Health & Human Services

Courts Issue Contradictory Rulings on Health Subsidies

Two courts issued contradictory rulings Tuesday about whether the federal government can offer insurance subsidies to people in states not running their own online marketplaces.
by | July 22, 2014
AP/Carolyn Kaster

A three-judge panel in the U.S. Court of Appeals for the District of Columbia ruled Tuesday that the federal government can't offer subsidies to help people pay for insurance in the 36 states that don't run their own online marketplaces, while the U.S. Court of Appeals for the Fourth Circuit, in Richmond, Va., upheld the subsidies hours later.

The D.C. ruling, if left unchallenged, could make insurance unaffordable for many of the more than 8 million people who signed up for private coverage under the Affordable Care Act, some 87 percent of whom received subsidies to lower their premiums or cost-sharing.

But the administration is almost certain to ask for a review of the decision "en banc," which will bring on the full 11 judges with the court, seven of whom were appointed by Democrats. That makes it more likely that the court's decision Tuesday will be overturned some time later this year.

The court’s decision won’t take immediate effect, giving time for the administration to request a review, and the next open enrollment period doesn't start until November. But the decision does cloud the exchanges in doubt, even if an en banc ruling will likely favor the Obama administration. There are at least two other cases challenging the subsidies in federal court.

It's unclear at this point if any will go as far as the U.S. Supreme Court. But health law expert Tim Jost, who supports the Affordable Care Act, argues that the Supreme Court will not take up the D.C. case if an en banc panel reverses the decision, but in any case it would be "a long time" if it does.

"This decision is an unfortunate aberration that potentially threatens the health care of millions of Americans, but it will not stand," Jost said.

The federal government anticipated states would create their own health insurance exchanges with the help of millions of dollars in grants. But only 14 decided to fully operate their own independently, leaving the federal government to host the other 36.

The law says that subsidies are only offered to people buying a health plan through an exchange "established by the state," and plaintiffs have seized on that wording to make their case. The administration, however, contends that’s a rigidly narrow reading of the law, and when the federal government hosts an exchange for a state it is “standing in the state’s shoes.” The administration has also argued the intent of the law is undeniable, but Judge Thomas Griffith of the D.C. Circuit, who sided with the plaintiffs, was unmoved by that reasoning during oral arguments, blaming Congress for failing to legislate that intent clearly.

In Griffith’s written opinion he said arguments from the administration and Congress about the law’s overall intent didn’t “demonstrate that Congress manifestly meant something other than what [the law] says.” He also argued that stripping the law of subsidies in 36 states “does not render other provisions of the ACA unworkable.”

In his dissent, Judge Harry Edwards emphasized the individual mandate and other aspects of the law such as abolishing pre-existing conditions require a broad pool of enrollees, and the subsidies help ensure that. He called Griffith’s opinion a “not-so-veiled attempt to gut” the law.

The D.C. case, Halbig v. Burwell, was brought by residents of West Virginia and other states who oppose the requirement to buy insurance. The other pending cases challenging subsidies include a suit from the state of Indiana and one brought on by Oklahoma Attorney General Scott Pruitt.

A judge appointed by former President Ronald Reagan ruled in favor of the Obama administration in the Virginia suit in February. Judge James Spencer decided that, “viewed in a vacuum” the “omission of any mention of federally facilitated exchanges” in the relevant section of the law “could imply” Congress wanted to restrict subsidies to states, but the full “statutory context” of the law makes that position “implausible.”

The appeals panel in Richmond largely backed up Spencer's ruling.

Initial rulings have not yet come in the Indiana and Oklahoma cases.

*This story has been updated.

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