Healthcare Business News

Washington judge won't block federal payments for subsidized coverage

By Joe Carlson
Posted: October 22, 2013 - 5:30 pm ET

The Obama administration scored a partial legal victory Tuesday morning when a judge in Washington refused to immediately block federal payments for Americans who purchase subsidized coverage through federally run insurance exchanges.

Opponents of the healthcare law, however, are pleased that the judge allowed the case to proceed.

The same legal controversy, meanwhile, is pending in several courts throughout the country, and at least one observer said the issue may be headed for an ultimate decision before the U.S. Supreme Court.

In a lengthy decision read from the bench Tuesday, U.S. District Judge Paul Friedman decided not grant a request from opponents of the healthcare reform law for a preliminary injunction that would have blocked federal subsidies for low- and middle-income families who buy insurance through a federally run exchanges.

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The controversy involves subsidies for residents in the 36 states where the federal government is operating insurance exchanges. Subsidies to purchase insurance on an exchange are available to anyone with income less than 400% of the federal poverty level, which is $94,200 for a family of four in 2013, but most states have declined to run the exchange themselves.

The legal question centers on the precise wording in the section of the Patient Protection and Affordable Care Act that describes eligibility for the subsidies.

The 2010 reform law says subsidies to purchase insurance through an exchange will be provided to individuals and families who got insurance “through an Exchange established by the State.” The IRS has since interpreted that to mean any health insurance exchange, not just the state-run exchanges.

One of the factors Friedman considered was whether he thought the plaintiffs—four individuals and three businesses—would ultimately win their case. Instead, Friedman characterized the government lawyers' arguments as credible. He also noted that the individual plaintiffs were not likely to suffer irreparable harm in the absence of a preliminary injunction, since they could recoup any penalties assessed if they prevail in court.

But the ruling was not a slam-dunk for the government. Friedman also declined Tuesday to grant a request to completely throw the case out of court. Instead, he committed to issuing a final ruling in the case (Halbig v. Sebelius) by an expedited deadline of Feb. 15—enough time for the private citizens involved to meet a March 31 enrollment deadline for insurance through the exchanges.

“Getting past the government's motion to dismiss was a big victory,” said Sam Kazman, general counsel for the small-government advocacy group Competitive Enterprise Institute, which is funding part of the litigation. (National law firm Jones Day also is charging adjusted rates that include a “pro bono element,” Kazman said.)

The plaintiffs complain that they should not be eligible for the subsidies because they live in states where the federal government not the states, are running the exchanges.

The imposition of subsidies to purchase insurance “injures” the individuals because the subsidies increase the plaintiffs' income to the point that they cannot qualify for an exemption from the reform law's requirement that nearly all Americans purchase insurance, the lawsuit says.

Kazman noted that no matter who wins, an appeal to the U.S. Circuit Court is very likely. And considering that several lawsuits involving the same issue are pending around the country, he acknowledged that it was “very possible” the Supreme Court would ultimately decide the issue.

Follow Joe Carlson on Twitter: @MHJCarlson

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