The Affordable Care Act took a potentially serious hit today when the D.C. Circuit Court of Appeals struck down a rule that extended the law’s health-care subsidies to residents of the three-dozen states where the federal government runs a health insurance exchange.
The controversial part of the law says that the government can provide subsidies for health insurance bought on exchanges “established by [a] State.”
The argument against the administration’s rule is straightforward: if a state refuses to set up an exchange, forcing the federal government to operate it instead, then the subsidies aren’t available. That legal reading of the statute makes some sense, because Congress may have wanted to encourage states to create exchanges with the carrot of promising subsidies for the states’ residents.
But the courts are required to uphold the rule if the law is ambiguous and the administration’s position is reasonable. The Supreme Court will probably uphold the rule under that lax standard.
Here’s why. Other provisions of the statute reference an exchange “established by [a] State,” but really include the federal government. Another section of the law refers to a state-run exchange when everyone agrees that it means to include the federal government too. Also, the law actually requires every state to set up an exchange, and it refers to all the exchanges as having been established by states. So you can look at the statute as a whole and reasonably read it to extend the subsidies to residents of every state.
It also makes some difference that the section of the law cited by the rule’s opponents is a strange place for Congress to have limited the availability of subsidies, because that section states the formula for tax credits rather than core rules on who gets benefits under the Act. There also isn’t much evidence to suggest that Congress actually was intending to use the subsidies to encourage states to create exchanges.
We won’t have a final answer for a while. The parties can ask all the judges of both of the courts of appeals that issued today’s rulings to rehear the case. The administration has the better chance, because recent appointments to the court that struck down the rule tilt the court to the left. But it may be that both courts will see that Supreme Court review is inevitable and stand aside to let the Justices decide the issue.
The issue is so close and contentious that it is basically inevitable that the Supreme Court will have to resolve it. If case goes straight to the Supreme Court, we will get a final decision within a year; otherwise, it will probably be two. My best guess is that a majority of the Justices will cite the limited role of the courts and rule for the administration and uphold the rule by the same5-to-4 majority that rejected the major constitutional challenge to the law two years ago.