Obamacare Faces Another Legal Hurdle

President Obama’s health care overhaul survived one trip to the Supreme Court, but another lawsuit threatens to make the exchanges (statewide health insurance markets) all but inoperable.

The problem for the law pertains to the funding mechanism Democrats offered to poorer Americans forced to buy insurance. As an incentive to the states to set up these exchanges, “premium assistance” subsidies are offered to citizens in those states to make the comprehensive insurance plans affordable. Under the provisions of the ACA, if a state refuses to establish an exchange then the federal government must step in and operate one. In what was an unexpected turn of events — partially brought about by the Supreme Court’s ruling that states could not be forced to implement exchanges — 33 states have refused to establish exchanges. The authors of the ACA did not anticipate such resistance to the law and as such included no specific language concerning subsidies to federally-operated exchanges.

The IRS has stated that subsidies are available to federally run exchanges and are moving forward to implement them in line with the Jan. 1, 2014, implementation date. Opponents of the ACA, though, have filed a suit in the District Court for the District of Columbia arguing that this move by the IRS is illegal under the provisions of the legislation. This case, given the need for a timely ruling, has a very good chance of being heard by the Supreme Court. If the actions by the IRS are deemed non-compliant with the language of the legislation, the Affordable Care Act faces a significant challenge to its viability as millions of Americans would neither receive subsidies nor be accountable to the individual mandate. Opponents of the ACA are cheering on this suit and will celebrate if the subsidies are denied. Delight over such a victory ought to be tempered by recognition that, although the lawsuit might cripple Obamacare, it can’t solve the problem of demand for the government program.

If the actions by the IRS are deemed illegal, there is still a possibility that the Affordable Care Act will limp on, incredibly weakened, inefficient and ineffective. In short, the system will be worse off than it was before the implementation. This might leave many voters demanding another solution. According to a June 2013 Kaiser Health Tracking Poll 43% of Americans have a negative view of the ACA compared to 35% in favor and 23% with no opinion. Of that 43%, 8% hold an unfavorable view because the legislation does not go far enough, which means that those in favor roughly equal those opposed, although support of the law is showing a negative trend. An Obamacare defeated on the grounds of technicalities in court but not defeated in the court of public opinion has the potential potential to emerge as future legislation with more sweeping provisions and government intrusions. Whether the lawsuit succeeds or fails, proponents of free market solutions must realize there is still significant work to be done in educating voters and policy makers; the outcome of this case does little to change that. Obamacare passed once. It could pass again.

For more on Halbig v. Sebelius and the arguments from both supporters and opponents, watch this excellent video hosted by the Cato Institute.

Rick Barton is an America’s Future Foundation intern based in Washington, D.C. Supreme Court image courtesy of Big Stock Photo.

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