Federal Courts Duel Over Obamacare

On Tuesday, two federal courts issued directly conflicting opinions on a key provision of the Affordable Care Act (ACA), likely paving the way for another high stakes showdown over Obamacare in the Supreme Court.  The central point of disagreement between courts of appeals for the DC Circuit and the Fourth Circuit is power granted to the IRS to issue tax credits for health insurance offered through federal exchanges.  The opinions, issued within hours of each other, represent debate on a crucial part of Obamacare, leaving SCOTUS with yet another opportunity to heavily influence how the controversial legislation is enforced.

IRS Power over Obamacare at Issue in Federal Court Cases

At debate in the divided federal court opinions is authority of the Internal Revenue Service (IRS) to issue tax credits to individuals who purchase health care from one of the federal insurance exchanges established under the ACA.  Specifically, the portion of Obamacare analyzed by the two federal courts is language that allows the IRS to provide subsidies for people who buy health insurance in exchanges “established by the State under section 1311” of the ACA. 

The IRS has interpreted that provision of the ACA to include both federal and state governments under the term “the State.”  In both cases, the IRS’s view of its authority under section 1311 was challenged by parties who argued that “the State” applies only to states which have established health insurance exchanges – effectively preventing the IRS from issuing tax subsidies to individuals in the 36 states which have thus far declined to develop exchanges so far.  The matter is not insignificant – the IRS subsidies are key to encouraging citizens to purchase healthcare, enabling the ACA to have its desired effect.

Court of Appeals for DC Circuit Limits Reach of IRS

In Halbig v Burwell, the Court of Appeals for the DC Circuit took a strict textual interpretation view of the ACA, and determined that “the State” means only states – excluding insurance plans sold on federal exchanges.  Judge Thomas Griffith, writing for the majority in a 2-1 split decision, explained that the government’s argument requesting the court consider the ACA’s legislative history when interpreting the ambiguous language spelling out Congress’s intended scope of IRS authority was not sufficient to overcome a strict interpretation of the statute’s text – which, according to Judge Griffith, was not specific enough to warrant extension of IRS benefits to federal insurance exchanges.  Saying that the government offered “no textual basis … for concluding that a federally established exchange is … established by a state,” Judge Griffith rejected the IRS’s conclusion and limited the agency’s authority to issue tax subsidies.

In a spirited dissent, Judge Harry Edwards considered the IRS’s interpretation of the ambiguous language of the ACA to be reasonable considering the purpose and practical implementation of the law, and concluded that the agency has the authority to issue tax subsidies for insurance purchased on federal exchanges.  Criticizing the lawsuit, Judge Edwards called it a “not-so-veiled attempt to gut the Patient Protection and Affordable Care Act,” and expressed his disappointment that the Halbig majority’s strict textual position allowed for the ACA to experience another roadblock.

Court of Appeals for Fourth Circuit Promotes Expansive Obamacare

Mere hours after Halbig, the Court of Appeals for the Fourth Circuit released its opinion in King v Burwell.  Like the DC Circuit, the unanimous 3-0 opinion in King acknowledged that the relevant text of the ACA was ambiguous.   Unlike the DC Circuit, however, the 4th Circuit believed that the IRS had reasonably interpreted the law to include both federal and state exchanges.   Controlling law on statutory interpretation of ambiguous text by government agencies requires courts to defer to the agency if its interpretation of the law is reasonable, and Judge Roger Gregory, writing for the majority, found that the IRS had satisfied its burden of proof. 

Saying that the text of the ACA did not clearly identify what Congress meant by “the State,” Judge Gregory wrote that the court would defer to the IRS’s interpretation because the agency reasonably took action to implement the law – thus upholding the agency's authority to issue tax credits to individuals who purchase insurance on federal or state exchanges.

Looking Ahead: SCOTUS may Settle Obamacare Dispute

The split between the circuits suggest that the ultimate answer will have to come from the Supreme Court at some point in the near future.  With two similar cases pending in Indiana and Oklahoma, the relevant interpretation of the ACA may be even more pressing, further compelling SCOTUS to take action.  If the Court ends up taking the issue on – which is not guaranteed since the Halbig decision may be overturned on review – it is worth noting that Justice Scalia represents the only strict textualist who would be likely to adopt the DC Circuit’s interpretation without convincing.  While political loyalties may influence other conservative members of SCOTUS – a distinct possibility given that both Habig and King were divided on party lines – the High Court’s history with the ACA suggests that opponents of Obamacare are a long way from a successful challenge.

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