Federal Appeals Court Deals Blow to Obamacare

By Sandhya Somashekhar, The Washington Post

22 July 14

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federal appeals court panel in the District struck down a major part of the 2010 health-care law Tuesday, ruling that the tax subsidies that are central to the program may not be provided in 36 states.

In the second significant legal blow to the law this summer, a three-judge panel of the D.C. Circuit Court of Appeals ruled that the Affordable Care Act barred the government from giving subsidies to people in states that decided not to set up their own health insurance marketplaces and are relying on the federal exchange instead.

The ruling affects 27 states, most with Republican leaders who oppose the law,and another nine states that partially opted out.

The government immediately announced it was seeking an “en banc” hearing, requesting that the case be heard before the entire appeals court. The question ultimately may end up at the Supreme Court. But if subsidies for half the states are barred, it represents a potentially crippling blow to the health-care law, which relies on the subsidies to make insurance affordable for millions of low- and middle-income Americans.

“We feel very strong about the sound legal reasoning of the argument that the administration is making,” White House spokesman Josh Earnest said. “... there’s a clear, commonsense case to be made here which is that intent of Congress was to be sure that every eligible American who applied for tax credits to make their health insurance more affordable would have access to those tax credits whether or not the marketplace was operated by federal officials or state officials.”

If the decision is upheld, it would be more damaging to the law than last month’s Supreme Court decision on contraceptives. In that case, the high court said certain private companies with religious objections could gain an exemption from the federal rule that company health insurance plans must cover birth control, sterilization and other measures.

The subsidies case strikes more directly at the law’s heart. In his dissent, Judge Harry T. Edwards, an appointee of President Carter, called the case a “not-so-veiled attempt to gut the Patient Protection and Affordable Care Act.”

The ruling also has ramifications for the rule that took effect this year requiring most Americans to carry health insurance or pay a fine. But the penalty does not apply to people for whom the cheapest available coverage on the exchange, minus any subsidies, would exceed eight percent of their projected income for the year.

Without the subsidies, a swath of people may no longer be able to afford coverage and may therefore be liable for the penalty for failing to carry insurance. The penalty starts at $95 or 1 percent of income.

Removing subsidies from insurance customers living in states relying on the federal insurance marketplace would have a profound effect on the price they must pay for coverage, according to recent federal data. More than nine in 10 people in those states bought health plans with the help of the tax credits that the court has just knocked down. The average tax credit to those people for coverage this year is $276, lowering their premium from an average price of $345 per month to an average of $69.

The subsidies are in many cases sizeable, sharply reducing the cost of coverage. In Wyoming, for example, the average consumer who bought a mid-grade plan on the federal marketplace is receiving a subsidy of around $444 per month, cutting the monthly payments to $99, according to federal figures.

About 5.4 million people signed up for health insurance on the federal marketplace through the spring, the government says. Of them, about 87 percent received subsidies.

The plaintiffs in the suit, Halbig v. Burwell, argued that Congress intended for the subsidies to go only to people in states that set up their own insurance exchanges. They cited a section of the law that said the subsidies would be available to those “enrolled through an Exchange established by the State.”

Lower courts have sided with the government, which contended that Congress meant for the subsidies to be available in all states, including those that left the job of setting up a marketplace to the federal government. It said the meaning was obvious from the law’s context.

But in his opinion Tuesday, D.C. Circuit Judge Thomas B. Griffith wrote that that interpretation is wrong. While the federal government may establish an exchange on behalf of a state, “it does not in fact stand in the state’s shoes when doing so,” wrote Griffith.

There are three other cases moving through the courts using the same rationale.

Supporters of the health-care law predicted that the ruling will not stand as it continues to make its way through the court system. “Today’s decision represents the high-water mark for Affordable Care Act opponents, but the water will recede very quickly,” said Ron Pollack, executive director of the consumer health organization Families USA.

But congressional Republicans quickly praised the ruling, seizing it as their latest tool with which to lash the president over the health-care law. “Today’s decision rightly holds the Obama administration accountable to the law. The plain text of Obamacare authorizes subsidies only through state exchanges, not the federal exchange,” said Sen. Orrin Hatch (R-Utah), ranking member of the Senate Finance Committee. “The court considered the Administration’s justifications and came to an unmistakable conclusion: President Obama overreached.”