Forget Hobby Lobby—This Case Could Wreck Obamacare

A ruling is expected any day now in a case that could tear the Affordable Care Act apart.

July 7, 2014, 1 a.m.

A fed­er­al ap­peals court might be on the verge of blow­ing a massive hole in the found­a­tion of Obama­care.

The U.S. Court of Ap­peals for the D.C. Cir­cuit is ex­pec­ted to rule any day now in a law­suit that aims to block the law’s in­sur­ance sub­sidies in more than half the coun­try. If the chal­lengers ul­ti­mately pre­vail, the Af­ford­able Care Act’s com­plex frame­work could be­gin to un­ravel as mil­lions of people lose fin­an­cial as­sist­ance.

For now, the stakes are a lot high­er than the odds of suc­cess—chal­lenges to the in­sur­ance sub­sidies have a 0-2 re­cord in fed­er­al courts. But the pending D.C. Cir­cuit rul­ing may be the one to break that streak, ac­cord­ing to leg­al ex­perts on both sides of the is­sue.

A three-judge pan­el heard or­al ar­gu­ments in the case, Hal­big v. Se­beli­us, in March. Two judges ap­peared to split along par­tis­an lines, leav­ing Judge Thomas Grif­fith, a George W. Bush ap­pointee, as the likely swing vote. Grif­fith seemed dur­ing or­al ar­gu­ments to at least be open to the chal­lengers’ ar­gu­ments, and per­haps lean­ing in their dir­ec­tion.

A rul­ing against the Obama ad­min­is­tra­tion wouldn’t im­me­di­ately dam­age the Af­ford­able Care Act, and it wouldn’t mean that the ad­min­is­tra­tion will ul­ti­mately lose. But it would give the chal­lengers their first vic­tory and en­sure that the is­sue keeps mov­ing through the courts.

“I “¦ think it’s go­ing to get far more at­ten­tion than it de­serves,” said Timothy Jost, a law pro­fess­or at Wash­ing­ton & Lee Uni­versity and a sup­port­er of the Af­ford­able Care Act.

Hal­big aims to cut off the law’s in­sur­ance sub­sidies in fed­er­ally run in­sur­ance ex­changes—sub­sidies that nearly 7 mil­lion people are already re­ceiv­ing.

Obama­care set up an in­sur­ance mar­ket­place in each state and au­thor­ized the fed­er­al gov­ern­ment to op­er­ate the ex­changes in states that wouldn’t set up their own. The ex­changes were de­signed primar­ily for people who buy in­sur­ance on their own, rather than get­ting it through their em­ploy­er, and the law provides tax sub­sidies to help most of those con­sumers cov­er the cost of their premi­ums.

The Hal­big chal­lenge ar­gues that the Obama ad­min­is­tra­tion—spe­cific­ally the IRS—is break­ing the law by of­fer­ing those tax sub­sidies in all 50 states. It re­lies mainly on the text of the stat­ute, which au­thor­izes sub­sidies in “an ex­change es­tab­lished by the State.”

That phras­ing clearly re­stricts sub­sidies to state-run ex­changes and does not au­thor­ize them to flow through the fed­er­ally run fall­back ex­change, the law­suit claims.

But the Justice De­part­ment says that read­ing is too nar­row, and the chal­lengers have had a hard time con­vin­cing judges that Con­gress in­ten­ded to set up a two-tiered sys­tem.

“The plain text of the stat­ute, the stat­utory struc­ture, and the stat­utory pur­pose make clear that Con­gress in­ten­ded to make premi­um tax cred­its avail­able on both state-run and fed­er­ally fa­cil­it­ated Ex­changes,” D.C. Dis­trict Court Judge Paul Fried­man wrote in his rul­ing on the sub­sidies.

Even tak­ing the “es­tab­lished by the State” lan­guage in­to ac­count, the Justice De­part­ment and lower courts said, the stat­ute as a whole in­dic­ates that Con­gress in­ten­ded to treat all ex­changes equally. The fed­er­al gov­ern­ment “stands in the shoes” of states, the Obama ad­min­is­tra­tion ar­gues.

“Con­gress is clearly in­dic­at­ing that it wants a sys­tem of ex­changes, na­tion­wide, to provide af­ford­able health care for all Amer­ic­ans. States have the first op­por­tun­ity to es­tab­lish those ex­changes un­der this frame­work, but if they don’t, that same ex­change is cre­ated by the [Health and Hu­man Ser­vices] sec­ret­ary,” Justice De­part­ment law­yer Stu­art Del­ery said dur­ing the Hal­big ar­gu­ments in March.

The chal­lengers in Hal­big and its com­pan­ion law­suits say Con­gress wanted to use the sub­sidies as an in­cent­ive for states to set up their own ex­changes. Fried­man, though, said “there is no evid­ence in the le­gis­lat­ive re­cord that the House, the Sen­ate, any rel­ev­ant com­mit­tee of either House, or any le­gis­lat­or ever en­ter­tained this idea.”

The chal­lengers ap­pealed Fried­man’s Hal­big rul­ing to the D.C. Cir­cuit on an ex­ped­ited timeline, which is why a de­cision is ex­pec­ted soon. Jost said the fact that the court hasn’t ruled yet might be a sign that Grif­fith, the swing vote, wasn’t ready to quickly sign on to a rul­ing ax­ing the sub­sidies.

A dis­trict court in Vir­gin­ia dis­missed a nearly identic­al law­suit, also say­ing there was no evid­ence that Con­gress in­ten­ded to make sub­sides avail­able only through state-run ex­changes. That case, King v. Se­beli­us, was ap­pealed to the 4th Cir­cuit Court of Ap­peals, which could also is­sue its rul­ing soon.

Sophie Novack contributed to this article.
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