It's been a day of Obamacare whiplash in the federal courts, so let's sort out what just happened.
The federal appeals court in the District of Columbia ruled 2-1 this morning that the Affordable Care Act doesn't authorize the federal government to provide subsidies to low- and middle-income Americans to buy insurance in the 36 states where the federal government set up exchanges to sell health-care coverage. Just two hours later, a three-judge panel of the Fourth Circuit Court of Appeals in a similar case unanimously found just the opposite — that the IRS correctly interpreted the text of the ACA when it issued a rule allowing all public exchanges, regardless of who set them up, to provide insurance subsides.
The importance of the subsidies can't be understated. About 4.7 million people in states with a federal exchange received subsidies in the law's first enrollment period, with those discounts averaging about 75 percent of what they would have paid, according to the Department of Health and Human Services. The big question is what happens now to that federal aid.
For starters, the subsidies haven't suddenly been wiped away in the states with federal-run exchanges. There's still a legal process that needs to play out before that could happen, and there's no certainty that the D.C. ruling stands up.
How the courts reached separate rulings
The decisions by the appellate courts in D.C. and Virginia weren't totally unexpected. The three-judge panel of the D.C. court included one Democratic appointee and two Republican appointees, who reached the conclusions you might expect. The Fourth Circuit in Virginia featured a three-member panel of Democratic appointees, who all sided with the Obama administration.
The courts faced a couple of key questions: Does the actual ACA's text clearly authorize subsidies in federal-run exchanges? And if the language of the law isn't all that clear, what did Congress actually intend?
Plaintiffs who have brought these lawsuits against the administration point to a section of the statute (Sec. 1311) stating subsidies to buy health insurance are provided to people "enrolled through an exchange established by the state." In other words, the law doesn't specifically allow exchanges established by the federal government the same authority as the states to issue subsidies. The administration counters that another section of the law (Sec. 1321) provides powers to the HHS secretary to establish and operate an exchange in states that don't set up their own.
But the D.C. appellate court finds the power provided to HHS in Sec. 1321 isn't comprehensive. If a state refuses to set up an exchange, the federal government could stand in and oversee the exchange, the court says. But it's a "limited scheme of substitution" that doesn't say that the federal exchange is also an exchange "established by the state" — therefore, the federal exchanges can't provide the subsidies.
The 4th Circuit decision in Virginia siding with the administration said the statute is too ambiguous, as is the legislative history, so it couldn't actually determine whether Congress meant to limit the subsidies to just exchanges set up by the states. However, the court said the IRS has some latitude to interpret the law, and providing premium subsidies in all exchanges, regardless of who's running them, fits in with the ACA's coverage goals.
“[D]enying tax credits to individuals shopping on federal Exchanges would throw a debilitating wrench into the Act’s internal economic machinery. . . It is therefore clear that widely available tax credits are essential to fulfilling the Act’s primary goals and that Congress was aware of their importance when drafting the bill," the 4th Circuit decision reads.
The D.C. appellate court agrees that legislative history doesn't provide much insight into what Congress actually intended. But the court said the actual statute is clear that the federal government can't offer the subsides.
What happens now?
The Obama administration said it will ask the entire D.C. appellate court panel to review the challenge. If it does, the administration is much more likely to have a favorable ruling, given the Democratic-leaning makeup of the entire circuit. If the court refuses what's known as an "en banc" review, it increases the likelihood that the Supreme Court would take up the subsidies case, given the split rulings in the D.C. and Virginia circuits. There are two other pending cases in the federal system that are much further behind.
Even if the D.C. circuit court reverses itself, the Supreme Court could still decide to take up the cases. SCOTUSblog publisher Tom Goldstein writes: "The issue is so close and contentious that it is basically inevitable that the Supreme Court will have to resolve it."
Whether this goes to the nation's highest court is still anybody's guess. If it got that far, it's hard to say what the court might do. The Supreme Court narrowly upheld the law's individual mandate two years ago. But that was only because Chief Justice John Roberts found a way to save the mandate as a tax — otherwise, the court's conservative majority would have thrown out the entire law.
Could Americans lose their subsidies anytime soon?
Probably not. The D.C. court has given the administration time to appeal its decision before the ruling could take effect. If the request for a review is denied, the administration still could ask for a stay, citing the contrary ruling by the 4th Circuit in Virginia, as it would appeal the D.C. ruling to the Supreme Court.
Can't more states just set up their own exchanges?
If subsidies in federal-run exchanges are ultimately thrown out, that's one option. At least two federal exchange states, Idaho and New Mexico, are planning to transition to fully state-run exchanges in the 2015 enrollment period. However, it's not exactly cheap to set up these insurance marketplaces. The administration has awarded more than $2 billion in federal grants for states to set up their own exchanges, and the ACA only authorizes these so-called exchange establishment grants through the end of this year.
By the time a final legal decision is reached in the subsidy challenges, it could be too late for states to get federal help.