The Suit Against Obamacare Subsidies Could Be Very Bad for Obamacare

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On Tuesday a federal judge denied a request from the Justice Department to dismiss a lawsuit aiming to block health care subsidies in states not running their own healthcare exchange sites. Put another way, if the plaintiffs in Halbig v. Sebelius win this case, low- and middle-income individuals in 34 states won't get subsidized health care. The only good news for people expecting those subsidies is that the judge, U.S. District Judge Paul Friedman, decided not to block the subsidies while the case moves forward. 

Friedman heard arguments on Monday from the Justice Department and the plaintiffs, four individuals and three employers from states that declined to run their own exchanges. The Affordable Care Act offers subsidies in the form of tax credits to people who buy insurance through exchanges "established by the state," and the case comes down to what Congress actually meant by that. The Justice Department is arguing that Congress obviously meant all the exchanges, and that the Department of Health and Human Services intended to "stand in the shoes” of the states that allowed the federal government to run their exchanges for them, according to The Washington Times. The challengers are arguing that the Internal Revenue Service ignored the wording in the bill when it publicized that applicants on both kinds of exchanges would get subsidies. They also believe Congress used the subsidies as a way to motivate states to create their own exchanges, meaning the states that didn't create their own exchanges are out of luck. 

Friedman thought both sides kinda had a point, and they kinda do. According to the Affordable Care Act's Section 1401, subsidies in the form of tax credits are available to individuals who "enrolled in through an Exchange established by the State under 1311 of the Patient Protection and Affordable Care Act." Section 1311 defines an Exchange as "a governmental agency or nonprofit entity that is established by a State." Of course, in Section 1322 the law gives the federal government power to create exchanges in states that fail to or elect not to establish exchanges. The challengers argue that the IRS disobeyed the law when it said enrollments in both federal and state-run exchanges (sections 1311 and 1322) qualify for healthcare premium tax credits. 

Of course, this would be bad, bad news for Obamacare, Democrats, President Obama, and everyone who was planning on buying health insurance through the federal exchange, whenever it starts working. How bad? Well, a couple of weeks ago we fact-checked a claim made by Ashley Dionne, a 26-year-old Michigan resident who claimed that the Affordable Care Act would raise her premiums from $75 a month to over $300. "This law has raped my future," Dionne wrote in a tumblr post that later went viral. Dionne, who makes approximately $14,000 a year (rounded up), is eligible for Medicaid, but her mom claimed she'd never go on the program. If Dionne stuck by that choice, Dionne would be eligible for a $2,272 subsidy, which would mean the silver plan would cost her just under $25 a month. Take away that subsidy — Michigan doesn't run its exchange — and Dionne would pay $216. 

That's bad for Dionne and the rest of the country's underemployed millennials, but it's also bad for Obamacare. The more it makes sense financially for young people to opt-out of Obamacare, rather than pay for affordable insurance, the less likely they'll be to enroll in Obamacare. By 2016, the fine for being uninsured will be at least $695 per person, which is way more than Dionne's subsidized $280 a year insurance, but a quarter of the $2,552 unsubsidized rate. If the courts rule in favor of the challengers (or in favor of the three other challenges to Obamacare subsidies) then all the Ashley Dionnes of America may opt-out.  

This article is from the archive of our partner The Wire.