Courts Disagree About Subsidies on ObamaCare’s Federal Exchange

By:  Michael Tennant
07/23/2014
       
Courts Disagree About Subsidies on ObamaCare’s Federal Exchange

Are Americans who buy health insurance on ObamaCare’s federal exchange eligible for premium-assistance subsidies? Two federal courts offered opposing answers to that question Tuesday.

First, in the case of Halbig v. Burwell, a three-judge panel of the D.C. Circuit Court of Appeals ruled 2 to 1 that “the ACA [Affordable Care Act] unambiguously restricts the … subsidy to insurance purchased on Exchanges ‘established by the State.’” Then, a few hours later, a Fourth Circuit Court of Appeals panel unanimously reached the opposite conclusion in the case of King v. Burwell, saying that the decision of the Internal Revenue Service (IRS) to offer subsidies to people in states that did not establish their own exchanges was “a permissible exercise of the agency’s discretion.”

Obviously both opinions cannot be correct. Either Congress intended subsidies to be made available solely to Americans in states that established their own exchanges or it did not. And if did restrict the subsidies in this way, noted National Review's Charles C. W. Cooke, “the Obama administration has been acting illegally since January” in granting subsidies to individuals buying insurance through Healthcare.gov.

A plain reading of the text of the ACA would indicate that this is the case. The Cato Institute’s Jonathan Adler and Michael Cannon, whose research underlies the two lawsuits, wrote:

The statutory eligibility rules for the ACA’s premium-assistance tax credits “clearly say” that eligibility “depends on the applicant being enrolled in a qualified health plan ‘through an Exchange established by the State.’” The rules employ that restrictive phrase nine times, without deviation. [Quotations from Washington and Lee University law professor Timothy Jost.]

Moreover, they observed:

Before the House approved the ACA, a group of House Democrats actually complained about this feature. They likened the Senate-passed ACA’s Exchange provisions to another program that conditions individual entitlements on state action (SCHIP). They warned that hostile states could block their residents from receiving “any benefit” by refusing to establish an Exchange, just as some states denied their residents the benefits of the just-passed Children’s Health Insurance Program Reauthorization Act of 2009 by refusing to participate.

In other words, there was no doubt whatsoever at the time of its passage that the healthcare law specifically restricted subsidies to residents of states that established their own exchanges — a provision viewed by many as a “carrot” to entice states into doing just that.

The D.C. court, seated in Washington, accepted these arguments, noting that the ACA “does not authorize the Internal Revenue Service to provide tax credits for insurance purchased on federal exchanges” but “plainly makes subsidies available only on exchanges established by states.”

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