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One of President Obama’s key initiatives, the Patient Protection and Affordable Care Act (ACA), has taken a beating since the president signed it into law on March 23, 2010.



The ACA survived its most important test to-date in the United States Supreme Court case National Federation of Independent Business v. Sebelius. The key holding was that the individual mandate provision, which requires most Americans to obtain health insurance or pay a penalty, was a valid exercise of Congress’ power under the U.S. Constitution’s taxing clause, from which Congress derives all of its power to “lay and collect” taxes.

A more recent – and more successful – ACA challenge in a federal trial court in Oklahoma, Oklahoma v. Burwell, addressed the question of whether lower income workers who purchased their healthcare coverage on federally run exchanges could take advantage of the tax subsidies permitted by the law.


As the court explained, the ACA established the exchanges as a “means to organize the insurance marketplace to help individuals shop for coverage and compare available plans based on price, benefits and services.” Section 1311(b)(1) of the ACA provides for the establishment of exchanges as follows:

Each State shall…establish an American Health Benefit Exchange (referred to in this title as an ‘‘Exchange’’) for the State that facilitates the purchase of qualified health plans...

But an Internal Revenue Service regulation that addresses Eligibility for Premium Tax Credit, known as the IRS Rule, extends premium payment assistance to anyone who is enrolled in one or more qualified health plans through “an Exchange.” And the Department of Health and Human Services utilizes the same definition of an “exchange” as the one in the Code of Federal Regulations: “any exchange, regardless of whether the exchange is established by a State or the Health and Human Services.”

Thus, the crux of the problem before the federal trial court was whether the word “exchange” means state and federal established exchanges, as the IRS Rule suggests, or only state established exchanges, as set forth in the ACA itself.

The court’s analysis and determination

The court’s holding came down to statutory interpretation, its examination of the language in the ACA. It opined that the ACA unambiguously provided for states to set up exchanges. The court rejected what the government asserted was Congress’ intent that the word “exchange” would encompass both state and federal marketplaces, noting that it – the court – did not have the authority to rewrite a poorly written piece of legislation.

The court buttressed its rationale by citing previous case law proclaiming that tax credits are a matter of legislative grace, and are only allowed as clearly provided for by statute, which is to be narrowly construed.


The Obama administration is likely to appeal this decision, in which case the Tenth Circuit Court of Appeals would hear it. Given the fact that there have been several other cases in the federal courts considering the same or similar questions, it is quite likely that eventually the Supreme Court will have the final say.