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Latest Obamacare cases usher in renewed uncertainty

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Uncertainty is the theme of the moment as the legal aftermath of the conflicting federal appeals court rulings on the Obamacare subsidy continues.

The cases change nothing immediately. The Fourth Circuit King ruling would preserve the status quo, and the 2-1 D.C. Circuit ruling on Halbig, which would stop subsidies in Pennsylvania and 35 other states that are not running their own marketplaces, is being appealed to the court's full bench.

Based on the D.C. bench's composition — seven Democratic appointees and four Republican — legal observers say the en banc decision will probably find offering subsidies in all marketplaces to be an acceptable use of administrative power. That could end the question, or the Supreme Court could tackle it.

“If the Halbig decision stands, it will have a much greater impact than Hobby Lobby,” said Eric Athey, an attorney who is co-chairman of the labor and employment division at McNees Wallace & Nurick LLC. “It's the difference between telling someone that they can't afford coverage versus they can't have coverage with contraception. It is not as significant as the 2012 decision (which upheld most of the Patient Protection and Affordable Care Act), since that decision, if it had gone the other way, would have removed the 'teeth' of the law in all states — not just the 36 with federally run exchanges.”

However, Athey said, even if the Halbig decision ultimately falls, he doesn't think it will spell the end of Obamacare — just the law as we currently know it.

“The administration will be forced to try to find a workaround, and it's too early to tell which workarounds would be consistent with the law,” Athey said. “One potential scenario would be to allow individuals in states with federally run exchanges to obtain tax subsidies in states with state-run exchanges. Another scenario would be to allow the system to run as intended in states with state-run exchanges while it doesn't in the 36 other states. Of course, there's always the chance of a legislative fix, but that doesn't seem likely at this point.”

If no acceptable workarounds are found, Athey said, employers in states with federally run exchanges could potentially be exempt from the employer mandate's “pay or play” penalties.

“However, those provisions have been delayed and most large employers are already in compliance,” Athey said. So the primary impact would be “on individuals in those states that don't have coverage and who need the subsidy in order to afford coverage.”

For now

All of that, however, is speculative and will almost certainly take months to be decided. For now, the status quo continues — but with an extra shot of uncertainty.

“The rulings have no immediate impact on the subsidies, and subsidized products continue to be available on the health insurance marketplace,” said Jason Kirsch, senior director of communications and brand for Capital BlueCross. “Through all the changes in the health plan market, one thing is certain — consumers and businesses continue to need trusted, knowledgeable advisers to help guide them.”

“Groups are well-advised to proceed with their implementation plans as they had been doing prior to these decisions,” said Matthew Kirk, president of The Benecon Group Inc. “The employer and individual mandates remain intact. Therefore, large employers must still be ready to offer affordable and adequate coverage, in either 2015 or 2016, depending on their size, or face a penalty.”

Similarly, Kirk said, individuals must still maintain minimum essential health coverage or face a tax under Obamacare's individual mandate.

Hospitals and health systems also could be affected if the courts disallow subsidies.

“Nearly 320,000 individuals in Pennsylvania applied for health coverage through the federal marketplace, with nearly 80 percent receiving approval for the tax credit or subsidy,” said Katie Byrnes, The Hospital & Healthsystem Association of Pennsylvania spokeswoman. “For hospitals, there are concerns that a loss of coverage or the inability for consumers to get coverage in the future will directly result in an increase in uncompensated care. At a time when there is a greater focus on preventative health and wellness, this also could work against these important priorities.” 

The issue

The letter of the original law says Obamacare marketplace health insurance subsidies are available to enrollees in state-run marketplaces.

Critics seized on that, saying enrollees in the many federally facilitated marketplaces should not receive subsidies. In May 2012, the IRS issued regulations that said state, regional, subsidiary and federally facilitated marketplace enrollees all qualify for subsidies.

The regulations noted that commentators had disagreed on what the original law meant but said statutory language and other provisions in the law supported its interpretation.

“Moreover, the relevant legislative history does not demonstrate that Congress intended to limit the premium tax credit to State Exchanges,” the IRS said.

Since last week’s conflicting appeals court rulings, skirmishing over the law’s legislative history has kicked into high gear.

Cases to watch

The question of whether the law allows subsidies in the federally facilitated marketplaces goes beyond the Halbig and King cases. However, they’re the most significant, Halbig because a federal circuit court of appeals ruled against the IRS and King because an equivalent court issued a conflicting ruling almost simultaneously.

A similar case was filed in U.S. District Court for the Eastern District of Oklahoma by Oklahoma Attorney General Scott Pruitt in January 2011 and is still under litigation there. And litigation also continues on a case filed in October 2013 in the U.S. District Court for the Southern District of Indiana.

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