Felue Chang, who is newly insured through the Affordable Care Act, receives a checkup, April 15, 2014 in Hollywood, Florida.
Photo by Joe Raedle/Getty

Obamacare: Courts reach dueling rulings on legal challenge


Two federal courts reached opposite conclusions Tuesday on the legality of an Internal Revenue Service rule making Americans in federally-run health insurance marketplaces  eligible for subsidies to help purchase insurance. The conflicting rulings may ultimately have to be resolved the U.S. Supreme Court. 

In the first ruling, the Washington, D.C. circuit court struck down the IRS rule – a 2-1 decision that could seriously hobble implementation of the Affordable Care Act. “We reach this conclusion, frankly, with reluctance,” wrote Judge Thomas Griffith of the U.S. Court of Appeals for the D.C. Circuit. “At least until states that wish to can set up Exchanges, our ruling will likely have significant consequences both for the 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.”

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Federal judges are split on whether Congress drafted a health care law that contradicted the law’s actual intent.

Judge Harry Edwards, the lone Democratic-appointed judge on the three-judge panel, dissented. The Obama administration has said it will appeal the decision. 

“We believe that this decision is incorrect, inconsistent with congressional intent, different from previous rulings, and at odds with the goal of the law: to make health care affordable no matter where people live,” said Emily Pierce, a spokesperson for the Department of Justice, in a statement. “The government will therefore immediately seek further review of the court’s decision.” 

“In the meantime, to be clear, people getting premium tax credits should know that nothing has changed, tax credits remain available,” Pierce added.

In a separate challenge also decided Tuesday, a three-judge panel on the Fourth Circuit Court of Appeals unanimously upheld the IRS rule allowing subsidies in federal exchanges. Federal Judge Roger Gregory wrote that the challengers could not “rely on our help to deny to millions of Americans desperately-needed health insurance through a tortured, nonsensical construction of a federal statute whose manifest purpose, as revealed by the wholeness and coherence of its text and structure, could not be more clear.” 

Although the D.C. Circuit decision is a serious setback for the Affordable Care Act, the Obama administration intends to appeal to the full D.C. Circuit panel, which now boasts a majority of judges appointed by Democratic presidents. Last year, Senate Republicans filibustered every Obama nominee to the D.C. Circuit seeking to preserve its conservative tilt.

“We reach this conclusion, frankly, with reluctance.”
Judge Thomas Griffith
Lawmakers drafted the Affordable Care Act so that if a state did not set up a health insurance marketplace – known as “exchanges” – the federal government would do so in its stead. But shortly after the first major challenge to the law’s insurance mandate failed, opponents of the law began arguing that Americans participating in the federally run exchanges were ineligible for subsidies meant to help working and middle class Americans purchase health insurance. Thirty-six mostly Republican run states have opted not to build exchanges.

“If the D.C. Circuit’s opinion stands, it will be a devastating blow to Obamacare. It would cripple the law in the 36 states with federal exchanges,” said Adam Winkler, a law professor at UCLA. 

Michael Carvin, one of the attorneys challenging the IRS rule, argued before the D.C. Circuit panel in March that the case was about “whether the plain language of the statute dictates the result,” even if that result is the opposite of what lawmakers who supported the law say they intended.  

Two of the judges on the panel found that argument persuasive. “The fact is that the legislative record provides little indication one way or the other of congressional intent, but the statutory text does,” Griffith wrote. “[I]n the absence of any contrary indications, that text is conclusive evidence of Congress’s intent.”

The law states that people purchasing insurance from “an exchange established by the State” can be eligible for subsidies. The challengers argued that phrase excludes participants in the federally run exchanges from receiving subsidies. The government has argued that, viewed in context, the subsidies were clearly intended to be available on both types of exchanges, an argument two prior federal judges have agreed with.

An amicus brief filed by Democratic lawmakers – including House Minority Leader Nancy Pelosi and Senate Majority Leader Harry Reid, both of whom were instrumental in the passage of the Affordable Care Act – states that “the tax credits and subsidies were supposed to be available to all Americans to help realize the statute’s goal of making insurance affordable for all Americans.”

Without those subsidies, insurance could become prohibitively expensive, seriously hurting the law and potentially pushing it into a death spiral. Health care consulting firm Avalare estimates that for five million Americans, premium costs could rise an average of 76 percent

When the Internal Revenue Service issued a rule stating that both state and federally run exchanges were eligible for subsidies, opponents of the Affordable Care Act challenged the law saying only state-run exchanges were eligible, and that Congress intended to only offer subsidies to state-run exchanges because they wanted to coerce state governments into setting them up. In this reading, Democrats in Congress deliberately handed Republicans in state legislatures the trigger to an anti-Obamacare doomsday machine and dared them to pull it. 

The argument was convenient for the law’s opponents, since Republicans, the majority of whom are implacably opposed to the law, would be able to sabotage it by simply refusing to set up an exchange in states under Republican control, which is most of them. In effect, they were arguing not only that Democrats who voted for the law deliberately wrote it as to make it as easy as possible for Republicans to dismantle it, but that Democrats believed the best way to motivate Republican-controlled states to set up exchanges was to harm the very people the law was designed to help. 

“Within constitutional limits, Congress is supreme in matters of policy, and the consequence of that supremacy is that our duty when interpreting a statute is to ascertain the meaning of the words of the statute duly enacted through the formal legislative process,” wrote Giffith. “This limited role serves democratic interests by ensuring that policy is made by elected, politically accountable representatives, not by appointed, life-tenured judges.”
If the Democrats had not abolished the filibuster for judicial nominations in response, Republicans would have been successful in doing so.