Did Courts Just Gut Obamacare? There's More to This Story Than You Think

The right-wing war on Obamacare reached a new plateau Tuesday, with two different federal appeals courts issuing opposing rulings—one killing and one upholding the billions of dollars in subsidies that lower the cost of health insurance that 4.5 million people bought on federal government websites in 36 states.

The legal roller coaster began with a 2-1 ruling by a U.S. District Court of Appeals panel in Washington, D.C.. That panel, dominated by conservative judges, held that the subsidies—which are paid by the federal government to insurers to make the policies more affordable—can be granted only to those people who bought insurance in state-run exchanges or in the District of Columbia, but not through the federal government’s HealthCare.gov.

“Section 36B plainly makes subsidies available in the Exchanges established by states,” wrote Senior Circuit Judge Raymond Randolph for the majority. “At least until states that wish to can set up their own Exchanges, our ruling will likely have significant consequences both for millions of individuals receiving tax credits through federal Exchanges and for health insurance markets more broadly.”

But then several hours later, another federal appeals court panel in Virginia reached the opposite conclusion, and unanimously upheld the same provisions in the health law that allows the federal government to issue the insurance subsidies.

“Having examined the plain language and context of the most relevant statutory sections, the context and structure of related provisions, and the legislative history of the Act, we are unable to say definitively that Congress limited the premium tax credits to individuals living in states with state-run Exchanges,” Judge Roger Gregory wrote. “Simply put, the statute is ambiguous and subject to at least two different interpretations.”

That ambiguity in the legal fine print of the Affordable Care Act is what has allowed anti-Obamacare activists to pursue this strategy to try to upend the law. The federal government runs these exchanges in states where Republicans have refused to implement the law, or where state-run exchanges failed to offer the services under the health reform law. By 2016, more than $35 billion in Obamacare subsidies were slated to make health care more affordable nationwide.

The competing appeals court rulings mean that the issue of federal subsidies will go to the next rung in the judicial ladder—an appeal before all the sitting judges, not a three-judge panel, on either ot both of the Appeals Courts. The White House said that it expected the negative ruling from the Washington-based Court and would appeal in that venue. This is not surprising because legal observers noted that some of the judges who heard the case in Washington were overtly hostile to the law in earlier proceedings.    

“The subsection of the Affordable Care Act dealing with computing the amount of the premium tax credits that make insurance affordable to lower- and middle-income Americans says that those credits should go to individuals enrolled ‘through an exchange established by the state,’” said Timothy Jost, a Washington and Lee School of Law professor, at Balkinization blog, explaining the legal backdrop and starting line of the anti-Obamacare suits.

“But two thirds of the states are not operating their own health insurance exchanges, and are rather served by the federally facilitated exchange. In 2012, the IRS issued a rule authorizing the federal exchange to issue tax credits,” he continued. “ACA opponents… argue it is illegal.”

Until Tuesday, lower federal courts that have upheld the IRS interpretation of the provision were correct. Jost noted that conservatives on the Washington-based Appeals Court panel were openly hostile in hearings last winter. “The case was argued on March 25, 2014 to a three-judge panel consisting of Judges A. Raymond Randolph, Harry Edwards, and Thomas Griffith,” he wrote. “Almost from the moment the argument began, Judge Randolph expressed his profound dislike of the Affordable Care Act. He also demonstrated a profound misunderstanding of the history of the statute, and of the statute itself.”

Jost said that court’s conservative judges misread the legislative history of the law and some sloppy legislative drafting—less precise rather than more precise language—to create a justification for blocking the federal subsidies. Tuesday’s other federal appeals court ruling, upholding the subsidies, highlighted those same legal ambiguities but reached the opposite conclusion.

“One hopes that by the time the D.C. Circuit announces a decision in this case, the judges will have reread the briefs and supporting record and have corrected any erroneous first impressions,” Jost wrote late last week. “This case is too important to be decided on wrong information… A decision for the plaintiffs could deprive residents of 34 states of $36 billion in tax credits by 2016 and could cause the non-group market to collapse in those states. The ensuing disruption of the healthcare system will bring financial ruin to many families and, ultimately, will cost lives. The courts have to get this right.”

Unfortunately, one federal court did not get it right, as Jost put it. But it will not be the final word on this case and Obamacare subsidies. Shortly after the ruling was released, the Obama administration said it would ask all of the judges on the Washington Appeals Court to review the ruling. And then the federal appeals court in Richmond issued its ruling in the administration’s favor, underscoring that there is firm basis for the Affordable Care Act's subsidies to continue.

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