Sara Rodriguez looks over an Affordable Care Act brochure, in Houston, Texas on March 11, 2014.
David J. Phillip/AP

DC circuit court case could cripple Obamacare

Like a heavyweight entering the late rounds, the Affordable Care Act has taken punch after punch – 52 repeal attempts on Capitol Hill, dozens of court challenges – without toppling. But now a centerpiece of President Obama’s signature law looks like it’s about to hit the canvas.

That was the takeaway Tuesday after a remarkable oral argument before the nation’s second-highest court. While the TV cameras were massed at the Supreme Court for the Hobby Lobby contraception case, a group of conservative plaintiffs flew beneath the radar four blocks away, pushing what may be an even more important challenge: It was asking a three-judge D.C. Circuit panel to cripple the Obamacare tax subsidies designed to make insurance affordable for lower-income Americans.

That request produced fireworks in a usually staid courtroom. Judge Harry Edwards, a liberal stalwart, got into a shouting match with the plaintiffs’ lawyer, Michael Carvin – a rare scene in a court where lawyers calmly debate arcane points of administrative law and are trained never to talk over a judge. “Your argument makes no sense!” Edwards yelled at one point as Carvin tried to get a word in edgewise. Reagan appointee A. Raymond Randolph was just as sharp-tongued on the other side, attacking the Affordable Care Act as “poorly written” and “stupid,” and the Obamacare rollout as “an unmitigated disaster.”

When the sound and fury died down, the bottom line was this: Two of the panel’s three judges appeared to agree that Obamacare subsidies are unavailable in 36 states. And that is huge news.

The subsidies, after all, are a key piece of the Affordable Care Act. They provide tax credits to lower-income Americans who buy insurance through exchanges, reducing the price of coverage – in some cases, dramatically. Without those subsidies, Obamacare’s promise of tens of millions of newly insured Americans likely won’t be possible. As Edwards put it Tuesday, a ruling invalidating the subsidies in most states just might “gut the statute.”

And that is precisely why Carvin – one of the lawyers who asked the Supreme Court to strike the whole law down in 2012 – began attacking the subsidies soon after his initial effort failed.

Carvin’s argument in the case, Halbig v. Sebelius, boils down to just four words in the massive Affordable Care Act. He told the D.C. Circuit panel Tuesday that when Congress drafted the statute’s tax-subsidy section, it wrote that applicants are eligible for subsidies if they enroll in insurance through an exchange “established by the State.” But after the law was enacted, 36 states refused to set up exchanges, so the federal government did it for them.

 Carvin argued Tuesday that in those 36 states, there is no exchange “established by the state.” And that, he argued, means residents in those states can’t get subsidies. What’s more, Carvin claimed, Congress wanted it that way: He said Congress intentionally limited subsidies to states with their own exchanges as an incentive to get states to create exchanges in the first place.

That’s when the sparks began to fly. Leaning over the bench, Edwards told Carvin that his argument about what Congress had in mind “seems preposterous.” He told Carvin that his congressional-intent theory was just a cover for the plaintiffs’ overriding goal: to kill Obamacare. “What you’re asking for is to destroy the individual mandate, which guts the statute,” he said. “That’s what this case is about.”

Randolph staked out just as clear a position on the other side. He interrupted Edwards mid-sentence at one point – another rarity – to support Carvin’s argument. And when it came time for the government’s lawyer to argue, Randolph laid into Obamacare in colorful terms. “If the legislation is just stupid, it isn’t our job to save it,” he said.

With one judge on each side, the outcome came down to the third member of the panel: Thomas Griffith, a George W. Bush appointee. And while Griffith was less outspoken than Randolph, he eventually indicated that he, too, was buying Carvin’s basic argument: “Established by the State” means “established by the State.” “The key language here is ‘established,’” he said. And he strongly suggested that the government hadn’t met its burden to show that Congress meant to say something other than what it actually wrote.

After those comments, the writing was on the wall. When the court issues its decision – likely this spring or summer – expect it to sound the death knell for Obamacare subsidies in three-quarters of the country.

 That won’t necessarily be the last word. The Obama administration can ask the full D.C. Circuit to rehear the case. And if that doesn’t work, it can look to the Supreme Court for salvation. But for now, Obamacare is once again on the ropes.

Dominic Perella is a partner at Hogan Lovells US LLP in Washington, D.C. He authored a friend-of-the-court brief in the Halbig case, arguing in favor of the government’s position. 

Affordable Care Act and Obamacare

DC circuit court case could cripple Obamacare