Looking at how high court might rule on exchange subsidies

The Obama administration hopes the latest legal challenge to the Patient Protection and Affordable Care Act never reaches Chief Justice John Roberts and his colleagues on the U.S. Supreme Court. But some legal scholars say there's reason to think that past opinions by conservative justices would support the administration's interpretation that the law allows premium subsidies through HealthCare.gov.

Last week, federal appellate courts in the District of Columbia and Virginia issued clashing rulings on the question of whether the text of the healthcare reform law provides subsidies to buy insurance through the federal exchange serving 36 states, rather than providing them solely though state-established exchanges. The D.C. court, in a 2-1 panel ruling in Halbig v. Burwell, held that the law clearly does not allow subsidies through the federal exchange and therefore the Internal Revenue Service could not interpret the law to permit them. In contrast, the Virginia court panel unanimously ruled in King v. Burwell that the law was ambiguous and the agency therefore had the authority to allow subsidies.

Based on the split rulings, the issue may be headed to the high court, which could rule by next June—by which time millions of Americans in the 36 states will be receiving substantial premium assistance.

Even though the high court often issues decisions involving statutory interpretation, few legal experts would go on record predicting how the majority would rule, particularly given the political polarization around Obamacare. “I think it could go either way,” said George Mason University law professor Ilya Somin, an adjunct scholar at the libertarian Cato Institute, which supported the challenge to the subsidies. “You have reasonably plausible arguments on both sides, and obviously you have an argument that is very politically charged.”

The legal question centers on the precise wording in the ACA describing eligibility for the subsidies. The 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 issued a rule interpreting that to mean any health insurance exchange, not just the state-run exchanges.

In Halbig, the divided D.C. court panel agreed with reform opponent's argument that the IRS did not have the discretion to hand out premium tax credits in states using the federal exchange. Two Republican-appointed judges struck down the IRS rule, with a Democratic-appointed judge dissenting. The Obama administration immediately said it would ask for a rehearing before the full D.C. appeals court, which has a majority of Democratic-appointed judges.

Plaintiffs in the Halbig case and three similar cases argue that the law's Democratic authors intended to limit the availability of the subsidies to state-run exchanges to pressure states into establishing their own marketplaces, though there is little or no legislative history showing that. The law's supporters, however, say the ambiguity is due to a drafting error resulting from the tortuous process of passing the bill, which did not allow any revisions.

The Supreme Court's conservatives touched on the issue of Congress' intent regarding the premium tax credits in their dissent in National Federation of Independent Business v. Sebelius, the 2012 case that upheld the law's individual mandate. Acknowledging the centrality of the subsidies to the law's functioning, the four dissenters wrote that without the federal subsidies “the exchanges would not operate as Congress intended, and may not operate at all.”

Experts say it's not clear the Supreme Court would take the case if the full D.C. appeals court reverses the three-judge panel and upholds the legality of the IRS rule allowing subsidies on the federal exchange. Such a decision would eliminate any split among the appeals courts about the issue, though two similar suits have yet to be decided by trial judges or appeals courts in other circuits.

On the other hand, if the losing plaintiffs in the Virginia case ask the high court for expedited handling, justices eager to resolve the subsidy question before more Americans sign up for coverage in November could put the case on its docket this fall. All it takes is four justices to vote to accept a case, and it's clear there are at least four Obamacare skeptics on the court. Still, it would be highly unusual for the court to accept the Virginia case while the full D.C. appeals court was still considering the case, said Washington & Lee University law professor Tim Jost.

The D.C. appeals court majority recognized the severe consequences of its ruling, saying they reached their conclusion “with reluctance.” But they said they had no other choice. “Our ruling will likely have significant consequences both for the millions of individuals receiving tax credits through federal exchanges and for health insurance markets more broadly. But, high as those stakes are, the principle of legislative supremacy that guides us is higher still … Congress is supreme in matters of policy, and the consequence of that supremacy is that our duty when interpreting a statute is to ascertain the meaning of the words of the statute.”

Much of the legal analysis in the two appellate opinions focused on a landmark 1984 Supreme Court case, Chevron USA v. Natural Resources Defense Council, which held that federal agencies must follow the letter of the law where the law is clear. But if courts using the Chevron analysis conclude that a law is ambiguous, then judges are required to give strong deference to an agency's interpretation of the law.

While the D.C. appeals panel held that the ACA was so clear that no Chevron analysis was needed, the 4th Circuit panel ruled that the IRS had the authority to make the interpretation it did because the law in its entirety was ambiguous and permitted for multiple interpretations. “We cannot discern whether Congress intended one way or another to make the tax credits available on HHS-facilitated exchanges,” the panel, composed of three Democratic-appointed judges, wrote. “The relevant statutory sections appear to conflict with one another, yielding different possible interpretations. In light of this uncertainty, this is a suitable case in which to apply the principles of deference called for by Chevron.”

But would the high court justices see the ACA's subsidy language as ambiguous? The court regularly issues opinions involving Chevron analyses that may offer clues. Last month in Utility Air v. Environmental Protection Agency, Justice Antonin Scalia, writing for the majority, said the EPA could not dramatically expand the scope of its air pollution regulations without a clear signal from Congress to do so. “We reaffirm the core administrative-law principle that an agency may not rewrite clear statutory terms to suit its own sense of how the statute should operate,” he wrote.

But Scalia went on to write that “the fundamental canon of statutory construction (is) that the words of a statute must be read in their context and with a view to their place in the overall statutory scheme.”

Words like that offer hope to Obamacare supporters.

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