ObamaCare subsidies in jeopardy

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A pillar of ObamaCare was put in jeopardy Tuesday as two appeals courts split on whether the law’s premium subsidies are legal in 36 states.

In the first ruling, the D.C. Circuit Court of Appeals said the Affordable Care Act (ACA) does not permit the IRS to distribute premium subsidies on exchanges established by the federal government.

Hours later, the 4th Circuit Court of Appeals came to the opposite conclusion, ruling that the IRS in fact has the authority to issue the subsidies on federally run exchanges because of ambiguity in the law.

The contradictory rulings thrust ObamaCare back into the headlines and raised the possibility of another Supreme Court showdown between the Obama administration and opponents of the new federal healthcare system.

If the divide in the circuit court persists, experts said the case has a good chance of being heard by the high court in 2016, if not earlier. Conservatives are hoping for that outcome, believing their arguments would get a friendly hearing from several of the justices.

Complicating matters further, similar challenges to the healthcare subsidies could eventually be heard at courts in the 10th and 7th circuits.

Still, a Supreme Court review is not inevitable.

The government said Tuesday it would appeal the first decision en banc to the full D.C. Circuit Court, where seven of the 11 judges are Democratic appointees. If the administration wins that appeal, as expected, the current split would be eliminated, lowering the possibility of the justices taking up the case.

The stakes in the case are enormous, as approximately 5 million people could lose their healthcare subsidies if a final ruling invalidates the IRS’s regulation.

A ruling against the administration would demolish ObamaCare’s structure for providing coverage and plunge the federally run exchanges into chaos. It would also pose significant political and logistical challenges to the administration several years into the life of the marketplaces.

Tuesday’s decision by the D.C. Circuit in Halbig v. Burwell was the first time a court has agreed with plaintiffs’ case that the language of the Affordable Care Act only allows the IRS to issue subsidies on exchanges established by states.

“We reach this conclusion, frankly, with reluctance,” Judge Thomas Griffith wrote in the majority opinion.

“Our ruling will likely have significant consequences both for the millions of individuals receiving tax credits through federal exchanges and for health insurance markets more broadly. But, high as those stakes are, the principle of legislative supremacy that guides us is higher still.”

D.C. Circuit Judge Harry Edwards, the dissenting voice and lone Democrat on the three-judge panel, wrote in his dissent that the “myopic” majority opinion “ignores the basic tenets of statutory construction.”

“Appellants’ argument cannot be squared with the clear legislative scheme established by the statute as a whole,” he wrote.

The decision sent shock waves through Washington policy circles, where many observers had dismissed the Halbig challenge under the assumption that no court would rule in the plaintiffs’ favor.

Critics were quick to denounce the ruling as politically driven.

“It is long past time to stop playing politics with Americans’ lives, their well-being and their financial security,” said Sen. Tom Harkin (D-Iowa), one of the authors of the Affordable Care Act.

“We know that Congressional Republicans will try to use the Court of Appeals for the District of Columbia Circuit’s outlier ruling as a scare tactic to confuse Americans about the future of the ACA. Let me be clear: tax credits for Americans who qualify will continue as this case continues to make its way through the legal system.”

The Obama administration, meanwhile, stressed that the healthcare subsidies would continue to be distributed in the federal exchanges despite the court ruling.

White House press secretary Josh Earnest pounced on the Fourth Circuit decision that upheld the subsidies, issuing a statement that said “another partisan attempt to harm the Affordable Care Act has failed.”

“You don’t need a fancy legal degree to understand Congress intended” for qualified individuals to receive tax credits regardless of who was administering the exchange, Earnest said.

Speaker John Boehner (R-Ohio), meanwhile, said the ruling against the subsidies is proof that the healthcare law is “unworkable” and “cannot be fixed.”

“The American people recognize that ObamaCare is hurting our economy and making it harder for small businesses to hire, and that’s why Republicans remain committed to repealing the law and replacing it with solutions that will lower health care costs and protect American jobs,” he said in a statement.

Experts estimate that the D.C. court’s ruling, if upheld later, could block roughly $36 billion in subsidies.

Some have speculated that consumers might even have to pay back the subsidies they have received from the government, an outcome that would be disastrous for the Obama administration.

The question is not likely to be resolved for some time, adding confusion to the healthcare law’s second enrollment period that is scheduled to start in November.

The D.C. Circuit Court could take months to simply decide to hear the Halbig challenge en banc, let alone actually hold briefings and arguments in the case. One legal expert predicted that, even on an expedited basis, the full court would likely not issue a ruling until spring of next year.

After that, it’s anyone’s guess whether the Supreme Court would agree to hear the case, and on what timetable.

Supporters of the Halbig plaintiffs said Tuesday that they are motivated by a desire to adhere to ObamaCare as written, not simply to jeopardize subsidies for millions of enrollees.

“Backers of the [Obama] administration have it backward when they warn Halbig could cause massive disruption,” wrote Michael Cannon, director of health policy at the Cato Institute, in a blog post last week.

“The purpose of Halbig is to end the massive economic and political disruption caused by the president’s decision to ignore the clear statuary language he is sworn to uphold.”

— This story was first posted at 10:25 a.m. and was updated at 6 p.m. and 8:35 p.m.