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Split Rulings on Health Law Shroud Subsidies in Uncertainty

By John Reichard, CQ HealthBeat Editor

July 22, 2014 -- Pretty much the best chance of getting a case to the Supreme Court is if two or more federal appeals courts split over the matter at hand.

The absence of a split doesn't rule it out. But legal analysts say it makes convincing the justices to take on a case much harder.

Tuesday started out as a banner day for the libertarian Cato Institute in a challenge it inspired to a health law provision critical to enrolling the uninsured.

Plaintiffs assisted by Cato in Halbig v Burwell argued that Congress intended that health law (PL 111-148, PL 111-152) only provide subsidies to buy health coverage in the relatively small number of states that set up their own insurance exchange.

Two judges on a three-judge panel of the U.S. Court of Appeals for the District of Columbia agreed, giving Cato at least a fighting chance of getting a circuit split.

The 2-1 ruling struck down an Internal Revenue Service (IRS) rule that authorized the subsidies in all states, including the 34 that don't have their own exchanges. It marked the first time a federal judge had sided with Cato on the matter. Two U.S. District Court judges had issued rulings rejecting the argument, one in Halbig, another in a similar case.

But later that day, another three-judge panel for the Fourth U.S. Court of Appeals in Richmond, Va., upheld subsidies in all 50 states plus the District of Columbia.

The question now is did that create enough of a split to persuade the Supreme Court to get involved.

Cato still faces long odds despite its dramatic victory.

The Obama administration is expected to request en banc review by the full panel of 11 active judges on the D.C . Circuit Court. Those eleven, if they grant the review and take up the case, are expected to overrule the three judge panel and essentially arrive at the same conclusion as the 4th Circuit.

But other circuit courts could yet weigh in on the subsidy issue, analysts say. In Pruitt v Sebelius, Oklahoma Attorney General Scott Pruitt amended a previous challenge to the overhaul in the U.S. District Court for the Eastern District of Oklahoma. The court has yet to rule.

Another challenge, Indiana v IRS, has been filed in the U.S. District Court for the Southern District of Indiana.

Cato's case could be bolstered if those cases reach the federal appellate court level because these circuits involved are more conservative, the observers say.

Defenders of the health law were shrugging off that assessment Tuesday.

"I don't think we're going to see a split in the circuits by the time the Supreme Court decides whether it wants to take up" any appeal of a full en banc D.C. Circuit ruling against the Halbig plaintiffs, said Families USA Executive Director Ron Pollack. "The other two cases, one in Oklahoma, and the other in Indiana, we haven't yet received decisions from the federal district courts in those two cases. "

The Supreme Court still could deny review but then decide to hear the case if either of the two other circuits eventually rule in favor of Cato's arguments. And plaintiffs in the 4th Circuit case could request en banc review there, potentially overturning the ruling backing subsidies.

All of which means subsidies and health exchanges will be shrouded in many more months if not years of legal uncertainty.

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