WASHINGTON, July 22, 2014 – Two federal courts issued rulings Tuesday on the legality of federal subsidies for healthcare insurance.
The Fourth Circuit Court of Appeals in Richmond ruled that the language of the Affordable Care Act (Obamacare) provision on subsidies is ambiguous, and so the Obama Administration is free to interpret it to allow the subsidies nationwide. The D.C. Circuit Court of Appeals ruled that the language is clear, and that subsidies may only be offered in states that have their own exchanges.
The relevant passage of the law reads:
The premium assistance amount determined under this subsection with respect to any coverage month is the amount equal to the lesser of the monthly premiums for such month for 1 or more qualified health plans offered in the individual market within a State which cover the taxpayer, the taxpayer’s spouse, or any dependent (as defined in section 152) of the taxpayer and which were enrolled in through an Exchange established by the State under 1311  of the Patient Protection and Affordable Care Act, or the excess (if any) of the adjusted monthly premium for such month for the applicable second lowest cost silver plan with respect to the taxpayer, over an amount equal to 1/12 of the product of the applicable percentage and the taxpayer’s household income for the taxable year.
(Emphasis added; indexes and numbering removed for readability.)
The D.C. ruling was issued by a three-judge panel, which ruled 2-1 that the subsidies apply only to state exchanges. The law “does not authorize the Internal Revenue Service to provide tax credits for insurance purchased on federal exchanges,” said the majority. The law “plainly makes subsidies available only on exchanges established by states.”
Judge Harry T. Edwards filed a dissenting opinion, calling the ruling an “attempt to gut” the ACA.
The Fourth Circuit agreed with Judge Edwards. “We find that the applicable statutory language is ambiguous and subject to multiple interpretations.” The court ruled that the Obama Administration, as represented by the IRS, which has decided to interpret the law to include federal exchanges, should be deferred to on the provision of subsidies.
The IRS and other administrative agencies are allowed to deviate from the law when it is “absurd,” when there are typos and misprints, and when the law includes ambiguities that must be bridged. In this case, however, the language was included in multiple drafts of the law and cannot be judged a typo. The language of the law appears unambiguous, and whether the restriction of subsidies to state exchanges is foolish or spiteful, it does not rise to the level of “absurd.”
The D.C. ruling potentially affects 4.5 million people who are eligible for subsidies on a federal exchange. The Congressional Budget Office estimates that the average subsidy this year will be $4,400.
The Obama Administration will ask the D.C. Circuit Court to hear the case en banc, with every judge participating, not just the three judges who sat on the panel. Critics of the law claim that the IRS is not permitted to grant subsidies to people enrolled through the federal exchange, and one lawsuit based on this claim, Halbig v. Burwell, is pending before the D.C. Court. However the court rules, it will certainly be appealed to the U.S. Supreme Court.
The final outcome will probably hinge on Chief Justice John Roberts. Roberts voted that the ACA is constitutional, but he also voted with the majority on Hobby Lobby that the contraception mandate cannot be imposed on closely held corporations whose owners have a strong religious opposition to it.
Roberts will have to decide whether the law must be interpreted literally as written, or whether the clear intent of Congress was that the subsidies apply to all, given that the belief at the time was that almost all states would create their own exchanges. Roberts was widely believed to have sided with the Obama Administration in 2012 for fear of having the Court seen as politicized. Whether he wishes it or not, all eyes will be focused on him, and however he rules will be seen through the lens of politics.