Politics

Federal Appeals Court Judges Seem Split on the Legality of Millions of Obamacare Subsidies

Halbig v. Sebelius, aka the Obamacare subsidies case, is the closest the law's detractors have come to crippling the law through the legal system, and oral arguments in the District of Columbia’s Circuit Court of Appeals are today.

By Arit John
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Halbig v. Sebelius, aka the Obamacare subsidies case, is the closest the law's detractors have come to crippling the law through the legal system, and oral arguments in the District of Columbia’s Circuit Court of Appeals are today.

Update, 1:34 pm: Judge Griffith will likely be the swing vote of the three judges, according to Stephen Dinan of the conservative Washington Examiner. Congress may have intended for subsidies to go to federal exchange states, but it messed up by not stating that explicitly enough in the text of the law. “If we know the clear purpose of Congress and yet they didn’t legislate clearly enough,” he said, “is it out job to fix the problem?”

Update, 11:59 am: The Washington Examiner's Philip Klein reports that two of the three judges "seemed at least open to limiting Obamacare subsidies to state-based exchanges." One judge said it was "preposterous" to think that subsidies would only apply to state-run exchanges while a second judge argued the subsidies were a "carrot" to motivate states to build their own exchanges. The third judge seemed somewhere in the middle:

Original Post: Obamacare's supporters call the case a long shot, while its critics call it "the most significant existential threat" to the health care law yet. The challengers lost the case in a federal district court in January, but if the court rules in favor of Halbig, that would mean residents of the 36 states served by the federal exchange would be ineligible for subsidies. According to The Washington Post, that would be about 85 percent of current enrollees.

As The Wire explained last year, the case boils down to this: the challengers argue that the text of the Affordable Care Act only grants subsidies to exchanges "established by the State." That is what the law says, but the government argues that Congress obviously intended for subsidies to be available to everyone, and that the federal government runs the exchanges on the state's behalf. When the law was written it was assumed that more states would create their own exchanges.

Conservatives are now countering that the subsidies were meant to be a reward for creating your own exchange, not a given. The Wall Street Journal's editorial board argued Sunday that if states "didn't cooperate by taking the quid of the exchanges, (the government) would deny their constituents the quo of eligibility to claim billions of dollars worth of benefits." Obamacare detractors argue that this is similar to the way federal dollars for expanding Medicaid under the healthcare law were only available to states that expanded. The difference is that the Medicaid provisions explicitly states those funds were "use it or lose it," explained Abbe Gluck, an associate professor at Yale Law School. Nothing in the Affordable Care Act says subsidies can't go to states that don't run their exchanges.

Gluck also notes that some state officials have argued that they decided not to run an exchange because they didn't want subsidies — which would allow more of their residents to fall into the hardship gap (meaning the plans on the exchanges would cost too much, and the healthcare requirement would be waived). Records show that, actually, most states didn't build exchanges because of a "lack of state flexibility and not enough guidance from the Administration." Plus, politics.

But that argument points to the purpose of this suit. If the court rules that the IRS does not have the authority to give out Obamacare subsidies in federal exchange states, then insurance would become less affordable for 85 percent of enrollees. Many of those people would fall in to the hardship gap and not have to buy insurance or pay the individual mandate. The Washington Post points out that this would "mean the mix of people participating in the program would be sicker, which would drive up insurance costs and threaten Obamacare's future." Since risk pools are at the state level, state-run exchanges would be relatively unaffected, but for most states it would be a huge setback.

The Wire will be updating this post as news from today's court case comes in.

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