Obamacare supporters nervous about legal test of subsidies

If the Obama administration loses a high-profile appellate court battle over the insurance premium subsidies in the Patient Protection and Affordable Care Act, it still will have two more chances to make its case for offering the subsidies through HealthCare.gov. But both supporters and critics of the law agree that if the administration loses the case, it will be a devastating blow to efforts to expand coverage under the law.

An adverse court decision would mean the cancellation of subsidies for millions of Americans in the 36 states being served by the federal exchange. That almost certainly would create massive confusion and coverage disruption. The only two lower federal courts that have handed down decisions so far sided with the administration.

But during oral arguments last week before the U.S. Court of Appeals for the District of Columbia Circuit, two judges on a three-member panel expressed strong skepticism about the administration's arguments.

In Halbig v. Sebelius, the appellate court heard from lawyers for seven private citizens and businesses who said the Internal Revenue Service last year illegally interpreted the law's language to allow federal subsidies for any American in any state who meets income criteria.

The legal question centers on the precise wording in the section of the law that describes eligibility for the subsidies. It 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 issued a rule interpreting that to include the federal insurance exchange, not just the state-run exchanges. The administration argues that the law's language was simply a drafting error and that congressional Democrats who wrote and passed the law fully intended for eligible people in every state to receive the subsidies to expand coverage.

However, on March 25, two appellate judges, A. Raymond Randolph and Thomas B. Griffith, “appeared to agree” with the lawyer arguing to end the subsidies, according to an American Hospital Association bulletin on the case. Randolph and Griffith were appointed by Republican presidents.

“There doesn't seem to be any clear legislative history here,” Griffith said during the arguments. “If (Congress) didn't legislate clearly enough, is it our job to fix the problem?”

Their tone during the arguments stood in contrast to that of Judge Harry T. Edwards, a Democratic appointee. Edwards scoffed at the plaintiffs' argument that Congress intended to make subsidies available only through state-run exchanges to prod states to set up their own exchanges, rather than relying on the federal government to operate the exchange.

“When I read that argument, to be very honest with you so you know what my concerns are, it seems preposterous,” Edwards told plaintiffs' attorney Michael Carvin. “No one assumed that if you choose not to create the exchange, you'll effectively gut the statute.”

If the administration loses the case, it may request a hearing before the full appellate court or appeal directly to the Supreme Court. But whether the Supreme Court would take the case could depend on how other courts rule. In total, four cases are pending on this issue. The 4 th U.S. Circuit Court of Appeals is scheduled to hear oral arguments May 15 in the case King v. Sebelius, in which Carvin will make the same case he made to the D.C. Circuit. A federal district judge previously had ruled in the administration's favor.

Typically, the Supreme Court accepts cases when circuit courts split on an issue. So if the D.C. and 4th Circuits reach the same decision, that could reduce the chances that the justices will take the case.

U.S. District Court Judge Paul Friedman issued a lengthy opinion in January stating that the plain language of the law, “viewed in isolation,” appears to support the plaintiffs' interpretation.

But, he continued, “the court finds that the plain text of the statute, the statutory structure and the statutory purpose make clear that Congress intended to make premium tax credits available on both state-run and federally facilitated exchanges.”

The lawyer for the conservative Competitive Enterprise Institute, which is funding most of the legal costs in both cases, said the Supreme Court may grant a hearing on the issue regardless of lower court rulings.

“A lot depends on how the rulings come out, when they come out, and who they favor,” attorney Sam Kazman said. “Frankly, I think it is a major enough issue that there is a good likelihood that it will go there even if there is no split.”

Before appellate courts can overturn the wording of the reform law, they will have to conclude that the statute contains some level of ambiguity about what was intended, said healthcare attorney Elizabeth Mills of Chicago law firm Proskauer Rose.

The judges also may consider whether partisan congressional gridlock prevented lawmakers from going back and making technical corrections to the law, which has long been common with major congressional legislation.

It likely will be several months before the appellate courts issue their decisions in Halbig and King.

Follow Joe Carlson on Twitter: @MHJCarlson