On July 22, 2014 the United States Court of Appeals for the Fourth Circuit affirmed the District Court decision to uphold the IRS rule authorizing tax credits to individuals who purchase health insurance on both state-run and federally-facilitated health benefit exchanges.  Hours before the Fourth Circuit Court affirmed the District Court ruling, the United States Court of Appeals for the District of Columbia Circuit ruled in the reverse; holding that federally-facilitated health benefit exchanges established in the absence of state run exchanges are ineligible for IRS tax credits and financial aid pursuant to the Patient Protection and Affordable Care Act (PPACA). 
In March of 2010, Congress passed PPACA to, “increase the number of Americans covered by health insurance and decrease the cost of health care.”  PPACA mandates Americans to maintain minimum essential health insurance coverage or face a tax penalty imposed by the Internal Revenue Service (IRS); PPACA includes an exemption to the tax penalty for low-income individuals that would pay more than 8% of their projected annual income for health insurance.  PPACA provides for the establishment of health benefit “exchanges” to be established in each of the fifty states to help Americans begin to purchase more affordable and competitive health care coverage.  Section 1311 of PPACA legislates, “[e]ach state shall, not later than January 1, 2014, establish an American Health Benefit Exchange,” and, in the absence of a state established exchange, Section 1321(c) provides that if a state elects to establish an exchange or cannot establish an exchange, the Secretary of Health and Human Services, “shall...establish and operate such an exchange within the State.”  Currently, only sixteen states, and the District of Columbia have elected to establish state health benefit exchanges, leaving remaining states to operate under federally-facilitated health benefit exchanges. 
To assist with providing affordable healthcare, the IRS regulated Section 36B, which stated that individuals who purchased insurance on state-run or federally-facilitated exchanges (established by the HSS Secretary after January 1, 2014) would be able to receive tax credits for enrolling in, “one or more qualified health plans through an Exchange,” regardless of how the exchange was operated (state-run or federally-facilitated).  The purpose of the tax credits is to reduce the number of individuals who would be exempt from purchasing minimum essential coverage, and increase the number of individuals who must purchase insurance or face a tax penalty. . The language of PPACA specifies that tax credits can be made available as a form of a subsidy to individuals who purchase health insurance through an exchange established and operated by one of the fifty states or the District of Columbia.  The IRS interpreted this language broadly to include tax credits for insurance purchasers on both state-run and federally-facilitated health insurance exchanges. .
The plaintiffs in King v. Halbig reside in Virginia, a state that elected not to establish a state-run exchange, and oting instead for a federally-facilitated exchange.  In this case, without the tax credits plaintiffs would be exempt from purchasing mandated health insurance, but because of the reduced costs applicable to plaintiffs they are mandated to purchase minimum essential coverage.  The plaintiffs alleged that the IRS rule exceeded its authority, is contrary to the Administrative Procedure Act, and is over-inclusive with regards to its' interpretation of PPACA language.  The plaintiffs contended that if the IRS rule is interpreted in light of PPACA statutory language, the tax credit for health insurance purchased on a federally-facilitated exchange would always be zero because the premium credit is only applicable for insurance purchased on a state-run exchange, and the federal government is not a state. 
Because the plaintiffs were challenging an agency’s construction of a statute, the Court applied the two-step analytical framework established by Chevron U.S.A., Inc., v. Natural Re. Def. Council, Inc., (1) a court will look to the plain meaning of the statute to determine if the regulations responds to it, and if the regulation responds to the statute it is the end of the inquiry and the regulations stands, or (2) if the statute is susceptible to multiple interpretations the court will defer to the agency’s interpretation so long as it is based on a permissible construction of the statute. 
The Court reasoned that within the definitions of an American Health Benefit Exchange, PPACA supports the notion that all exchanges should be considered as if they were established by a state because the federally-facilitated exchanges are established in lieu of a state electing not to establish a state-run exchange.  The Court concluded that even though a literal reading of PPACA would not allow for tax credits to be given to insurance purchased from a federally-facilitated exchange, Congress should be given more deference because the state opted out of establishing an exchange, leaving the federal government to act on the behalf of the state. 
