ACA Tax Credits/Employer Mandate Fines Undermined by One Federal Circuit Court but Upheld in Another – Justice Roberts: Are You Ready for ACA Round 2?

*By Patrick J. Hoban

On July 22, 2014, two federal courts of appeals issued conflicting opinions over whether the IRS may grant tax credits to individuals who reside in states with Affordable Care Act (“ACA”) health care Exchanges established and operated by the federal government.  See Halbig v. Burwell, No. 14-5018 (D.C. Cir. Jul. 22, 2014) (“Halbig”), King v. Burwell, No. 14-1158 (4th Cir. Jul. 22, 2014) (“King”). 

The specific language of the ACA makes tax credits available to qualified individuals to subsidize the purchase of health insurance through “an Exchange established by the State.”  This language seemingly limits tax credits to coverage obtained through a “state-established” Exchange and not an Exchange established by the Federal Government in a state that has elected not to establish an Exchange (i.e., Ohio).  However, in 2013, the IRS promulgated regulations making tax credits available to qualifying individuals who purchase health insurance through an Exchange established by a state or by the Federal Government.  In Halbig and King, individuals argued that the ACA’s clear language limits tax credits to individuals who obtain healthcare through state-established Exchanges and that the IRS regulations were unlawful.

In Halbig, the D.C. Circuit Court of Appeals agreed, found the ACA language clear, and concluded “established by the State” means what it plainly says.  Since a federally-established Exchange is not an “Exchange established by the State,” the ACA does not authorize tax credits for insurance purchased on federal Exchanges.  The court further held that the ACA’s broad policy goals (facilitating universal health care coverage at lower costs) do not alter this plain language.  However, one of the three judges in Halbig dissented and concluded that, read in context and considered in light of the ACA’s larger purpose, Exchanges “established by the State” included federally-established Exchanges

Within hours of Halbig’s release, the Fourth Circuit Court of Appeals held that the IRS regulation granting tax credits for coverage obtained through federally-established Exchanges was lawful.  In King, the Fourth Circuit determined that, when read in context, the ACA tax credit provisions were “ambiguous.”  Although the court recognized that “common sense” and “a literal reading” favored the individual’s argument, when considered in light of the textual ambiguity and ACA’s overall purpose, the Fourth Circuit concluded that the U.S. Congress, through the ACA, had delegated to the IRS the authority to determine whether tax credits are available on federal Exchanges.  Accordingly, the court concluded that the IRS made a permissible statutory interpretation and that the tax credit regulation was lawful

Should Halbig stand, it will have a monumental impact on the ACA’s future.  Specifically, the Employer Mandate, which fines applicable large employers who do not offer group coverage to full-time employees and their dependents or offers “unaffordable” coverage or coverage that does not provide “minimum value,” will be unenforceable in the 34 states (including Ohio) in which federally-established Exchanges operate.  Because ACA Employer Mandate fines are conditioned on one full-time employee’s eligibility for ACA tax credits, without tax credits there can be no Employer Mandate fines.

In addition to the enormous consequences for the operation of the Employer Mandate, if Halbig is upheld, many fewer individuals will have to comply with the ACA’s Individual Mandate, which requires people to maintain “minimum essential coverage” or pay a “tax.”  The Individual Mandate does not apply to individuals for whom the annual cost of health care coverage, less any tax credits, exceeds eight percent of their projected household income.  Thus, absent ACA tax credits, more individuals will be exempted from Individual Mandate taxes if they do not obtain coverage.  As a consequence, experts predict that the covered pools in the Exchanges will include individuals who make greater use of covered benefits, driving up the cost of coverage under Exchanges.

The U.S. Justice Department announced that it will seek en banc review of Halbig before the full D.C. Circuit Court of Appeals (which has a 7 to 4 Democrat-president appointed majority).  The D.C. Circuit stayed the decision in Halbig pending appeal and the IRS will continue to grant tax credits to individuals obtaining coverage through federally-established Exchanges.  At present, there is no word on whether Appellants in King will appeal.  However, given the starkly conflicting decisions and the enormous impact of a decision denying tax credits for coverage in federally-established Exchanges, the U. S. Supreme Court likely will decide whether the IRS may grant tax credits to individuals through federal Exchanges, and the fate of the Employer Mandate in 34 states including Ohio.

Zashin & Rich Co., L.P.A. will continue to track these cases and, as it has since the ACA was introduced in 2009, provide regular updates so employers have the information needed to avoid unplanned liability under the ACA.

*Patrick J. Hoban, an OSBA Certified Specialist in Labor and Employment Law, practices in all areas of private and public sector labor relations.  Pat has advised employers on the ACA since its introduction in 2009 and has counseled employers on ACA compliance strategies since the statute’s enactment in March 2010.  For more information about these court decisions, the ACA, or labor & employment law, please contact Pat (pjh@zrlaw.com) at 216.696.4441.

New Ohio Unemployment Benefit Requirements Making an Impact? Not Yet. Enforcement Delayed

By Andrew J. Cleves*

The Ohio Department of Jobs and Family Services (“ODJFS”) recently announced it will delay enforcement of new unemployment benefit regulations.  In 2013, the Ohio legislature amended Ohio Revised Code § 4141.29, which details the steps Ohioans must take to maintain unemployment benefits.  The new rules, which took effect on April 11, 2014, established a series of deadlines claimants must meet to maintain their unemployment benefits.

The new unemployment benefit rules require claimants to take a more active role in obtaining a job.  Specifically, claimants must:

• Upon initial application for unemployment benefits, register with OhioMeansJobs.com, a job matching system.  With this registration information, ODJFS posts a basic resume on OhioMeansJobs.com for claimants;
• Within eight weeks of their application for unemployment benefits, create or upload a new resume to their OhioMeansJobs.com account.  Claimants must maintain their resumes in an active, public, and searchable form so potential employers can find and review the resumes;
• Upon receipt of benefits for 14 weeks, complete core assessment tests for mathematics, reading, and locating information, designed to “measure real world skills;” and
• Upon receipt of benefits for 20 weeks, complete a career profile assessment, designed to match interests with career fields.

During this time, OhioMeansJobs.com sends claimants weekly notifications of potential job openings and claimants must keep a record of their job search efforts.  If claimants fail to meet any deadline, ODJFS suspends their unemployment compensation benefits until they complete the missed step(s).

Under limited circumstances, unemployment claimants are exempt from the above-mentioned requirements: individuals laid off and scheduled to return to work within specific timeframes; individuals attending certain training courses or programs; qualifying students; and union members whose union refers them to jobs.

Unemployment claimants who applied on April 11, 2014 hit the eight-week deadline to create or upload a new resume on June 6, 2014.  However, the OhioMeansJobs.com website had glitches, which prevented claimants from doing so.  As such, ODJFS has delayed enforcement of the new requirements until the website works properly.  So far, ODJFS has fixed some of the glitches and expects to begin enforcing the new requirements soon.  If these new requirements reduce the unemployment rolls as hoped, they will also reduce the unemployment contributions employers must make.

*Andrew J. Cleves practices in all areas of labor and employment law. If you have questions about the unemployment compensation process, please contact Andrew(ajc@zrlaw.com) at 216.696.4441.