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2-1 appellate court ruling strikes down subsidies in federal Obamacare marketplaces

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A federal appellate court this morning issued a 2-1 ruling striking down subsidies in Obamacare marketplaces that are run by the federal government, as Pennsylvania's is.

Halbig vs. Burwell was argued before the U.S. District Court of Appeals District of Columbia Circuit. Circuit Judge Thomas B. Griffith authored the majority opinion, with Senior Circuit Judge A. Raymond Randolph concurring and Senior Circuit Judge Harry T. Edwards dissenting.

"Because we conclude that the ACA unambiguously restricts the section 36B subsidy to insurance purchased on Exchanges 'established by the State,' we reverse the district court and vacate the IRS’s regulation," Griffith wrote.

"We reach this conclusion, frankly, with reluctance," he continued. "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."

Griffith said the IRS interpretation that is broader than the law justifies "has major ramifications."

"By making credits more widely available, the IRS Rule gives the individual and employer mandates — key provisions of the ACA — broader effect than they would have if credits were limited to state-established Exchanges," he said.

In his dissent, Edwards said, "This case is about Appellants’ not-so-veiled attempt to gut the Patient Protection and Affordable Care Act (“ACA”)."

A three-judge panel on the U.S. Fourth Circuit Court of Appeals issued a conflicting ruling this morning in a similar case, ruling 3-0 that the IRS rule saying subsidies are legal on both state and federal marketplaces was “a permissible exercise of the agency’s discretion.”

“The ruling does not automatically doom the subsidies,” Modern Healthcare reported. “It's virtually certain that the administration will appeal Tuesday's ruling, either to a full panel of the D.C. Circuit Court or directly to the Supreme Court. Legal experts say the earliest the high court would rule is in the matter as soon as spring 2015 — setting up a period of national uncertainty, since the final word on the subsidies' legality would likely come after the re-enrollment period for next year.”

Attorney Eric Athey, co-chairman of the labor and employment division of Harrisburg-based McNees Wallace & Nurick LLC, said if the Obama administration seeks a review of the decision by the full D.C. Court of Appeals, “(known as ‘en banc’), there is a good chance that the Administration wins.”

“If you exclude senior judges from the composition of the current bench, Democratic appointees outnumber Republicans 7-4,” he said. “Although Senior Judges may participate in panel decisions (2 Senior judges participated in today's decision), they do not participate in en banc decisions.”

Regardless of the en banc outcome, he said, “it is likely that this case will ultimately go to the US Supreme Court. The outcome is harder to predict there. Chief Justice Roberts surprised many by upholding the individual mandate component of the law in 2012; he did that by overlooking some poorly written provisions within the Act. The Halbig case is similarly the result of some poorly drafted provisions in the ACA. My prediction is that Chief Justice Roberts will be the deciding vote if the Halbig case goes to the Supreme Court.”

If the Halbig decision stands, Athey said, Pennsylvania and the other 35 states that elected for a federal-run marketplace will see Obamacare plans become unaffordable for many.

“In addition, employers in these states may be free from ‘pay or play’ penalties resulting from their failure to offer coverage – since employer penalties are generally triggered when an employee obtains a premium subsidy to purchase coverage on the exchange,” Athey said.

According to a U.S. Department of Health & Human Services report last month, Pennsylvania residents who chose subsidy-eligible plans on the federal-run marketplace got premium reductions averaging 74 percent. After tax credits, those enrolled in silver plans paid monthly premiums averaging just $60, HHS said.

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