Obamacare Tax Credit Lawsuit Struck Down by D.C. District Court

By Jenny Tsay, Esq. on January 30, 2014 | Last updated on March 21, 2019

A lawsuit challenging the extension of Obamacare tax credits to federally run health insurance markets was struck down by the U.S. District Court for the District of Columbia.

In Halbig v. Sebelius, plaintiffs sued the Obama administration regarding an IRS rule that states that enrollees of the Affordable Care Act (ACA) in either state-operated or federally-run health insurance markets will be eligible for premium tax credits, The Washington Times reports. Plaintiffs argued that the law's language limits tax credits to health exchanges in state-operated markets only.

U.S. District Judge Paul L. Friedman disagreed and found that the rule does indeed apply to both state-run and federally-facilitated health exchanges.

State-Run or Federally-Facilitated Exchanges?

Predictably, there are lots of people disgruntled with ACA requirements and rules. From small business owners to those trying to figure out whether to join in, Obamacare's implementation raises a lot of questions.

Enter Halbig -- displeased Americans who feel that the IRS overstepped its authority by allowing federal-run exchanges to provide tax credits for the insured. They argue that the IRS isn't allowed to provide tax credits to residents of states that decided not to establish their own health insurance exchange, thus relying on the federal government to run the exchange. The plaintiffs interpreted the language in the ACA to only allow state-run exchanges to tap into the federal piggy bank and receive tax credits.

However, Judge Friedman basically told the plaintiffs to "talk to the hand" by opining that the plain text of the statute and legislative intent clearly show that Congress sought specifically to make premium tax credits available to both state-run and federally-facilitated exchanges. Simply put, there's no evidence that the House or the Senate considered making tax credits dependent on whether a state participated in the exchanges, so the IRS didn't overstep its authority.

All For One and One For All

Obamacare allows states to run their own health exchanges or gives them the option of letting the federal government take over. So far, only 14 states plus D.C. run their own health exchanges. If the plaintiffs had prevailed in Halbig, this would have been very problematic for the other 30 plus states that would then be prevented from getting federal assistance in purchasing insurance on the new exchanges, Politico suggests.

However, the plaintiffs aren't deterred -- they've just asked the D.C. Circuit Court for an expedited appeal following Judge Freidman's decision, The Washington Times reports.

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