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Odds May Be Growing of Full Appeals Court Review of Health Law Subsidies

By John Reichard, CQ HealthBeat Editor

March 26, 2014 -- Given the way oral arguments recently went in a case challenging subsidies issued under the health law, the administration may be especially glad that Senate Democrats last year exercised the "nuclear option" to ease appointments to the federal bench.

The move could wind up heading off a ruling by the influential U.S. Appeals Court for the District of Columbia that would be devastating to the health law—namely, that its subsidies to help low and moderate income Americans buy health insurance can only legally be granted to the residents of the 14 states and the District of Columbia that operate their own insurance exchanges.

Two members of the three-judge panel that heard the arguments in Halbig v. Sebelius seemed open to ending subsidies to the residents of the other 36 states and effectively wiping out an estimated $800 billion in federal dollars to help residents over the next decade defray the cost of insurance.

If the panel rules to limit the subsidies, the administration will be able to appeal the decision to the full 11-member court, which includes seven judges nominated by Democratic presidents.

The change in the Senate rule engineered by Majority Leader Harry Reid, D-Nev., had the effect of freeing three of Obama's nominees to the court who had been held up by Republican filibusters. Instead of a four-four split among judges appointed by Democrats and Republicans, the court now includes four jurists nominated by Obama.

Two of the three judges hearing the case involving the health law subsidies were appointed by Republicans and both appeared sympathetic to striking down the current system of subsidies.

A so-called "en banc" review by the full roster of judges at the court was tough to obtain prior to the three appointments, according to a 2012 CQ Weekly analysis.

A majority of the D.C. court has to approve en banc reviews, and in only one instance has it done so in its two prior terms.

"Almost certainly the Obama administration will go for en banc review with the post-nuclear option D.C. Circuit," Josh Blackman, an assistant professor at the South Texas College of Law, wrote in a recent blog post.

Blackman, the author of a book on the constitutional challenge to the health law, called the Halbig case "the more important case" argued last week, trumping the more highly publicized U.S. Supreme Court review of the law's contraceptive coverage requirement.

But Blackman also wrote that en banc review may very well not keep the Halbig case out of the Supreme Court. And he opined that if it gets there, the health law could be changed substantially.

"Even a divided en banc court is bound for One First Street," Blackman predicted. "I can see Breyer and Kagan having a problem with the government's position here," he said concerning Justices Elena Kagan and Stephen Breyer, both of whom were nominated by Democratic presidents. "NFIB deja vu? A compromise that allows states to receive the subsidies if they want them?" His reference was to the Supreme Court's June 2012 ruling that states under the Constitution can't be punished by the full withholding of Medicaid funds if they choose not to expand their programs.

Carrying that logic over to exchange subsidies means states would have to create their own exchanges if they wanted to get the subsidy dollars. One of the members of the three-judge panel, A. Raymond Randolph, explored that possibility during the recent arguments, asking whether states are free to open their own exchanges if they haven't done so.

Under the health law (PL 111-148, PL 111-152), they are—though the states as a general rule have to run them on their own without federal financial assistance starting in 2015. So the result could be either refusal by states to set up exchanges, or a slow movement across the country to exercise the option and qualify for subsidies.

That would resemble the battle over expanding Medicaid, another health law initiative that's now being fought state by state.

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