Obamacare Future Clouded by Opposing Rulings as Debate Revived

Jul 23, 2014 12:00 am ET

July 23 (Bloomberg) -- President Barack Obama’s signature initiative and the cost of health coverage for millions of Americans were cast into doubt after two federal appeals courts issued opposite verdicts on whether the government can subsidize policies through federally run insurance exchanges.

Some 4.5 million Americans who qualified for subsidies when they signed up will be able to keep their benefits while the court system sorts out the law, White House officials said yesterday. The subsidies for policies purchased through state- administered exchanges aren’t under challenge in the cases.

Though the administration and its Republican critics can each claim vindication from one of the court rulings, the impact on the White House is worse because the decision striking down the subsidies raises new uncertainty about the health-care law.

Republicans seized on the first ruling, a decision from the U.S. Court of Appeals for the District of Columbia rejecting subsidies for coverage, as evidence Obama overstepped in implementing the law. Virginia judges made the reverse decision hours later, yet Republicans already had a new line of attack.

“It’s just the tip of the iceberg with a law that’s also destined to either crush patients with obscenely high costs, lead to a taxpayer bailout of health-insurance companies, or both,” Senator Marco Rubio, a Florida Republican who is considering a 2016 presidential run, said in a statement. “With two conflicting appellate court rulings on Obamacare today, I reaffirm my belief that this law ultimately will fall apart.”

Legacy Threatened

If the first decision stands, it could damage Obama’s legacy as a policy maker and render his party’s candidates more vulnerable to Republican attacks in November’s midterm election. The ruling also threatens to gut the law’s basic premise -- to provide affordable insurance for Americans who don’t have it.

The law has been beset since its 2010 passage by legal and political challenges, skirmishes that have already twice reached the Supreme Court and once provoked a 16-day partial federal government shutdown.

House Democratic Leader Nancy Pelosi of California focused on the Virginia decision, casting it as a rebuff to Republicans’ “toxic obsession with destroying the Affordable Care Act.”

White House spokesman Josh Earnest said providing subsidies to policies bought on the federal exchange as well as state-run markets reflects a “common-sense” interpretation of the law.

“You don’t need a fancy legal degree to understand that Congress intended for every eligible American to have access to tax credits that would lower their health-care costs, regardless of whether it was state officials or federal official who were running the marketplace,” Earnest said.

Public Divided

Americans are divided on the law along party lines. Fifty- six percent of Republicans want it repealed compared with 8 percent of Democrats. Political independents are still finding their way with 38 percent backing repeal and 52 percent saying the country should wait to see how the law works, according to a June Bloomberg National Poll.

Still, opposition among rank-and-file Republicans has eased as the exchanges began offering coverage. As recently as March, 72 percent backed repeal, according to the poll, 16 points higher than last month. And 78 percent of Americans who signed up for plans through the exchanges say they’re satisfied with the coverage, including 74 percent of Republicans, according to a telephone survey by the Commonwealth Fund, a health-advocacy group.

Republican Backlash

The legal controversy stems from the refusal by 36 states, mostly with either Republican governors or Republican-dominated state legislatures, to set up state-run exchanges. Residents in those states are allowed instead to purchase coverage through a federal marketplace, commonly known by its web address Healthcare.gov.

Opponents say the wording of the statute permits payment of the subsidies only to people who buy coverage through state exchanges. A majority ruling written by two judges appointed by Republican presidents on the U.S. Court of Appeals in Washington agreed with that argument and struck down the subsidies for those with coverage through the federal website.

A panel of three judges in Richmond, Virginia, appointed by Democratic presidents reached the opposite conclusion, saying that while the language of the Patient Protection and Affordable Care Act is ambiguous, the Internal Revenue Service had the discretion to write rules for the law.

A White House official said the U.S. will seek a review of the Washington ruling by the full appeals court, where seven of the 11 judges were nominated by Democratic presidents, including four by Obama.

Enlarging Pool

The law’s success hinges on enlarging the pool of the insured, including those who need financial aid, to subsidize insurance costs for those who are ill.

Of the more than 8 million people who picked an insurance plan on the exchanges from October through April 19, 5.4 million selected one from the federal marketplace, according to a report by the U.S. Department of Health and Human Services.

The report also showed that 85 percent of those picking a plan qualified for subsidies that reduce their premiums.

The 2-1 majority ruling in Washington held that the way Congress wrote the law makes clear the subsidy is available only on state-run exchanges.

The law “unambiguously forecloses the interpretation embodied in the IRS rule and instead limits the availability of premium tax credits to state-established exchanges,” U.S. Circuit Judge Thomas Griffith wrote for the majority of a three- judge panel.

‘Reluctant’ Decision

The judges reached their conclusion “with reluctance,” Griffith, an appointee of Republican President George W. Bush, wrote. He was joined A. Raymond Randolph, who was nominated by President George H. W. Bush, also a Republican.

“Our ruling will likely have significant consequences both for 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,” Griffith wrote.

U.S. Circuit Judge Harry Edwards, an appointee of Democratic President Jimmy Carter, dissented, calling the decision a “not-so-veiled attempt to gut” Obamacare.

Edwards said his colleagues accepted opponents’ “myopic construction” of the law, defied the will of Congress and issued “a judgment that portends disastrous consequences.”

At least two other challenges to the health-care tax credits are percolating in federal courts in Oklahoma and Indiana.

Virginia Ruling

The three-judge Virginia appeals court panel unanimously turned aside the same arguments.

The court said while the language of the law is subject to multiple interpretations, the IRS is entitled to deference in interpreting it to write regulations for the program.

“We uphold the rule as a permissible exercise of the agency’s discretion,” the court said.

The ruling, which upholds a lower court, is the third decision affirming the Obama administration’s contention that tax credits are intended for customers of state and federal exchanges alike.

The full circuit court in Washington will reverse the decision, said Timothy Jost, a law professor at Washington & Lee University who has tracked implementation of Obamacare.

“There’s not going to be a division of the circuits, ultimately,” Jost said.

Karen Dunn, a former associate counsel to Obama and a partner at the law firm Boies, Schiller and Flexner, said this case differs from most where legislative intent is an issue.

“In this case, people are aware of the legislative intent,” she said. “This was a matter of very recent discussion.”

Supreme Court

Asked if the opposing conclusions from the two federal appeals courts assured further review at the U.S. Supreme Court, former acting U.S. Solicitor General Walter Dellinger, said, “If there’s a split, the Supreme Court will definitely take it.” He declined to forecast how the high court might decide the question.

The health-care overhaul was signed into law by Obama in March 2010 after passing Congress with no Republican votes.

Its rollout last October was plagued by computer failures that impeded signups on state and federal exchanges.

In June 2012, the law was narrowly upheld by the U.S. Supreme Court which ruled that Congress has the power to make Americans carry insurance or pay a penalty. The high court didn’t consider the question of whether the law allows subsidies for buyers on the federal exchange.

The Supreme Court in another ruling on June 30 decided that closely held companies can claim a religious exemption from the requirement that they offer birth-control coverage in their worker health plans. That case, involving the craft-store chain Hobby Lobby Stores Inc., was among dozens of suits spawned by Obamacare’s contraceptive mandate.

The case is Halbig v. Sebelius, 14-5018, U.S. Court of Appeals for the District of Columbia (Washington). The Virginia case is King v. Sebelius, 14-1158, U.S. Court of Appeals for the Fourth Circuit, (Richmond, Virginia).

--With assistance from Andrew Zajac, Derek Wallbank and Kathleen Hunter in Washington.