News Feature | January 23, 2014

Ruling Federal Subsidies Can Be Used For State Exchanges

Christine Kern

By Christine Kerncontributing writer

Judge With Gavel

Federal subsidies from Affordable Care Act may be applied to state or federal exchanges, strikes huge blow to opponents

By Christine Kern, contributing writer

A federal judge ruled in mid-January residents of all states are eligible for the federal subsidies to obtain healthcare, regardless of whether or not their state has created an exchange. This was a huge blow to critics who have been trying to undermine the Affordable Care Act and the new health exchange network. There are three other cases that have raised the issue of tax subsidies as part of the ACA, though there have been no rulings in them as of yet.

In his opinion, U.S. District Judge Paul L. Friedman concluded, "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 New York Times, reporting on the case, stated that the ruling was significant because the federal government is running the exchange in 36 of the 50 states, covering roughly two-thirds of the nation’s total population.

The lawsuit, Halbig v. Sebelius, was filed by users in four of the states that use the federal exchange: Tennessee, Texas, Virginia, and West Virginia. They charged that being required to buy insurance even with subsidies to help defray the cost violated the terms of the ACA, arguing that the healthcare law authorized subsidies specifically for insurance bought on “an exchange established by the state.”  The intent of these subsidies, they argued, was to provide an incentive to states to establish and operate exchanges, rather than handing the burden to the federal government.

In his ruling, however, Judge Friedman disagreed, quoting Senator Max Baucus, Democrat of Montana and an architect of the law, who said in Congress in December 2009 that Congress was providing the option to states to either set up individual exchanges or participate in the federal exchange.

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