Thomson Reuters Tax & Accounting News

Featuring content from Checkpoint

Back to Thomson Reuters Tax & Accounting News

Subscribe below to the Checkpoint Daily Newsstand Email Newsletter

Challenge to premium tax credit regs warrants neither dismissal nor injunctive relief

October 24, 2013

Halbig, et al, v. Sebelius, et al, Civil Action No. 13-0623

A district court has decided that a challenge to the Affordable Care Act’s (ACA’s) premium tax credit regs will be decided on the merits, rejecting the challengers’ request for a permanent injunction but also denying the government’s dismissal motion.

The premium assistance tax credit. The Code Sec. 36B credit is designed to make health insurance affordable for taxpayers who meet certain qualifying requirements. It is available for individuals who purchase affordable coverage through “Affordable Insurance Exchanges,” which each state is directed by the Patient Protection and Affordable Care Act (PPACA, P.L. 111-148) to establish by Jan. 1, 2014 (with the federal government establishing an Exchange in any state that fails to do so). The Exchange makes subsidy payments on the individual’s behalf to the health plan, based on information available at the time of enrollment, then at return time the individual reconciles the actual credit that he is due with the amount of the subsidy payments that were made. (Code Sec. 36B(b)) (See Weekly Alert ¶  18  05/24/2012 for more details on Code Sec. 36B and its regs)

In describing the premium assistance amount, Code Sec. 36B(b)(2)(A) refers to “the monthly premiums for…qualified health plans offered in the individual market…which were enrolled in through an Exchange established by the State ” (emphasis added) under §1311 of PPACA. However, the regs issued under Code Sec. 36B provide that the premium tax credit isn’t just limited to state Exchanges, but also includes federally-facilitated Exchanges. (Reg. § 1.36B-1(k))

The regs’ inclusion of federally-facilitated Exchanges was controversial from the beginning. The House Committee on Oversight and Government Reform held a hearing addressing the regs (Weekly Alert ¶  15  08/09/2012), and subsequently demanded various analysis and correspondence between IRS employees and the White House “to assist the Committee in understanding how IRS arrived” at its interpretation (see Weekly Alert ¶  14  08/30/2012 for the demand, and Weekly Alert ¶  20  11/01/2012 for Treasury’s response).

Judicial challenge. In Halbig v. Sebelius , a number of individuals and businesses filed a complaint in the U.S. District Court for the District of Columbia claiming that the Code Sec. 36B regs contradict the express text of the ACA and ignore limitations imposed by Congress on the availability of the credit. The complaint alleges that the credit financially injures certain individuals who would otherwise be exempt from the individual mandate penalty for failing to obtain insurance—in other words, that health insurance would be unaffordable to them, and thus they wouldn’t be penalized under the ACA for failing to get it, absent the credit. The complaint further alleges that the Code Sec. 36B regs’ expansion of the credit will also subject more employers to the employer mandate penalty, which is triggered by an employee’s eligibility for the Code Sec. 36B credit. At this time, a majority of states still haven’t set up State-run exchanges.

The plaintiffs filed a motion for a preliminary injunction against applying the Code Sec. 36B regs. The government filed a motion to dismiss the complaint.

Both motions denied. In a single-page order, the court denied the plaintiff’s motion for a preliminary injunction. In a separate order, the court also denied the government’s motion to dismiss and set out a number of subjects that the parties should address in their upcoming briefs.