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Benefits Notes Post

Pruitt v. Burwell Ruling Unlikely to have Major Impact on Employers in Near Term

By Sam Butler and Tom Dowling | October 1, 2014 in Health Care Reform

On Tuesday, September 30, federal Judge Ronald White of the Eastern District of Oklahoma ruled in Pruitt v. Burwell that the plain text of the Patient Protection and Affordable Care Act (“PPACA”) does not allow for the provision of subsidies to individuals purchasing health coverage through a federally-facilitated exchange. The court ruled that the Internal Revenue Service (“IRS”) rule allowing for the disbursement of subsidies to enrollees in all exchanges, not just those established by a state, was an abuse of discretion and invalid. The ruling has no immediate effect, however, as it is stayed pending an expected appeal from the federal government.

Judge White’s opinion follows two rulings, from different circuits, issued this past summer. In the case King v. Burwell, a three judge panel from the U.S. Court of Appeals for the Fourth Circuit unanimously held that the PPACA does allow for subsidies for policies purchased through federally facilitated exchanges. On the same day, a three judge panel for the U.S. Court of Appeals for the District of Columbia Circuit reached the opposite conclusion in a 2-to-1 ruling in the case Halbig v. Burwell, ruling that subsidies are only available through state-established exchanges.

On September 4, the D.C. Circuit announced that the entire court would rehear Halbig v. Burwell, with new arguments scheduled for December 17, 2014. Judges appointed by Democrats outnumber those appointed by Republicans on the D.C. Circuit, thus some commenters have suggested that the entire court will overrule the decision of the three judge panel.

In response to the Halbig and King decisions, the IRS released a statement saying that the rulings would not impact the availability of subsidies to individuals through both federal and state exchanges. Judge White’s new ruling is not anticipated to alter the IRS’s position.

It is unlikely that Judge White’s ruling will have any impact on the operation of the exchanges or PPACA implementation in the near term. The Pruitt decision will likely be appealed to the U.S. Courts of Appeals for the Tenth Circuit. Seven of the twelve active judges on the Tenth Circuit bench were appointed by Democrats, leading some pundits to opine that the appeals court will overturn Judge White’s ruling.

Judge White’s ruling also does not markedly increase the likelihood that the United States Supreme Court will hear a case challenging the provision of premium tax credits on federally facilitated exchanges. The Supreme Court generally takes cases when there is a split among the federal appeals courts. If the rulings proceed as expected, the Tenth, Fourth, and D.C. Circuits will likely uphold the provision of premium tax credits and no circuit split will exist. However, the Supreme Court can decide to hear a case even in the absence of a circuit split, and the plaintiffs in the King case have petitioned for Supreme Court review.

The bottom line for employers is that as challenges to the IRS rule allowing subsidies to enrollees on state and federal exchanges work their way through the courts, nothing is likely to change and employers should continue to implement strategies to comply with the Employer Shared Responsibility (“Play or Pay”) rules. The IRS is expected to continue to offer subsidies to individuals in all states, meaning the same triggers for the Employer Shared Responsibility penalties remain in place.