Two Federal Appeals Courts Rule Two Different Ways On Obamacare Subsidies
Contradictory rulings from two Federal Courts of Appeal show that statutory construction isn't a simple thing.
Four years after it became law, and two years after the Supreme Court rejected challenges to its constitutionality, the Patient Protection and Affordable Care Act is back in the news, and in the most unusual way thanks to a pair of rulings from two Federal Circuit Courts of Appeal that are roughly a ninety mile drive away from each other. Both cases deal with the issue of whether or not individuals who have purchased policies under the PPACA via one the Federal exchange that serves the 36 states that declined to set up a state-based exchange. As I noted when I wrote about this issue just a couple weeks ago, the Plaintiffs in both cases argued that the law as written prohibits the Internal Revenue Service from giving the tax subsidies allowed under the law to that group of people because the law only speaks of subsidies for policies purchased on exchanges established by the states. The two District Courts that had ruled on this matter, in Washington, D.C. and Virginia, had rejected this argument, but today the D.C. Circuit ruled in favor of that interpretation of the law, while another panel of the Fourth Circuit ruled against it:
WASHINGTON — Two federal appeals court panels issued conflicting rulings Tuesday on whether the government could subsidize health insurance premiums for people in three dozen states that use the federal insurance exchange. The decisions are the latest in a series of legal challenges to central components of President Obama’s health care law.
The United States Court of Appeals for the Fourth Circuit, in Richmond, upheld the subsidies, saying that a rule issued by the Internal Revenue Service was “a permissible exercise of the agency’s discretion.”
The ruling came within hours of a 2-to-1 ruling by a panel of the United States Court of Appeals for the District of Columbia Circuit, which said that the government could not subsidize insurance for people in states that use the federal exchange.
That decision could cut potentially off financial assistance for more than 4.5 million people who were found eligible for subsidized insurance in the federal exchange, or marketplace.
Under the Affordable Care Act, the appeals court here said, subsidies are available only to people who obtained insurance through exchanges established by states.
The law “does not authorize the Internal Revenue Service to provide tax credits for insurance purchased on federal exchanges,” said the ruling, by a three-judge panel in Washington. The law, it said, “plainly makes subsidies available only on exchanges established by states.”
Under this ruling, many people could see their share of premiums increase sharply, making insurance unaffordable for them.
The courts’ decisions are the not the last word, however, as other courts are weighing the same issue. And the Washington panel’s ruling could be reviewed by the full appeals court here.
The majority opinion in the case filed here, Halbig v. Burwell, was written by Judge Thomas B. Griffith, with a concurring opinion by Judge A. Raymond Randolph, a senior circuit judge.
Another member of that appeals court panel, Judge Harry T. Edwards, also a senior circuit judge, filed a dissenting opinion in which he described the lawsuit as an “attempt to gut” the health care law. The majority opinion, he said, “defies the will of Congress.”
Judge Edwards said that the Obama administration’s reading of the law, considered in “the broader context of the statute as a whole,” was “permissible and reasonable, and, therefore, entitled to deference.”
A similar approach was sounded later by the Fourth Circuit panel, which said, “We find that the applicable statutory language is ambiguous and subject to multiple interpretations.” The court said it would therefore give deference to the reading of the law by the Internal Revenue Service, which issued the rule allowing payment of subsidies for people in all states, regardless of whether the state had a federal or state exchange.
The decision by the appeals court here is important because the federal exchange serves states with about two-thirds of the nation’s population. In federal and state exchanges, people may qualify for subsidies if they have incomes of up to $45,960 for individuals and up to $94,200 for a family of four.
If it stands, the ruling by the District of Columbia court could undercut enforcement of the requirement for most Americans to have insurance. Without subsidies, many more consumers would go without insurance and could be exempted from the “individual mandate” because insurance would be unaffordable for them.
The ruling also could undermine the requirement for larger employers to offer health coverage to their employees. That requirement is enforced through penalties imposed on employers if any of their employees receive subsidies to buy insurance on an exchange.
Lyle Denniston summarizes the ruling from the D.C. Circuit:
The D.C. Circuit ruled on the subsidy issue in a case pursued by a West Virginia man who does not want to obtain health insurance but would have to pay a penalty if he did not do so. West Virginia is one of the states that has declined to set up an exchange, so people in that state must go to a federally run marketplace instead.
It would appear that the D.C. Circuit ruling, if it withstands a likely challenge by the federal government, would go far toward making the exchange system far less successful in expanding coverage than the government had hoped, and intended. Congress would have the power to fix the problem, but there is almost no chance that the Republican-controlled House would go along with any measure seeking to salvage the ACA or make it more effective. In fact, the House has voted more than four dozen times to repeal the entire law.
