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Court Ruling Strikes a Blow at Health Care Law Subsidies

By John Reichard, CQ Roll Call

July 22, 2014 -- In a decision certain to energize opponents of the health law and launch a new wave of election-year attacks on its legality, a federal appeals court panel ruled 2-1 that subsidies to buy health insurance are only permissible in states that have set up their own insurance marketplaces.

Almost 5 million people use subsidies through the federal insurance site, The ruling in Halbig v. Burwell, if upheld, means the assistance would no longer be available in the 34 states served by the federal insurance exchange unless those states set up their own marketplaces.

The decision could be appealed by the Obama administration to a full panel of appeals court judges and ultimately may be decided by the Supreme Court.

Separately that same day, a three-judge panel of the 4th U.S. Circuit Court of Appeals in Richmond, Va., ruled in a similar case upholding the legality of subsidies in all 50 states plus the District of Columbia.

Sixteen states and the District of Columbia had their own marketplaces this year, according to a tally by the Kaiser Family Foundation.  

The 16 states are California, Colorado, Connecticut, Hawaii, Idaho, Kentucky, Maryland, Massachusetts, Minnesota, Nevada, New Mexico, New York, Oregon, Rhode Island, Vermont and Washington.  

Some of those states, including Oregon, Maryland, and Massachusetts, may rely on the federal website for 2015 coverage while retaining other exchange operations such as marketing and consumer assistance at the state level.

Rep. Diane Black, R-Tenn., said the decision casts further doubt on the legality of the law (PL 111-148, PL 111-152) at a time when the government has struggled to verify the eligibility of some subsidy recipients.

"Consider that over a million taxpayers could already be on the hook for improper subsidy payments due to an inability of the federal government to verify income eligibility," Black said in a statement. "Now, anyone who has received a subsidy at all on the federal exchange could potentially be faced with having to make back payments."

White House press secretary Josh Earnest said the administration is confident it will prevail, despite the ruling. "The ruling does not have any practical impact ... right now," Earnest said. He anticipated the White House will request a review by the full panel of 11 judges on the D.C. federal appeals court, most of whom are Democratic appointees.

The White House later released a statement hailing the 4th Circuit's unanimous decision in the case King v. Burwell. "Another partisan attempt to harm the Affordable Care Act failed today. This latest attempt was undermined by a unanimous judicial panel in the 4th Circuit. The law was designed to make health care affordable through tax credits—and it is working," read the statement by Earnest.

The case was brought by individuals and businesses backed by the libertarian Cato Institute who contend that the wording of the health law only permits the subsidies to be distributed in states with their own marketplaces. Without access to subsidies, millions of people wouldn't have access to affordable insurance benefits within the meaning of the health law and would be exempt from paying the increasingly stiff fines for not getting insurance, Cato has argued.

Ron Pollack, executive director of the advocacy group Families USA, said the decision marked "the high water mark" for opponents of the law, known as the Affordable Care Act (ACA). 

"Those waters are likely to recede very quickly," Pollack said. He predicted the full appeals court will overrule the three-judge panel and issue an order staying the ruling.

With the 4th Circuit decision and no conflict between the circuit courts, the Supreme Court won't take up the case, Pollack said.

Washington and Lee University Law School professor Timothy Jost agreed with that assessment.

"This decision is an unfortunate aberration that potentially threatens the health care of millions of Americans, but it will not stand," Jost said.

Experts are divided on what effect the ruling would have on states, if it is upheld. Cato analyst Michael Cannon has predicted that employers would lobby against having the exchanges because the mandate requiring employer coverage under the health law couldn't be enforced in states without the marketplaces. That's because penalties against employers for not covering workers are only assessed if the workers can go to exchanges to get subsidies and buy policies.

Opponents of the individual mandate also might rise up against states having their own exchanges, because penalties on individuals for not having insurance can only be assessed if affordable coverage is available and they refuse to buy it.

Backers of the law had predicted public confusion if the three-judge panel ruled for the plaintiffs in the case. The ruling could interfere with this fall's health law open enrollment campaign if there is enough confusion over the availability of subsidies.

Cannon did not shrink from the potential consequences of the ruling he had played a major role in bringing about.

"If people lose their subsidies, it is because the courts ruled those subsidies are and always have been unlawful," Cannon said. "If that causes dislocation, if that causes disruption, I think the responsibility lies with the IRS and the administration."

The ruling threw out a U.S. District Court decision on Jan. 15 stating that the text of the health law makes clear that Congress intended to make premium tax credits available on both state-run exchanges and the federal exchange.

The specific provision under review in the case was section 36 B of the Internal Revenue Service making premium tax credits available in all of the states and the District of Columbia. But Jacqueline Halbig and the other plaintiffs in the case challenged the legality of the IRS regulation.

"Because we conclude that the ACA unambiguously restricts the section 36 B subsidy to insurance purchased on exchanges 'established by the state' we reverse the district court and vacate the IRS's regulation," wrote Judge Thomas B. Griffith, who authored the opinion, who was appointed in 2005 by President George W. Bush. Judge A. Raymond Randolph, who was appointed to the federal bench in 1990 by President George H.W. Bush, concurred while Harry T. Edwards, appointed by President Jimmy Carter in 1980, issued a scorching dissent.

"It is quite clear that the statute does not reveal the plain meaning that appellants would like to find," Edwards wrote.

Edwards continued to say that the claim that Congress sought to tie subsidies only to states with their own marketplaces "is nonsense, made up out of whole cloth. There is no credible evidence in the record that Congress intended to condition subsidies on whether a state, as opposed to Health and Human Services, established the Exchange."

He wrote the majority opinion "portends disastrous consequences." 

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