.  If there are conflicting opinions, it is likely that this ACA challenge will be ultimately decided by the Supreme Court.  For the foreseeable future, the subsidies are expected to continue while the cases work their way through the courts. 

If the Halbig opinion stands, it would mean that individuals in 36 states without state-run Exchanges would no longer get the tax credits and, therefore, without these subsidies would fall under the exemption in the ACA for low-income individuals who do not have to pay a penalty if they choose not to purchase health insurance. 

Neither individuals nor large employers would be subject to penalties if these individuals lose access to tax credits and do not obtain health insurance coverage in states with federally run Exchanges. 

Insurers in those 36 states would still come under ACA provisions requiring guaranteed-issue and community rating with the likely result that premium costs could rise substantially.

The AAMC has prepared a detailed analysis  of the cases.


Ivy Baer, J.D., M.P.H.
Senior Director and Regulatory Counsel
Telephone: 202-828-0499

Allison M. Cohen, J.D., LL.M.
Senior Policy and Regulatory Specialist
Telephone: 202-862-6085


envelope on a green background

Subscribe to Washington Highlights

RSS icon

Subscribe to RSS

Washington Highlights, a weekly electronic newsletter, features brief updates on the latest legislative and regulatory activities affecting medical schools and teaching hospitals.

Past Issues

For More Information

Jason Kleinman
Sr. Legislative Analyst, Govt. Relations
Telephone: 202-903-0806