Obamacare’s Latest Threat Nears Turning Point in Court

Photographer: Andrew Harrer/Bloomberg

Unlike the 2012 case, the latest dispute doesn’t present a sweeping constitutional question. The issue instead is a phrase concerning the online marketplaces, or exchanges, where people can buy insurance. Close

Unlike the 2012 case, the latest dispute doesn’t present a sweeping constitutional... Read More

Close
Open
Photographer: Andrew Harrer/Bloomberg

Unlike the 2012 case, the latest dispute doesn’t present a sweeping constitutional question. The issue instead is a phrase concerning the online marketplaces, or exchanges, where people can buy insurance.

Two years after a single vote on the U.S. Supreme Court saved a core part of Obamacare, opponents are trying to topple the measure again, this time using a four-word phrase in the law.

A disputed provision in the Affordable Care Act suggests that millions of Americans can’t get the tax subsidies created by the law to reduce the cost of health insurance.

All sides are now waiting for a federal appeals court in Washington to make a procedural decision that will have outsize implications. The announcement could come any time.

President Barack Obama’s administration wants the court, known as the D.C. Circuit, to set aside a three-judge panel’s ruling against the subsidies and rehear the case. A refusal to do so would leave appeals courts in disagreement on the issue, all but guaranteeing a new Supreme Court showdown and returning the president’s landmark initiative to the legal jeopardy it escaped in 2012.

The Fate of Obamacare

“The Supreme Court taking the case would make investors and hospitals very nervous,” said Paul Heldman, a health-policy analyst at Potomac Research Group in Washington. “The potential would be created that they would make a decision that would cause a key part of the law to unravel.”

For those looking to undermine the law, the subsidy issue offers the prospect of a second chance before the high court. The lead lawyer pressing the suits is Michael Carvin, who helped argue against the law in 2012. That case revolved around the requirement that people either buy insurance or pay a penalty. The court upheld the provision in a 5-4 vote.

One Phrase

Unlike the 2012 case, the latest dispute doesn’t present a sweeping constitutional question. The issue instead is a phrase concerning the online marketplaces, or exchanges, where people can buy insurance. The law says people qualify for tax credits if they buy insurance on an exchange “established by the state.”

Carvin and his allies say that language means people get subsidies only if they buy insurance on a state-run exchange -- and not if they use the federal exchange operating in the 36 states that haven’t set up their own marketplaces.

His approach would mean that 4.6 million people -- more than half the 8 million who have used the exchanges to buy policies -- aren’t entitled to the subsidies they are receiving.

A ripple effect would follow. Many of those people would no longer be obligated to get insurance because they would fall under an exemption in the law for those who can’t afford coverage.

Profound Consequences

“If the ACA means what it says, as the D.C. Circuit held, the consequences are profound,” Carvin said in Supreme Court papers filed in July. “It means millions of people are ineligible for subsidies and exempt from the ACA’s individual mandate penalty. It means a fundamental change in the health-insurance market in two-thirds of the country.”

It also might mean that only the sickest and most desperate people would get insurance through the individual market. That could raise coverage costs for insurers and send the market into what the administration says would be a “death spiral.” It would also force hospitals to foot the bills for more uninsured patients.

Opponents “see this as an attempt to destroy the Affordable Care Act,” said Timothy Jost, a health-law professor at Washington and Lee School of Law in Lexington, Virginia. “That’s why they brought these lawsuits.”

The Obama administration says the rest of the statute makes clear that lawmakers intended for subsidies to be available to consumers across the U.S., regardless of whether they buy on a federal or a state-run exchange.

‘Implausible’ Interpretation

The opponents’ interpretation “is implausible because it would destroy the fundamental policy structure and goals of the ACA that are apparent when the statute is read as a whole,” Justice Department lawyers argued this month.

Prospects for Supreme Court review increased on July 22 when the D.C. Circuit rejected the administration’s approach. The 2-1 ruling threw out an Internal Revenue Service regulation letting federal-exchange customers take a tax credit. That same day a different federal appeals court, the 4th Circuit in Virginia, reached the opposite conclusion and upheld the IRS regulation on a 3-0 vote.

That type of circuit-court split usually prompts the Supreme Court to intervene, and Carvin is already urging the justices to hear his appeal in the 4th Circuit case. The administration is aiming to head off high court review by asking for a new hearing by the full D.C. Circuit.

The appeals court could act at any point. It could also take the unusual step of waiting until the Supreme Court deals with Carvin’s request after the justices return from their recess in late September.

Political Intrigue

The rehearing request is fraught with political intrigue. In the past 16 months, four Obama appointees have taken seats on the D.C. Circuit, three of them after the Democratic-controlled Senate changed its rules so that a simple majority can approve most nominees.

The new judges have transformed a court that previously leaned Republican. Seven of the 11 active judges are now Democratic appointees. Two other judges who have taken semi-retired senior status, Democratic-appointed Harry Edwards and Republican-appointed A. Raymond Randolph, have the option of taking part in a rehearing because they were on the three-judge panel.

So far the issue has divided federal judges largely along party-based lines. Randolph and another Republican appointee, Thomas Griffith, formed the majority on the D.C. Circuit case, with Edwards in dissent.

‘Simple Math’

Senate Majority Leader Harry Reid, a Nevada Democrat, last month fueled the perception that the Democratic appointees would tip the balance. Asked whether the D.C. Circuit panel’s decision vindicated his decision to change the voting rules, he replied, “if you look at simple math, it sure does.”

Those comments, and the assumption that the D.C. Circuit will divide along partisan lines to uphold the IRS rule, have drawn fire from critics of the health-care law.

“It’s a really dangerous mindset,” said Josh Blackman, a professor at South Texas College of Law in Houston who wrote a book on the first health-care case. He called the D.C. Circuit a “very professional court” with a tradition of granting full-court review sparingly.

A decision by the full appeals court to reverse the panel would eliminate the circuit split, making a Supreme Court grant of review less of a necessity. Although the justices could still get involved, they might be reluctant to outlaw subsidies being used by millions of Americans.

Two years ago, four justices said they would have thrown out the entire law. Chief Justice John Roberts joined the court’s four Democratic appointees in voting to largely uphold the measure.

“Given the fact that we know that four of the justices of the Supreme Court are already gunning for the Affordable Care Act,” Jost said, “it’s probably safer to stay in the lower courts rather than go back to the Supreme Court.”

To contact the reporter on this story: Greg Stohr in Washington at gstohr@bloomberg.net

To contact the editors responsible for this story: Patrick Oster at poster@bloomberg.net Mark McQuillan, Laurie Asseo

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.