U.S. Courts Split on Obamacare Aid for U.S. Exchanges

Two U.S. appeals courts reached opposite conclusions on the legality of a key financing provision of the Affordable Care Act, increasing the chances of another showdown at the Supreme Court over President Barack Obama’s signature health-care law.

In a 2-1 ruling by a majority of judges appointed by Republican presidents, a U.S. appeals court in Washington struck down an Internal Revenue Service rule allowing tax subsidies to needy customers on the insurance exchange run by federal authorities, saying Congress authorized payments only to state-run marketplaces.

A panel of three judges in Richmond, Virginia appointed by Democratic presidents reached the opposite conclusion hours later, ruling that while the language of the law is ambiguous, the IRS had the discretion to write rules for the Patient Protection and Affordable Care Act.

The government will immediately seek review of the Washington court’s decision, and in the meantime nothing has changed for people getting premium tax credits, Justice Department spokeswoman Emily Pierce said.

The Virginia court turned aside the argument of Obamacare opponents that the law only allows assistance for buyers on the state exchanges, who represent fewer than half of those who bought health-care coverage under the plan.

The ruling, which upholds a lower court, is the third decision affirming the Obama administration’s contention that tax credits are intended for customers of state and federal exchanges alike.

The financing provision was not an issue before the U.S. Supreme Court when it upheld the overall legality of the law in its landmark ruling.

The Virginia court said while the language of the law is ambiguous and subject to multiple interpretations, the Internal Revenue Service is entitled to deference in interpreting it to write regulations implementing the program.

“We uphold the rule as a permissable excercise of the agency’s discretion,” the three judge panel said.

To contact the reporter on this story: Andrew Zajac in Washington at azajac@bloomberg.net

To contact the editor responsible for this story: Fred Strasser at fstrasser@bloomberg.net

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