BLAW 3201 Chapter : 01 Halbig Vs Sebelius
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
___________________________________
)
JACQUELINE HALBIG, et al., )
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Plaintiffs, )
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v. ) Civil Action No. 13-0623 (PLF)
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KATHLEEN SEBELIUS, )
U.S. Secretary of Health and Human )
Services, et al., )
)
Defendants. )
___________________________________ )
OPINION
On May 23, 2012, the Internal Revenue Service issued a final rule implementing
the premium tax credit provision of the Patient Protection and Affordable Care Act (the “ACA”
or “Act”). In its final rule, the IRS interpreted the ACA as authorizing the agency to grant tax
credits to certain individuals who purchase insurance on either a state-run health insurance
“Exchange” or a federally-facilitated “Exchange.” Plaintiffs contend that this interpretation is
contrary to the statute, which, they assert, authorizes tax credits only for individuals who
purchase insurance on state-run Exchanges. Plaintiffs therefore assert that the rule promulgated
by the IRS exceeds the agency’s statutory authority and is arbitrary, capricious, and contrary to
law, in violation of the Administrative Procedure Act.
This matter is now before the Court on the parties’ cross-motions for summary
judgment. The Court heard oral argument on the motions on December 3, 2013. After careful
consideration of the parties’ papers and attached exhibits, the Act and other relevant legal
authorities, the regulations promulgated by the IRS, and the oral arguments presented by counsel
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in open court, the Court will grant the defendants’ motion, deny the plaintiffs’ motion, and enter
judgment for the defendants.1
I. BACKGROUND
A. The Affordable Care Act
On March 23, 2010, Congress enacted the Patient Protection and Affordable Care
Act, Pub. L. No. 111-148, 124 Stat. 119 (2010), with the aim of increasing the number of
Americans covered by health insurance and decreasing the cost of health care. Nat’l Fed’n of
Indep. Bus. v. Sebelius, 132 S. Ct. 2566, 2580 (2012).2 Under the ACA, most Americans must
either obtain “minimum essential” health insurance coverage or pay a tax penalty imposed by the
Internal Revenue Service. 26 U.S.C. § 5000A; see Nat’l Fed’n of Indep. Bus. v. Sebelius, 132
S. Ct. at 2580. Uninsured individuals who might otherwise have difficulty obtaining health
1 The papers reviewed in connection with the pending motions include the
following: the complaint (“Compl.”) [Dkt. No. 1]; plaintiffs’ motion for summary judgment
(“Pls.’ SJ Mot.”) [Dkt. No. 17]; declaration of David Klemencic (“Klemencic Decl.”), attached
to plaintiffs’ opposition to defendants’ motion to dismiss [Dkt. No. 24-1]; declaration of Daniel
Kessler, J.D., Ph.D. (“Kessler Decl.”), attached to plaintiffs’ opposition to defendants’ motion to
dismiss [Dkt. No. 24-2]; defendants’ motion for summary judgment and opposition to plaintiffs’
summary judgment motion (“Defs.’ SJ Mot.”) [Dkt. No. 49]; third declaration of Donald B.
Moulds, Acting Assistant Secretary for Planning and Evaluation at the Department of Health and
Human Services (“Third Moulds Decl.”), attached to defendants’ motion for summary judgment
[Dkt. No. 49-2]; plaintiffs’ reply and opposition to defendants’ motion for summary judgment
(“Pls.’ SJ Opp.”) [Dkt. No. 57]; defendants’ reply (“Defs.’ SJ Reply”) [Dkt. No. 62]; Brief of
Amicus Curiae American Hospital Association [Dkt. No. 52]; Brief of Amicus Curiae Families
USA [Dkt. No. 54]; Brief of Amicus Curiae Commonwealth of Virginia [Dkt. No. 60]; Brief of
Amicus Curiae Jonathan H. Adler and Michael F. Cannon [Dkt. No. 61]; October 21, 2013
Transcript of Oral Argument on Motion for Preliminary Injunction and Motion to Dismiss (“Oct.
21, 2013 Tr.”) [Dkt. No. 64]; October 22, 2013 Transcript of Oral Ruling (“Oct. 22, 2013 Tr.”);
and December 3, 2013 Transcript of Oral Argument on Summary Judgment (“Dec. 3, 2013 Tr.”)
[Dkt. No. 65].
2 A week after the Patient Protection and Affordable Care Act was passed,
Congress amended the Act through the Health Care and Education Reconciliation Act of 2010,
Pub. L. 111-152, 124 Stat. 1029 (2010).
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insurance are provided certain tools to facilitate the purchase of such insurance. Specifically, the
law provides for the establishment of “Exchanges,” through which individuals can purchase
competitively-priced health insurance. See 42 U.S.C. §§ 18031, 18041. The Act also authorizes
a federal tax credit for many low- and middle-income individuals to offset the cost of insurance
purchased on these Exchanges. 26 U.S.C. § 36B. Large employers are expected to share the
costs of health insurance coverage for their full-time employees, and employers who do not
provide affordable health care may be subject to an “assessable payment” or tax. 26 U.S.C.
§ 4980H.
At issue in this case is whether the ACA allows the IRS to provide tax credits to
residents of states that declined to establish their own health insurance Exchanges, that is, in
states where the federal government has stepped in and is running the Exchange. Because this
dispute necessitates a careful examination of certain features of the ACA – in particular, the
Exchanges, the Section 36B tax credits, the minimum insurance requirement for individuals, and
the Section 4980H assessment imposed on some employers – these features are described in
more detail below.
1. The Exchanges
The ACA provides for the establishment of American Health Benefit Exchanges,
or “Exchanges,” to facilitate the purchase of health insurance by private individuals and small
businesses. See 42 U.S.C. § 18031(b)(1); 42 U.S.C. § 300gg-91(d)(21). The Department of
Health and Human Services (“HHS”) has described an Exchange as “a mechanism for
organizing the health insurance marketplace to help consumers and small businesses shop for
coverage in a way that permits easy comparison of available plan options based on price, benefits
and services, and quality.” Centers for Medicare & Medicaid Services, Initial Guidance to
