ACA update: Different courts weigh in on healthcare insurance reform

October 10, 2023

The Hobby Lobby case

Although healthcare insurance reform passed its first big hurdle in 2012 when the U.S. Supreme Court upheld the law’s individual mandate, the Court took another look at the law this year. However, this time it reviewed another one of the ACA’s controversial mandates—the contraceptive mandate.

At the end of June, in Burwell v. Hobby Lobby Stores, Inc., the Court held that the ACA’s contraceptive mandate violates the Religious Freedom Restoration Act (RFRA) as it is applied to "closely held corporations." According to the Court, in a divisive 5-4 opinion, the mandate "substantially burdens the exercise of religion."

The Supreme Court’s decision in Hobby Lobby is not a broad employer exemption from ACA requirements. It only relates to the contraceptive mandate and only applies to closely held companies whose owners can show they have sincere religious objections to the mandate. The Departments of Labor, Health and Human Services (HHS), and the Treasury have taken the first step in providing guidance to address this ruling by issuing a href="https://www.dol.gov/ebsa/faqs/faq-aca20.html" target="blank">Frequently Asked Question (FAQ).

The FAQ makes clear that if the health plan of a closely held for-profit corporation stops providing coverage for some or all contraceptive services mid-plan year, such action triggers notice requirements to plan participants and beneficiaries under the Employee Retirement Income Security Act (ERISA) and possibly state laws.

Federal courts review exchange subsidies

The Supreme Court isn’t the only court to review the ACA recently. Last week, there was a flurry of court activity on another aspect of healthcare insurance reform—exchange subsidies. More specifically, within hours on the same day, two federal appeals courts issued conflicting rulings regarding subsidies.

In Halbig v. Burwell, a three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit addressed Section 36B of the Internal Revenue Code (enacted as part of healthcare insurance reform), which makes tax credits available as a form of subsidy to individuals who purchase health insurance through exchanges.

In its decision, the court stated that on its face, the provision authorizes such credits for insurance purchased on an exchange established by one of the fifty states or the District of Columbia. However, the IRS has interpreted the provision to also authorize the subsidy for insurance purchased on exchanges established by the federal government (federal exchanges). The appeals court disagreed with the IRS and concluded that the "ACA unambiguously restricts the section 36B subsidy to insurance purchased on Exchanges ’established by the State.’"

However, hours later, in King v. Burwell, the U.S. Court of Appeals for the Fourth Circuit upheld the subsidies. It found that the applicable statutory language was ambiguous and subject to multiple interpretations. Thus, it applied deference to the IRS’ determination and upheld it as "a permissible exercise of the agency’s discretion."

These court decisions are not the end of the challenges to the subsidies. More courts are expected to address the issue, the Obama administration is expected to fight the appeals court’s decision in Halbig, and many anticipate the issue could reach the U.S. Supreme Court.

Although the tax credits are still available right now, if the ruling in Halbig is upheld, it could cause a lot of damage to the ACA since its provisions are so interconnected and the subsidies come into play in many of the law’s mandates, including the individual mandate and the employer shared responsibility mandate (also known as the "play or pay" provision).

Jessica Webb-Ayer, J.D., is an attorney editor for BLR’s human resources and employment law publications. She has written and edited countless publications on labor and employment law and is the editor of the Benefits Compliance Advisor online newsletter and the benefits manual, Benefits Compliance: Strategies for Plans, Programs & Policies. Ms. Webb-Ayer has also worked on various Americans with Disabilities Act (ADA) and workers’ compensation/safety products. She graduated summa cum laudewith a B.A. in Psychology from Lipscomb University in Nashville, Tennessee, and graduated cum laude with a law degree from the University of Tennessee College of Law in Knoxville, Tennessee. Ms. Webb-Ayer is licensed to practice law in Tennessee.