Affordable Care Act Litigation: The Next Round

On June 28, 2012, the Supreme Court upheld the constitutionality of the individual mandate in the Patient Protection and Affordable Care Act ("ACA"), while invalidating the ACA's conditioning of federal Medicaid funds on state acceptance of newly expanded Medicaid categories.1 The Court's decision in National Federation of Independent Businesses v. Sebelius ("NFIB") settled what opponents considered their most fundamental attack on the ACA.2 But a second wave of litigation challenging important aspects of the ACA is already underway, and new cases continue to be filed. The outcome of this next round of litigation may have profound effects on the ACA's implementation—and thus on important aspects of the health insurance and health care markets in the United States.

Tax Credits in Federally-Facilitated Health Insurance Exchanges

The most recent, and perhaps the most fundamental, new challenge to the ACA concerns the availability of subsidies to individuals who purchase health insurance through a health insurance exchange established by the federal government rather than by a state government. Heath insurance exchanges—one of the centerpieces of the ACA's effort to expand the population of those with health care coverage—operate as virtual marketplaces where individuals and businesses can purchase private health insurance.3 Individuals with incomes up to 400% of the federal poverty line who purchase insurance through an exchange are entitled to subsidies in the form of refundable "premium assistance" tax credits.4 The ACA provides that all States shall establish an exchange by January 1, 2014, and provides grants to States to encourage them to do so.5 But it also authorizes the federal government to create and operate exchanges in States that fail to meet that deadline.6 On May 18, 2012, the IRS published a final rule specifying that the tax credits will be available to all qualifying individuals who purchase insurance through any exchange, whether state-run or federally-facilitated.7 On September 19, 2012, the Attorney General of Oklahoma challenged the final rule, contending that the ACA authorizes tax credits only for state-run, not federal-facilitated, exchanges.8 Some estimates suggest that as many as half of the States will not create exchanges before the January 1, 2014 deadline.9 Thus, if Oklahoma were to prevail, individuals in those States would not be eligible for exchange tax credits, and likely millions fewer individuals would gain health insurance coverage than if the rule were upheld. The Oklahoma Attorney General's position rests principally on the authorizing language in the ACA, which refers to individuals "enrolled in [a qualified health plan] through an Exchange established by the State."10 Defenders of the final rule, by contrast, argue that a federally-facilitated exchange qualifies as an exchange "established by the State" for these purposes.11 They assert that the final rule is consistent with the ACA's structure, purpose, and legislative history.12 And they argue that, to the extent the statutory text is ambiguous, the IRS's interpretation is entitled to deference under the Chevron doctrine.13 Defenders of the federal government's position also assert that Oklahoma lacks standing to asserts its claim, and that its challenge is likely barred by the Tax Anti-Injunction Act.14

Contraceptive-Coverage Requirement

The most active litigation challenging the ACA targets its requirement that new, "non-grandfathered," group insurance plans provide certain contraceptive services at no cost to beneficiaries.15 The regulations implementing this provision, which became effective August 1, 2012, contain an exemption for certain religious employers who do not wish to provide contraceptive services to their employees.16 The regulations also provide a one-year "safe harbor" from enforcement for religiously affiliated institutions that object to the coverage requirement but do not qualify for the exemption.17 The U.S. Department of Health and Human Services ("HHS") has committed to amend the regulations before the end of the safe-harbor period to further accommodate religiously affiliated institutions.18 More than thirty lawsuits, however, have already been filed challenging the contraceptive-coverage requirement.19 Broadly, the plaintiffs claim that the contraceptive-coverage requirement violates the Religious Freedom Restoration Act ("RFRA"), which prohibits the federal government from "substantially burden[ing] a person's exercise of religion."20 They also claim that the provision violates the First Amendment's Free Exercise Clause, which protects an individual's right to religious freedom.21 In several of the cases, the government has argued that the plaintiffs lack standing to challenge the contraceptive-coverage requirement. It also has argued that the plaintiffs' claims are not ripe for judicial review because HHS has demonstrated its intent to amend the regulations to further accommodate religiously-affiliated institutions.22 District courts have dismissed three of the suits for lack of standing or ripeness.23 In O'Brien v. U.S. Department of Health and Human...