Obamacare Tax Rule Gets Rehearing by Full Appeals Court

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The full U.S. Court of Appeals in Washington will rehear a case on Obamacare tax subsidies, granting a government request in a move that may reduce chances of a new Supreme Court showdown over a central part of the law.

A rehearing sets up the possibility that the full court will reverse the July ruling of a three-judge panel that blocked subsidies for consumers on federally run health exchanges, a key element to the 2010 health-care overhaul. Another U.S. appeals court, in Richmond, Virginia, upheld the provision’s application to federal exchanges.

Eliminating the split would reduce the chances of the Supreme Court’s taking the case. Divisions between appeals courts are among the factors the justices consider when deciding whether to hear a case. In a short order today, the Washington appeals court set aside the July ruling and scheduled new arguments for Dec. 17.

“If the government wins, you have certainly reduced the likelihood of Supreme Court review, no question,” said Jonathan Adler, a law professor at Case Western Reserve University in Cleveland, who co-wrote a brief in support of plaintiffs in the case seeking to restrict the subsidies.

Supreme Court review is “very unlikely” if the Obama administration prevails at the re-hearing because justices rarely review “a decision upholding a rule without a circuit split,” said Timothy Jost, a health law professor at Washington and Lee School of Law in Lexington, Virginia.

On the other hand, the Supreme Court may feel obligated to tackle the Patient Protection and Affordable Care Act of 2010 once more simply because of the issues at stake, according to Tom Goldstein, an appellate lawyer whose Scotusblog website tracks the court and is sponsored by Bloomberg Law.

Supreme Court

While the likely result of a re-hearing will be a win for the Obama administration, “the issue is so significant and close that it ultimately is likely to be decided by a more conservative Supreme Court,” Goldstein wrote in an e-mail.

The question before the appeals court involves tax subsidies that apply to more than half of the 8 million people who picked an insurance plan from October through mid-April, according to a report by the U.S. Department of Health and Human Services.

The dispute centers on whether the subsidies, in the form of tax credits, apply only to consumers in the 14 states that have set up Obamacare insurance marketplaces or to the much larger number who buy insurance on the federal marketplace.

The Obama administration asked the full court to rehear the case after the three-judge panel struck down the Internal Revenue Service rule specifying that needy customers in both the federal and state marketplaces were eligible for the subsidies.

Hours after that July ruling, a federal appeals panel in Richmond unanimously upheld the IRS rule.

Obama Appointees

The decision to rehear the case underscores the influence of four judges appointed to the court by President Barack Obama since 2013. Three of them took their seats after Senate Democrats changed the rules to let a simple majority confirm most presidential nominees.

Long dominated by Republican appointees, the Washington appeals court now has seven judges who were nominated by Democratic presidents and four named by Republicans.

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 the rehearing because they were on the three-judge panel. Edwards dissented.

A divided Supreme Court in June 2012 upheld the core of Obamacare, voting 5-4 that Congress has the power to make Americans carry insurance or pay a penalty.

Administration’s Stance

In the current set of cases, the Obama administration argues that Congress intended the subsidies to be granted to all eligible participants, whether buying insurance on state exchanges or on the federal marketplace operated by the U.S. in place of states.

Opponents, citing the language of the law, contend that subsidies are limited to marketplaces “established by the state.”

Judges appointed by Democratic presidents tend to be more concerned about the broader purpose of a law than about how it’s worded, a tendency that could give supporters of Obamacare an edge in the re-hearing, according Adler.

Adler said that judges on the Washington appeals bench named by Democrats may share the view of Edwards, who in his dissent called the case a thinly veiled attempt to gut Obamacare. Edwards is “very concerned about the plaintiff’s motives, far more than the text of the law,” Adler said in a phone interview.

Rehearing Opposed

The plaintiffs in the Washington case objected to a rehearing, contending that the issue is important enough to go straight to the Supreme Court.

Their lawyer, Michael Carvin of Jones Day, also represents the plaintiffs in the Richmond case, and already has asked the Supreme Court to hear the matter.

The question of who is covered by the IRS rule “should proceed immediately” to final resolution by the Supreme Court, Carvin wrote in an Aug. 18 filing urging the Washington court to decline a rehearing.

The decision by the Washington appeals court to grant re-hearing makes it “very unlikely” the Supreme Court will accept the Richmond case, Jost said.

At least two other challenges to the health-care tax credits are pending in federal courts in Oklahoma and Indiana.

The D.C. case is Halbig v. Sebelius, 14-5018, U.S. Court of Appeals for the District of Columbia (Washington). The Virginia case is King v. Sebelius, 14-1158, U.S. Court of Appeals for the Fourth Circuit, (Richmond).

To contact the reporters on this story: Andrew Zajac in Washington at azajac@bloomberg.net; Greg Stohr in Washington at gstohr@bloomberg.net

To contact the editors responsible for this story: David E. Rovella at drovella@bloomberg.net Charles Carter

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