Michiganders could lose federal tax credits for Obamacare

Jul 22, 2014

A federal court ruling today could affect tens of thousands of Michiganders who got health insurance through Obamacare.

  A three-judge panel in Washington ruled 2-1 that the law, as written, only allows insurance subsidies in states that have set up their own exchanges. That invalidated an Internal Revenue Service regulation that allowed subsidies in all 50 states. (Associated Press)
A three-judge panel in Washington ruled 2-1 that the law, as written, only allows insurance subsidies in states that have set up their own exchanges. That invalidated an Internal Revenue Service regulation that allowed subsidies in all 50 states. (Associated Press)
Credit Steve Carmody / Michigan Radio

More than 237,000 of the 272,000 Michiganders who signed up for Obamacare selected a plan through the marketplace with federal financial assistance.  The tax credits helped subsidize health insurance payments for low- and moderate-income people.

But a federal appeals court panel in Washington D.C. ruled those tax credits are illegal in the 36 states, including Michigan, that use a federally run insurance marketplace.   

When the Affordable Care Act was drafted, it included a provision that people using state-run marketplaces would be eligible for federal tax credits. 

Today, a three-judge panel ruled, 2 to 1, that the IRS does not have the legal authority to grant the tax credits to people accessing federal exchanges.

Nicholas Bagley is an assistant professor at the School of Law at the University of Michigan.  He previously was a law clerk in the D.C. appeals court that issued today’s ruling.  He was also a law clerk for former U.S. Supreme Court Associate Justice John Paul Stevens. Bagley is an expert on health care law.  

He says the ruling only affects states with federally run Obamacare insurance exchanges, like Michigan.     

“Michigan legislators declined to establish the exchange, largely because they didn’t want to be seen as participating in Obamacare,” says Bagley. “And because of that decision, tax credits for individuals here in the state are now threatened.”

The Obama administration is expected to appeal today’s decision to the full Appeals Court.

In a separate decision, the Fourth Circuit U.S. Court of Appeals unanimously struck down a challenge to the subsidies, regardless of whether the exchanges are run by the states or the federal goverment.  

Bagley expects the issue will still be unresolved when Michiganders sign up for the next round of Obamacare late this fall.

“We’ll know whether the (D.C.) panel decision has been vacated before people sign up … but we won’t know how the full court will rule till afterward,” says Bagley.

The potential loss of a federal tax credit is just the latest potential blow to people planning to use Obamacare to get health insurance coverage. 

Earlier this summer, health insurance companies submitted their proposed plans for next year’s ACA marketplace. Some are proposing double-digit price increases. Blue Cross/Blue Shield proposed price increases of between 9% and 10% for next year. Most of the quarter-million Michiganders who opted for Obamacare this year chose plans offered by BCBS.   

Michigan Congresswoman Candice Miller issued a statement praising the appeals court ruling:

“Today’s ruling is further proof that this legislation, which was jammed through the legislative process, falsely advertised lower costs and increased access to care for millions of Americans. That’s why House Republicans have voted over 50 times to repeal – either in part or entirely – the law, and we will continue to push to repeal it and replace it with commonsense reforms.” 

The Michigan League for Public Policy also issued a statement on the ruling:

“When the full D.C. Court of Appeals reviews this case, the League is confident the court will recognize, just as multiple other courts have ruled, that the clear intent of Congress was that all Marketplace enrollees receive the subsidies for which they qualify."