Last Updated: 3:42 p.m.
A federal appeals court this morning ruled that subsidies to pay for health insurance premiums under the Affordable Care Act were illegal in the 36 states, including Florida, that do not have their own exchanges, as the IRS had no authority to award them outside state-run marketplaces.
The 2-1 decision does not go into effect immediately, as the court recognizes that the Obama administration would appeal: before noon, the administration requested an en banc hearing, meaning that it wants the case heard by the entire appeals court. But the decision, the second major setback to the health law in two months–after the U.S. Supreme Court’s Hobby Lobby ruling allowing certain companies to opt out of providing contraceptive coverage to women–is a potentially fatal blow to the Affordable Care Act. The overwhelming majority of the more than 7 million people now receiving coverage through the health law also receive subsidies to pay for the premiums. In Florida, for example, where the average monthly premium under the ACA is $68, some 91 percent of those enrolled get an average monthly subsidy of $278 a month. Most could not afford the premiums without the subsidies, which would disappear if the decision sticks.
The decision would also deal a serious blow to insurance companies, which have seen enrollment and revenue spike as the health insurance mandate went into effect this year. The mandate requires all Americans to have health insurance or pay a penalty equivalent to 1 percent of income, or a minimum of $95.
Hours after the court in Washington, D.C., issued its ruling, the United States Court of Appeals for the Fourth Circuit, in Richmond, reputed to be one of the nation’s most conservative circuits, issued its own ruling on a similar suit, but taking the opposite view, and unanimously so. “We find that the applicable statutory language is ambiguous and subject to multiple interpretations. Applying deference to the IRS’s determination, however, we uphold the rule as a permissible exercise of the agency’s discretion,” the Fourth Circuit ruled in an opinion written by Judge Roger Gregory, appointed by President Clinton in 2000. He was joined by Judge Stephanie Thacker Judge Andre Davis, both appointed by Obama. (See the full decision here.)
Gregory used a pizza analogy to make his point that the difference between state exchanges or the federal exchanges does not change congressional intent–to provide health insurance, with subsidies, to those who apply. “If I ask for pizza from Pizza Hut for lunch but clarify that I would be fine with a pizza from Domino’s,” the judge wrote, “and I then specify that I want ham and pepperoni on my pizza from Pizza Hut, my friend who returns from Domino’s with a ham and pepperoni pizza has still complied with a literal construction of my lunch order. That is this case: Congress specified that Exchanges should be established and run by the states, but the contingency provision permits federal officials to act in place of the state when it fails to establish an Exchange. The premium tax credit calculation subprovision later specifies certain conditions regarding state-run Exchanges, but that does not mean that a literal reading of that provision somehow precludes its applicability to substitute federally-run Exchanges or erases the contingency provision out of the statute.”
As other courts issue their rulings in months ahead, the likeliest outcome is that the matter will be finally decided by the United States Supreme Court, possibly in its next term, which begins in October.
Gov. Rick Scott, an ardent opponent of the health law, refused to set up a state-based exchange for the Affordable Care Act, and initially rejected $51 billion in federal subsidies to expand Medicaid, the health insurance program for the poor, over 10 years. When Scott changed his mind on the Medicaid subsidies, he’d lost the Legislature’s support on the matter. But he never changed his mind about a state exchange. Florida’s enrollees went through the federal healthcare.gov site.
The law “does not authorize the Internal Revenue Service to provide tax credits for insurance purchased on federal exchanges,” Judge Thomas Griffith wrote for the 2-1 majority of the United States Court of Appeals for the District of Columbia Circuit. The law, he wrote, “plainly makes subsidies available only on exchanges established by states.” (See the full decision, with the dissent, below.)
President George W. Bush appointed Griffith to the court in 2005. His 73-24 confirmation vote included that of then-Sen. Barack Obama. The first President Bush appointed Arthur Randolph, who wrote a brief concurrence, in 1990. Harry Edwards, the lone dissenter in the decision, was appointed by President Carter in 1980.
In his concurrence, Randolph cited a 1926 precedent by Justice Louis Brandeis to support his interpretation of the law: “What the government asks is not a construction of a statute, but, in effect, an enlargement of it by the court, so that what was omitted, presumably by inadvertence, may be included within its scope. To supply omissions transcends the judicial function.” Brandeis, ironically, was one of the court’s most liberal justices and a supporter of social experiments. But he was also suspicious of bigness and outsized power–especially that of corporations, but also that of government.
The case was initially brought by Jacqueline Halbig, a resident of Virginia, which does not have an exchange, along with residents of West Virginia, Tennessee and Texas, and corporations based in Missouri, Texas, and Kansas. In two previous cases, lower courts in the District of Columbia and Virginia ruled in favor of the government. Today’s decision is one of four such cases still making their way through lower or appeal courts across the nation, each of them making similar arguments against the health law’s subsidies, and all of them an echo of the numerous challenges to the ACA that resulted in the U.S. Supreme Court’s 5-4 decision in 2012 upholding the health law. That decision, written by Chief Justice John Roberts, declared the law constitutional based on Congress’ right to tax, and the IRS’ right to administer those taxes–including, presumably, the subsidies coupled with the mandate.
“The fact is that the legislative record provides little indication one way or the other of congressional intent,” Griffith wrote, a statement with which most members of Congress who voted for the ACA in 2010 would likely disagree: Congress’ intent and assumption at the time was that the exchanges would be created as a matter of course, with the federal exchange as a backstop, and the primary intent of the law remaining making health coverage affordable–as its title implies–through subsidies.
Edwards, using very strong language in his dissent, ridiculed Griffith’s claim about congressional intent, or the complainants’ claim that Congress did not intent the federal Department of Health and Human Services to provide the backstop to state exchanges.
“This claim is nonsense, made up out of whole cloth,” Edwards wrote. “There is no credible evidence in the record that Congress intended to condition subsidies on whether a State, as opposed to HHS, established the Exchange. Nor is there credible evidence that any State even considered the possibility that its taxpayers would be denied subsidies if the State opted to allow HHS to establish an Exchange on its behalf. The majority opinion ignores the obvious ambiguity in the statute and claims to rest on plain meaning where there is none to be found. In so doing, the majority misapplies the applicable standard of review, refuses to give deference to the IRS’s and HHS’s permissible constructions of the ACA, and issues a judgment that portends disastrous consequences.”
Dissents have no power of law, but they do influence subsequent decisions. (Innumerable labor law and expansive free speech interpretations currently taken for granted were originally written in dissents by Brandeis.) In fact, it was an echo of Edwards’s dissent that formed the heart of the majority opinion of the Fourth Circuit Court of Appeals today.
“We reach this conclusion, frankly, with reluctance,” Griffith went on. “At least until states that wish to can set up Exchanges, 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. Within constitutional limits, 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 duly enacted through the formal legislative process. This limited role serves democratic interests by ensuring that policy is made by elected, politically accountable representatives, not by appointed, life-tenured judges.”