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Dueling Obamacare Decisions

Obamacare is dead!

This morning the U.S. Court of Appeals for the D.C. Circuit released its much awaited opinion in Halbig v. Burwell. In a 2-1 opinion, the Court held that the Internal Revenue Service regulation authorizing tax credits in federal exchanges was invalid. Judge Griffith, writing for the court, concluded, “the ACA unambiguously restricts the section 36B subsidy to insurance purchased on Exchanges ‘established by the State.”

Oh, wait. It’s merely pining for the fjords:

Within hours, a unanimous three-judge panel of the United States Court of Appeals for the Fourth Circuit, in Richmond, Va., issued a ruling that came to the opposite conclusion.

The Fourth Circuit panel upheld the subsidies, saying the I.R.S. rule was “a permissible exercise of the agency’s discretion.”

The language of the Affordable Care Act on this point is “ambiguous and subject to multiple interpretations,” the Fourth Circuit panel said, so it gave deference to the tax agency.

What the what?

These two rulings concern a very specific piece of wording in Obamacare. The law calls for the states to set up Obamacare exchanges. It then specifies that subsidies will be made available to people who enroll through the state exchanges. It then sets up a Federal exchange for people whose states do not set up an exchange. The plaintiffs in this case argue that because it does not specifically mention subsidies for the Federal exchange, those subsidies are illegal. The government’s case is that the wording indicates that the Federal exchanges will be the equivalent of the state ones and that the subsidies are legal. These debates over verbiage tend to happen when you pass a law hastily and through a budget procedure because Ted Kennedy died.

If the subsidies disappear, individuals who have insurance through the federal exchange — about five million of them — will suddenly be paying the full price of their insurance. It is likely that many of them will choose to pay the Obamacare penalty instead. Only sick people will stay in the individual insurance market because even unsubsidized insurance is cheaper than no insurance if you’re sick. This is precisely the “death spiral” that many have feared.

Of course, it’s unknown how the states will react if the DC Circuit’s decision is upheld. It’s possible that there will be considerable pressure on some to set up exchanges so that their citizens can get the same subsidies citizens in 14 other states are getting. It’s also possible further lawsuits will follow alleging that the citizens of the 36 unsubsidized states are being treated unequally under the law.

Given that two courts have issued opposite ruling, I expect the Supreme Court to take this up. And, gun to my head, I expect it to side with Obama.

Doug Mataconis argues that the ambiguous wording and precedent may cause the Court to rule against Obama. However, I have to disagree. The Roberts Court has a track record of deferring to lawmakers when their decisions are not blatantly unconstitutional (which makes it all the more shocking that Obama has suffered a dozen unanimous defeats in the last two years). They have taken the paeans against activist judges to heart and have explicitly said that laws should be repealed through legislatures, not through courts. I can’t see them, given the decision they made two years ago on the mandate, throwing out one of the most massive sets of laws in American history because of a disagreement over literally a single word.

Still, we’ll see what happens when this moves up.

2 comments

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  1. Aussiesmurf says:

    I just want to mention a procedural point. It is highly likely that both decisions will be referred en banc to the entire bench of each Circuit Court. Indeed, it is my understanding that the Dept of Justice has already referred the Washington DC decision to that circuit.

    If both full benches uphold the relevant provision law (which I consider likely) it would significantly increase the likelihood that the US Supreme Court would not even take up the case.

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  2. Hal_10000 says:

    I think en banc would be a waste of time. This is clearly something SCOTUS will look into. The only reason for enbanc is if they want to delay the SCOTUS decision as long as possible to either fix the law or drum up outrage over disappearing subsidies.

    Was just reading that the subsidies do not apply to US territories, which significantly weakens the government’s case that they were intended to be universal.

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