Using Chevron, the Court reasoned because the statute is ambiguous and subject to at least two different interpretations. The Court was unable to resolve the case in either party’s favor, and proceeded to analyze the second step of Chevron asking whether the agency’s action is based on a permissible construction of the statute.  The Court concluded that the IRS regulation advances one of the primary purposes of PPACA in providing more affordable healthcare to Americans.  Because many states chose not to create a state-run exchange, the IRS was able to implement an economic framework to help support the mission of PPACA and provide tax credits for insurance purchased on a federally-facilitated exchange, rather than force Congress to impose a tax penalty on Americans. 
Conversely, in Halbig v. Burwell, the Court held PPACA unambiguously limits section 36B to only allow a subsidy if the insurance was purchased through a state established exchange.  The Court reasoned that the language of section 36B only authorizes tax credits for coverage purchased on an exchange established by the state under section 1311 of PPACA and did not want to broaden the language to become over-inclusive.  The Court stated that the definition of a “qualified individual” in PPACA does not extend to provide the tax credit to individuals who purchase insurance on a federally-established exchange.  The Court opined that the absence of a qualified individual in federally-established exchanges means the federal exchanges do not have customers and, therefore, cannot provide tax credits.  Ultimately, the Court assumed the plain meaning of the text and upheld a strict interpretation of the statutory language.  Lastly, the Court communicated its awareness of individuals who received tax credits from purchasing insurance in a state with a federally-established exchange, stating that such individuals would now lose the tax credit, and it would be up to the capability/desire of the state to establish an exchange. 
Concerning Illinois, the appellate court rulings will have little effect unless the United States Court of Appeals for the Seventh Circuit rules that individuals who purchase health insurance on a federally-facilitated exchange are ineligible for tax credits. The nationwide effect of this ruling is dependent upon following litigation in the remaining United States Circuit Courts; however, the District of Columbia Circuit ruling will begin to affect individuals who purchased federally-facilitated insurance on an exchange in that jurisdiction. We expect great discussion and litigation on this issue in the coming months.
 ACA Subsidies for Plan Buyers on U.S. Exchange Upheld by Fourth Circuit. BLOOMBERG BNA (July 22, 2014); King v. Halbig, 2014 U.S. App. LEXIS 13902, *5 (4th Cir. 2014).
 King, 2014 U.S. App. LEXIS at *5; Halbig v. Burwell, 2014 U.S. App. LEXIS 13880, *5 (D.C. Cir. 2014).
 King, 2014 U.S. App. LEXIS at *6.
 Id. at *8.
 Id. at *6-7; The Patient Protection and Affordable Care Act §§ 1311, 1321(c) (2010).
 King, 2014 U.S. App. LEXIS at *7.
 Id. at *9.
 Halbig v. Burwell, 2014 U.S. App. LEXIS 13880, *5 (2014).
 Id.; 26 U.S.C. § 36B.
 King, 2014 U.S. App. LEXIS at *10.
 Id. at *11.
 Id.; 5 U.S.C. § 706. The Court reasoned that the plaintiffs have standing to sue because they are facing a concrete economic injury that is fairly traceable to the IRS rule. The IRS rule is forcing the plaintiffs to purchase health insurance they would otherwise not be mandated to purchase. The tax credits, although a benefit to the plaintiffs still impose an economic burden on the plaintiffs. King, 2014 U.S. App. LEXIS *13; Halbig, 2014 U.S. App. LEXIS *14.
 King, 2014 U.S. App. LEXIS at *20.
 Chevron U.S.A., Inc., v. Natural Res. Def. Council, Inc., 467 U.S. 837, 843 (1984).
 Id. at *22.
 Id. at *22-23.
 Id. at *32.
 Id. at *38.
 Halbig, 2014 U.S. App. LEXIS at *6.
 Id. at *37.
 Id. at *38.
 Id. at *44-47.
 Id. at *62.