Dueling Circuit Court Decisions Send Mixed Messages regarding IRS Rule on Healthcare Exchanges under the Affordable Care Act

By Copeland, Roy; Schmidt, Ryan N. | Journal of Business and Behavior Sciences, Spring 2015 | Go to article overview

Dueling Circuit Court Decisions Send Mixed Messages regarding IRS Rule on Healthcare Exchanges under the Affordable Care Act


Copeland, Roy, Schmidt, Ryan N., Journal of Business and Behavior Sciences


INTRODUCTION

The Internal Revenue Service (1RS) finds itself in the center of a legal tempest emanating from conflicting interpretations by the District of Columbia Circuit Court of Appeals and Fourth Circuit Court of Appeals of Sections 36B, 1311 and 1321 of the Affordable Care Act. Pursuant to rules promulgated by the 1RS, premium tax credits authorized the Affordable Care Act are provided to anyone who qualifies through the purchase of health care insurance from either state-run or federally-facilitated exchanges. 26 C.F.R. §1.36B-1(K); Health Insurance Premium Tax Credit, 77 Fed. Reg. 30, 377, 30, 378 (May 21, 2013). The gravamen of the dispute centers on whether or not the statute allows the 1RS to determine if the tax credits are available to individuals who purchased health insurance from a federal Exchange. With the passage of the Affordable Care Act in 2010, the prevailing thought was that state exchanges would be the primary means through which individuals would be able to purchase health insurance; the role of the federal Exchange would merely serve as a safety net for those who failed to take advantage of state Exchanges. The conflicting rulings of the 4th Circuit and the D. C. Circuit have once again cast a pall on the Affordable Care Act.

DELEGATION OF 1RS AUTHORITY

The Plaintiffs contend that the IRS's interpretation allowing tax credits to federally facilitated "Exchanges" "... is contrary to the language of the statute ... which authorizes tax credits only for individuals who purchase insurance on state-run exchanges." Id. The Plaintiffs maintain the 1RS rule exceeds the scope of its authority and "... is arbitrary and capricious, and is contrary to the law in violation of the Administrative Procedure Act ("APA"), 5 U.S.C. § 706. A delegate's authority to the 1RS to "resolve ambiguities." 26 U.S.C. §38 B.

The 1RS rule allows tax credits for individuals enrolled in a qualified health plan in any exchange, state or federally facilitated. The rationale offered by the 1RS to those critical of the rule was:

The statutory language of section 36B and other provisions of the Affordable Care Act support the interpretation that credits are available to taxpayers who obtain coverage through a State Exchange, regional Exchange, subsidiary Exchange, and the Federally-facilitated Exchange. Moreover, the relevant legislative history does not demonstrate that Congress intended to limit the premium tax credit to State Exchanges. Accordingly, the final regulations maintain the rule in the proposed regulations because it is consistent with the language, purpose, and structure of Section 36B and the Affordable Care Act as a whole.

77 Fed. Reg. at 30,378.

Under the delegation theory, the IRS's interpretation and construction of the rule to include federally-facilitated health plans is within the purview of its authority. The 4th Circuit's conclusion that the "... [ACA] permits the 1RS to decide whether the tax credits would be available on the federal "Exchange" was predictable given the long line of Supreme Court precedent sustaining broad delegations of power from Congress to federal agents. In United States v. Grimand 220 U. S. 506 (1911), the Supreme Court held, "If Congress shall lay down by legislative act an intelligible principle to which the person or body authorized to [take action] is directed to conform, such legislative action is not a forbidden delegation of legislative power." More recently, in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., Et. Al., 467 U.S. 837, 865, 867 (1984), the Supreme Court noted that judges must remain above the fray of "competing political interest." Writing for the majority, Justice Stevens pointed out that it is appropriate for administrative agencies to resolve "... the competing interest which Congress itself either inadvertently did not resolve or intentionally left to be resolve by the agency charged with the administration of the statute in light of everyday realities. …

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