“The government urges us, in effect, to strike . . . the phrase ‘established by the state,’ on the ground that giving force to its plain meaning renders other provisions of the Act absurd. But we find that the government has failed to make the extraordinary showing required for such judicial rewriting of an act of Congress. Nothing about the imperative to read [the exchange provision] in harmony with the rest of the ACA requires interpreting ‘established by the state’ to mean anything other than what it plainly says.”
Conceding that the stakes in that case were high, affecting millions of individuals now receiving subsidies through the federally run exchanges, the majority said that “high as those stakes are, the principle of legislative supremacy that guides us is higher still.”
The Fourth Circuit’s decision, which was unanimous among a three judge panel composed of a George W. Bush nominee and two Judges appointed by President Obama, was essentially in line with Judge Edwards dissent. In both cases, the majorities found that the portion of the law dealing with the subsidy was ambiguous, and its obvious that this is the case since the same provision that talks about the creation of Federal exchanges in the states that don’t establish their own exchanges then goes on to refer to subsidies for policies purchased on the state exchanges. However, where the D.C. Circuit ruled that the ambiguity should be construed against the law, the Fourth Circuit said that the ambiguity should be construed in favor of the idea that the I.R.S., in crafting the regulation that essentially says that the exchange established for each state by the Federal Government is the “state” exchange contemplated by the law.
Not surprisingly, the reaction to this decision in the political world depends upon which side of the divide you come down on. Those who support the Affordable Care Act are decrying the D.C. Circuit court decision and hailing the decision from the 4th Circuit, while those who are opposed to the PPACA are doing the opposite. Legally, the issues are somewhat more complicated, as the fact that two different Courts of Appeal, both of whom were fully briefed on all the relevant issues by largely the same groups of attorneys, came down so differently on the same issue demonstrates. In some ways, the statutory construction issues before the Courts here are more complicated, and less easy to resolve clearly, than the Constitutional issues that were before the Court when it deal with the major challenges to the PPACA two years ago. As a general rule, though, Courts are guided by the plain language of the statute, the presumption that the law means what it says and that statute is both consistent with itself and with other laws passed by Congress, and by the intent of Congress as expressed in the law. More specifically, in Chevron v. National Resources Defense Council, the Supreme Court set forth a two-part test to determine if an agency’s interpretation of a statute, in this case, the I.R.S. interpretation regarding what “state” exchange means, should be granted deference. If Congress has specifically spoken on the issue and its intent is clear, then that intent will control the determination of the validity of the regulation. If the intent is not clear or the language is ambiguous, then the question becomes whether or or not the agency’s construction of the statute is permissible. What “permissible” is, of course, is the basic issue in these cases, and the one that will have to be dealt with further down the road.
The implications of the fate of this provision of the law are fairly clear, and potentially devastating to the financial stability of the entire exchange system under the PPACA. A preliminary estimate after the D.C. Circuit’s decision came down was that the decision would impact at least 4.7 million of the 5.4 million people who have signed up for subsidies via the Federal Exchanges. While that seems like a low number, the actual impact could be much larger because the loss of subsidies could lead many of these people to decide to drop coverage altogether, especially younger, healthier people for whom the non-subsidized premiums would be unaffordable. If this happened, then it could lead to increased premiums across the board as the risk pool would then become more titled toward older, less healthy individuals. Even leaving possibility out of the equation, though, by one estimate, the financial impact of this ruling of upholding this ruling would amount to some $36 billion in subsidies to people in the states that are under the Federal exchange.
It’s quite unusual, I suppose, for two major rulings on an identical issue to come down within hours of each other like this, especially when they are so contradictory to each other. Outside of that coincidence, though, the most important factor about this instant Circuit split is that it pretty much guarantees that the Supreme Court will be dealing with this issue, most likely in the term that begins in October. That was likely to happen regardless of whether or not the 4th Circuit’s decision came down on the opposite side of this issue or not, to be honest, because a ruling like the one from the D.C. Circuit that essentially invalidates a major portion of a major Federal Law is something that the Justices are going to be loathe to let sit without further review. Interestingly, after the D.C. Circuit decision had been handed down, but before we got word of the Fourth Circuit opinion, the Justice Department had announced that it would seek an en banc review before the entire D.C. Circuit Court of Appeals; an interesting tactical decision principally because, thanks to recent confirmations, a majority of that court now consists of Obama and Clinton nominees. The Court does not have to grant that request, but given the majority there seems to be a strong likelihood that they will. It’s unclear whether that plan will change in light of the 4th Circuit ruling, which the Plaintiffs now have the option of either asking for an en banc hearing, which seems unlikely since the majority of the 4th Circuit also consists of Obama and Clinton appointees, or appealing to the Supreme Court. In the end, eventually, this issue will be decided by the Justices, potentially as early as June of next year.