Federal Courts Disagree on Premium Tax Credits through Federal Exchanges: The IRS Will Continue Processing Credit Claims despite One Circuit's Decision Overruling a Key Affordable Care Act Provision

The appellate courts for the D.C. Circuit and the Fourth Circuit issued conflicting decisions on July 22 regarding the availability of the Sec. 36B premium tax credit for taxpayers who purchase health insurance on exchanges set up by the federal government. Two judges of a three-judge panel of the D.C. Circuit held that the Treasury regulation permitting taxpayers to get premium tax credits under Sec. 36B for health insurance purchased on health insurance exchanges by the federal government is invalid (Halbig v. Burwell, No. 14-5018 (D.C. Cir. 7/22/04)). A few hours later, the Fourth Circuit unanimously upheld the same regulation in King v. Burwell, No. 14-1158 (4th Cir. 7/22/14). Facts: In both cases, plaintiffs were individuals or employers in a state or states that did not establish health care insurance exchanges under the Patient Protection and Affordable Care Act (PPACA), PL. 111-148. They claimed the IRS violated the Administrative Procedure Act (5 U.S.C. [section][section] 551-706) by promulgating regulations allowing premium tax credits for insurance purchased on federal exchanges. In Halbig, the District Court for the District of Columbia held in January that the PPACA's text, structure, purpose, and legislative history made clear Congress's intent to make the credits available both state-operated and federally operated exchanges, and that even if the statute was ambiguous, the IRS's interpretation was a valid interpretation of the statute entitled to deference under the second step of the Chevron analysis (Chevron U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837 (1984)). The plaintiffs appealed to the D.C. Circuit. [GRAPHIC OMITTED] In King, residents of Virginia, which did not establish an exchange, argued that they would incur some financial cost because they would be forced to purchase insurance or incur the individual mandate penalty under Sec. 5000A for failing to do so. The District Court for the Eastern District of Virginia, like the trial court in Halbig, held the regulation to be consistent with Congress's intent and granted the government's motion to dismiss. The plaintiffs appealed to the Fourth Circuit. Issues: Sec. 36B(b)(2) allows the premium tax credit for coverage of a taxpayer and spouse and dependents enrolled an exchange established by the state. Regs. Sec. 1.36B-2(a)(1) allows the credit for applicable taxpayers enrolled in a qualified health plan through an exchange. Exchange is defined under Regs. Sec. 1.36B-1(k) by reference to U.S. Department of Health and Human Services (HHS) regulation 45 C.F.R. Section 155.20, which in turn defines it as including an exchange and operated by the federal government HHS. Both courts, as had the district courts, used a Chevron analysis to determine whether the regulation was valid. Holdings: The D.C. Circuit, after analyzing Sec. 36B and the statutory scheme of the PPACA as a whole, held that the regulation was invalid, finding that the language of Sec. …