March 26, 2014

Is the D.C. Circuit Court Leaning Against Obamacare In Latest Lawsuit?

By: Hadley Heath Manning

The D.C. Circuit Court of Appeals heard Halbig v. Sebelius, the challenge to subsidies in the Affordable Care Act’s federally-established exchanges, on Tuesday. State-established and federally-established exchanges are treated differently in the language of the Affordable Care Act (or ObamaCare), and draw their authority from different sections of the law’s nearly 3,000 pages.

The Court should side with Jacqueline Halbig and the other challengers and rule that the federally-run exchanges were not intended to funnel health insurance tax credits or subsidies.

Some 34 states have chosen not to establish their own exchange, but to default to federally-operated exchanges.  It’s safe to say that the creators of ObamaCare never imagined that so many states would opt out of creating exchanges, which they say contributed to the too-great administrative task of creating and launching the federal online platform.

Still, low- and middle-income consumers in state-run and federally-run exchanges have had very similar experiences purchasing health plans under ObamaCare.  That’s because the IRS, in an attempt to save the law’s subsidies in more than half the states, issued a rule to extend subsidies and tax credits to the federally-operated exchanges as well. It’s the authority of this IRS rule that is at issue in this case.

The law’s challengers in Halbig have illustrated that the original language and intent of the Affordable Care Act was to limit the law’s individual subsidies and tax credits to states that elected to establish their own health benefit exchanges.  This way, the subsidies would act as an enticement to states to opt in, like several other provisions in ObamaCare.  This “carrot” idea came up in oral arguments Tuesday, although the three judges clearly differed on their interpretations.

The judges also differed on the government’s argument that the federally-operated exchanges were meant to act as “substitutes” for the state-operated exchanges. Judge Harry T. Edwards, a Jimmy Carter appointee, seemed to agree with the government that the overall intent was for subsidies to be available to all individuals between 100 and 400 percent of the federal poverty level regardless of which state in which they reside, or whether their state lawmakers chose to establish a state-run exchange.

But if Congress didn’t make this clear in the statute (or in the legislative history), it’s hard to see this as a reasonable interpretation.  Judge Edwards was alone on the bench in his outspoken support for the law.

On the other hand, Judge A. Raymond Randolph, appointed to the federal bench by George H.W. Bush, seemed sympathetic to arguments made by Michael Carvin, attorney for Halbig et al.  He even asked at one point, “Is it our job to fix the problem?” and later “If the legislation is stupid, is it our job to save it?”

Judge Randolph also pointed out that ObamaCare was passed under a quick, reckless, and unusual legislative process, which has resulted in ambiguity for the regulators, judges, and lawyers who must now wade through the inconsistent and often unclear language of the law.  In 2012, it was a question of whether disobeying the mandate would result in a “penalty” or a “tax.” Now the important distinction may come down to “federal” and “state” exchanges.

The third judge to hear Tuesday’s oral arguments was presiding Judge Thomas B. Griffith, a George W. Bush appointee, who may cast the deciding vote on the appellate court’s decision.  His decision should be to reject the government’s argument that the IRS essentially has rogue power to change major provisions of a law after it is passed.

Halbig v. Sebelius is one of four major cases challenging the IRS rule, but none of them have reached the Supreme Court. Yet. That is the direction this issue is headed, and the D.C. Circuit Court of Appeals should issue an opinion that respects the letter of the law and the constitutional process by which laws should be made.

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