An Extreme Court Decision Threatens Obamacare

But a separate ruling says the law is just fine.

| Tue Jul. 22, 2014 1:43 PM EDT

Talk about a David and Goliath case. On Monday, a guy from West Virginia who doesn't want to pay $21 a year* for health insurance scored a victory over the Obama administration in a lawsuit that could deprive nearly 5 million Americans of their newly won health care.

In a 2-1 decision, the US Court of Appeals for the DC Circuit sided with plaintiff David Klemencic and gutted a key provision of the Affordable Care Act that provides premium subsidies to millions of low-income Americans. The decision in Halbig v Burwell, a case spearheaded by a battery of conservative groups who backed Klemencic and his co-plaintiffs (many of whom are GOP political operatives), is based on what is essentially a typo in the ACA. The opinion is a symptom of what happens when a dysfunctional Congress can't manage to do even the simplest part of its job, such as correcting routine drafting errors in legislation.

Hours later, though, a federal appeals court in Richmond, Virginia, issued a diametrically opposed decision affirming Obamacare and perhaps setting up a future battle before the Supreme Court.

Here's the backstory, as I reported last winter:

When Congress wrote the ACA, it said that premium subsidies would be available for certain qualifying citizens who were "enrolled through an Exchange established by the State." (Emphasis added.) The law doesn't say that those subsidies are available to people in the 34 states that declined to set up exchanges, where residents must utilize the now-infamously buggy Healthcare.gov, the federal exchange.

That's where Obamacare opponents see a fatal flaw in the law. The plaintiffs in Halbig claim that they won't be eligible for tax credits because their states didn't start an exchange, so they won't be able to afford insurance. As a result, they argue that they'll be subject to the fine for not buying insurance, or to avoid the fine, they'll have to pay a lot for insurance they don't want. They want the court to block the IRS from implementing the law...

The Obama administration argues that the language Halbig's case is premised on is merely a drafting error common in legislation and routinely reconciled after passage. (Indeed, if Congress were functioning normally, such copy mistake would have been corrected by now, but given the level of polarization in that body, it's been impossible to make such fixes that were once routine.) An amicus brief in the case filed by Families USA, a nonprofit health care advocacy group helping the administration combat some of the bad PR surrounding Obamacare, argues that the plaintiffs are disregarding the vast body of evidence showing that Congress intended for all low-income Americans to be eligible for tax subsidies, regardless of which exchange they used to purchase insurance. 

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But the DC Circuit stuck religiously to the text when it rendered its verdict, siding with Klemencic, the only plaintiff the court recognized as having enough of an "injury" to give him standing in the case.

Klemencic's alleged "injury" is a dubious one at best. West Virginia is one of the states that whiffed on starting its own exchange and simply left the job to the feds. Klemencic argued that he technically shouldn't qualify for a premium subsidy, because West Virginia does not have an exchange. But because the IRS has treated state and federal exchange as interchangeable, he has become eligible for subsidies he doesn't want.

According to Klemencic, who is the sole proprietor of a flooring company, he'll earn about $20,000 this year, and buying insurance on the open market would eat up more than 8 percent of his income. Because of that high cost, the ACA would exempt him from the individual mandate and the requirement that he buy insurance or pay a penalty.

But here's where his beef comes in: Because the IRS has assumed that Congress meant for everyone who's eligible to receive a premium credit (regardless of which exchange they obtain their insurance on) Klemencic is entitled to a premium subsidy that would allow him to get insurance for $21 a year. But if he were to refuse the subsidized insurance, he would be subject to a penalty under the individual mandate that might amount to more than $100. Because of this so-called "injury," his case has progressed through the courts to the point where it is now threatening the hard-won health care benefits of millions of other Americans.

The DC Circuit agreed with Klemencic that the Internal Revenue Service's interpretation of the Affordable Care Act was wrong, and that the law, as written, does not allow Americans who purchased their insurance on the federal exchange to receive premium subsidies—currently nearly 5 million people.

The DC Circuit recognized the ramifications of its ruling. Writing for the majority, Judge Thomas Griffith lamented,

We reach this conclusion, frankly, with reluctance. 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.

Shorter Griffith: Congress should get its act together and correct its drafting errors.

The decision is a serious blow to the Affordable Care Act, especially because Congress is unlikely to get its act together any time soon to fix this problem. Any effort by Democrats to reopen the legislation to fix the wording would only provide the GOP with another opportunity to try to gut the ACA, so they're not going to attempt it. But supporters of the law are trying to be optimistic that the decision is a temporary setback and one that won't survive further challenges before the full DC Circuit, where democratic appointees hold a majority.

Ron Pollack, executive director of Families USA released a statement saying:

It is most likely that today's split decision, which would take away premium subsidies for almost five million low- and moderate-income people, will never go into effect... The likelihood that today's decision will not be implemented does not obscure the harm it could cause. It would eliminate help for almost five million low- and moderate-income people who currently receive subsidies so they can afford health insurance. Millions of other low-income families, who are also entitled to such assistance but have not yet received it, would also be denied help.

It is ironic that the law’s opponents are invoking the very statute they are trying to destroy for the proposition that Congress intended to withhold premium subsidies for families in states with federally run health care marketplaces. That proposition clearly contradicts congressional intent.

The chairmen of the committees that crafted the legislation (Senators Baucus and Harkin, and Representatives Waxman, Levin, and Miller) made this clear in a court brief they submitted, saying that this  ‘assertion is inconsistent with the text and history of the statute, and with its fundamental purpose – to make health insurance affordable for all Americans, wherever they reside.’

ACA supporters have reason to be hopeful, given that the conservative 4th Circuit Court of Appeals in Richmond came to the opposite conclusion as the DC Circuit in a similar case challenging the IRS interpretation of the law. That court ruled in King v. Burwell that the language in the ACA is sufficiently vague that the IRS is within its power to interpret the law as it has.

This dispute might well end up with the Supreme Court. But with the recent addition of Obama appointees to the DC appeals court, Obamacare backers have reason to hope—or pray—that the anti-ACA decision will be overturned by the full circuit. If the case does reach the highest court, ACA fans will be in trouble. The Roberts court hasn't shown much regard for legislative history. (See its recent work on the Voting Rights Act.) Chief Justice John Roberts and his conservative colleagues are famous for sticking to the text of legislation, and if their record is any guide, they would likely support the DC Circuit panel's ruling—should the matter get that far.

*This figure is taken from the DC Circuit's Halbig opinion. Some readers have questioned how this premium could be so low. Indeed, earlier briefs in the case, as well as online premium calculators indicate that Klemencic would have paid $216 per year, or $18 per month, for his subsidized insurance, not $21 per year. We also were skeptical that the number was too low and suspected that the court had made an error based on those earlier filings. However, more research revealed that as part of the litigation, Donald Moulds, the acting assistant secretary for planning and evaluation at the Department of Health and Human Services, who initially calculated the premium at about $18 a month, later updated his calculations with more recent data and provided a sworn statement concluding that Klemencic would in fact be able to purchase a low-cost Bronze plan in his area for $1.70 per month, or just about $21 a year.