Taxes Blog

Finance Blogs » Taxes Blog » Court OKs Obamacare tax credit

Court OKs Obamacare tax credit

By Kay Bell ·
Thursday, January 16, 2014
Posted: 1 pm ET

While most folks were watching the latest enrollment numbers for the Affordable Care Act, opponents of the national health care reform law were continuing their fight in the federal court system.

This particular attack on Obamacare, as it is popularly known, was once again based on taxes. And now that legal strategy is over.

A federal judge on Jan. 15 rejected an effort to disallow tax credits for individuals who get medical coverage in the 36 states that rely on federal health care exchanges to sign up people for insurance.

State vs. federal exchange insurance

The plaintiffs in Halbig v. Sebelius had argued that Congress had intended for the law to provide tax subsidies only for individuals who bought health insurance through their own states' exchanges.

The subsidy, known as the Premium Tax Credit, will be figured on individuals' tax returns beginning with 2014 filings during 2015, to help reimburse some of the cost of buying their own health insurance.

This tax break, Halbig plaintiffs argued, was an incentive for states to assume responsibility for and the burden of creating and maintaining Obamacare marketplaces.

However, only 14 states have set up health care exchanges.

The Obamacare opponents had argued that the Internal Revenue Service overstepped its legal authority by allowing the same tax credits to everyone, regardless of whether they bought their health coverage on a state or federally run exchange.

D.C. District Court Judge Paul Friedman rejected that argument. In his 39-page ruling, Friedman affirmed that Congress intended to provide tax subsidies to any exchange, whether run by a state or the federal government.

Tax subsidies for all purchasers

This case was considered by opponents of Obamacare as the last best chance to legally bury the health care law they so hate.

To them, the legislative language was clear that people who live in states where ACA-mandated insurance is available through a federal exchange instead of a state exchange are not eligible for the tax credit.

ACA supporters, however, said the lawsuit was just legal straw-grasping. Timothy Jost, a law professor at Washington and Lee in Lexington, Va., wrote in 2011 that the ACA "requests the states to establish" health care insurance exchanges and sets out the duties of the exchanges. The law also, noted Jost, "provides that if a state elects not to establish an exchange or fails to do so, HHS (Health and Human Services) must 'establish and operate' an exchange in such a state and 'take such actions as are necessary to implement' the other requirements" of the health care law.

Three years after Jost's analysis, Judge Friedman found essentially the same thing.

Congressional intent, too

Friedman also noted legislative intent in his opinion. "The relevant legislative history does not demonstrate that Congress intended to limit the premium tax credit to State Exchanges," he wrote.

"The problem that plaintiffs confront in pressing this argument (that Congress intended tax credits only for state exchanges) is that there is simply no evidence in the statute itself or in the legislative history of any intent by Congress to ensure that states established their own Exchanges," wrote Friedman later in his decision. "And when counsel for plaintiffs was asked about this at oral argument, he could point to none."

Slam. Dunk.

Once again a tax provision is key to a legal challenge to Obamacare.

Just as happened in 2010 when the U.S. Supreme Court upheld the individual mandate tax in declaring the health care reform law constitutional, the legality of the insurance exchange tax credit now affirms Obamacare.

More tax info from Bankrate

Want the latest news on taxes, tax reform prospects, filing deadlines, Internal Revenue Service alerts and tax-saving tips? Subscribe to Bankrate's free Daily Tax Tip newsletter, our Weekly Tax Tip newsletter or, if you're a true tax geek, both!

You also can follow me on Twitter: @taxtweet.

Veteran contributing editor Kay Bell is the author of the book "The Truth About Paying Fewer Taxes" and co-author of the e-book "Future Millionaires' Guidebook."

Bankrate wants to hear from you and encourages comments. We ask that you stay on topic, respect other people's opinions, and avoid profanity, offensive statements, and illegal content. Please keep in mind that we reserve the right to (but are not obligated to) edit or delete your comments. Please avoid posting private or confidential information, and also keep in mind that anything you post may be disclosed, published, transmitted or reused.

By submitting a post, you agree to be bound by Bankrate's terms of use. Please refer to Bankrate's privacy policy for more information regarding Bankrate's privacy practices.
Bob johnson
July 27, 2014 at 7:06 am

Why in the world if you are a Muslim you don't have to have obamacare,and why if it is good for the people why isn't it good for our senators and congressman.

Sue Schwarberg
January 20, 2014 at 7:20 am

Can someone please explain to me what business is it of Obama or the IRS as to whether we have health insurance or not and why should it be reported on our tax returns? There are a lot of people in this world that do not have file tax returns, so how is Obama and the IRS going to find out if they have health insurance or not. IN PLAIN ENGLISH IT IS NONE OF THERE BUSINESS. If the company you work for does not provide health insurance and you can't afford to pay for it on your own, then that is the business of the individual not the government. Is Obama or IRS going to pay for all these people who don't have heath insurance? I think not.

January 18, 2014 at 11:13 am

The math just does not add up in this case. If you have been living without insurance and you are young and healthy, do not bother with the ACA. Add up the premiums and the deductibles, and you will pay over 6000.00 before youe see any financial benefit. True, you are taking a risk by not insuring your self, but you have probably been taking that risk all along. If you qualify for free coverage or subsidies would take care of most of your premiums, by all means get insurance. However, for those who do not qualify, stay as far away as you can. The Obama administration and the insurance companies have stacked the deck against you. This was a scam from the start. Save your money for something you really need like food or rent/mortgage.

deann holub
January 16, 2014 at 8:01 pm

Start thinking of someone else besides yourselves. So tired of your bullies on the play ground attitude. If and when we ever have a republican President I hope they get the same treatment of hate and vengeance your party has been spueing. Veterans served this country Honorably. POLITICIANS SERVE THEMSELVES

Glenda Green
January 16, 2014 at 7:33 pm



Everyone has come from somewhere on this planet, it is not a choice as humans we have. Stop the madness, OBAMA has no more POWER than all the BIG GUYS in CONGRESS WILL LET HIM HAVE and they have been there a lot longer than him, seen more than him since their existence in CONGRESS,....... NOT TO WORRY.. we can't do anything about it. This is his last term. SAVE YOUR STRENGTH for something else much worse than this that is coming in the future.... READ A BOOK CALLED THE "BIBLE" nuff said.

Glenda Green
January 16, 2014 at 7:25 pm




WIll Crowther
January 16, 2014 at 6:15 pm

ROFLMAO ! So, our 52 year old President Obama was born in the Republic of Kenya, which came into existance 50 year ago, eh? What flavor is that Kool Aid?

Ann Chambers
January 16, 2014 at 5:35 pm

I have always supported our president whether democrat or republican. He is my president. Thank God for the affordable health care provision. My own son, had insurance cancelled and could not acquire new insurance except through the affordable health care. He is a self starter and has always provided for himself and his family. He is only one of many. I am glad I do not have to search for a provider. Many are not as fortunate. Love your neighbor as yourself. One of your loved ones could be affected.

Ron Paynter
January 16, 2014 at 4:11 pm

And once again we have a judge that is obviously an Obama supporter. Just another case of Democrat politics coming into play. Makes you really wonder about the justice meted out by these "judges" who are paying homage to the SOB that claims to be an American citizen,who in 1994 made a video claiming "I am NOT an American citizen" and also said "I was born in Kenya".Why else is he suppressing all his records. He doesn't want the public to know the real TRUTH about his birth and questionable academic records. A total disgrace,and unbelievable that approx. 43 % of Americans approve his policies and his administration. There's more than 1 born every minute,suckers that is.