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The Latest Judicial Issue With The Federal Subsidies

A Picture of Tracy Kyle Tracy Kyle
10/13/2014

If you’re one of the millions of Americans who enjoys health insurance thanks to federal subsidies, then you’re probably concerned about what the recent rulings in many district and appeals courts across the county regarding federal subsidies is all about. Before we get into the substantive issues on the table regarding the federal subsidies, we must first advise that this issue will not be heard by the Supreme Court for a while. Therefore, if you are receiving a federal subsidy to help you pay for your healthcare or intend to get one in the upcoming enrollment period, you’re safe and can rest assured that the subsidy will be available to you even though these rulings are out there. The judicial system is a slow one and many of these cases are only at the first level, the federal district court level, and still need to go through the steps to make their way up to the Supreme Court of the United States. This article and the facts and issues are merely being shared in accordance with the spirit of the other articles on this website: to better inform Americans. Period.

Getting back to the most recent court case and ruling, on September 30, a federal district judge in Oklahoma ruled that the federal subsidies awarded to people who used the federal health insurance exchange website to purchase insurance are illegal according to the terms of the Affordable Care Act. Oklahoma Attorney General Scott Pruitt filed the suit in 2011 and the ruling deals a substantial blow to the effectiveness of the new healthcare law.

The recent ruling adds to other conflicting rulings on specific language used in the text of the Affordable Care Act. According to challengers of the law, the federal government and by extension the Internal Revenue Service does not have the authority to sidestep constitutional procedures. In other words, both the individual mandate and federal subsidies are not valid nationwide.

Conservative news source The Daily Caller asserts, “The text of the Affordable Care Act stipulates that the law’s hallmark premium subsidies are available only to exchanges ‘established by the state.'” Using this interpretation, the individual mandate, which requires American citizens to purchase health insurance or face a penalty fine, cannot be assessed against people who buy insurance through the federal exchange. Likewise, subsidies can only be awarded to people who use their individual state’s health exchange to purchase insurance.

It’s clear that U.S. District Judge Ronald White, who ruled in the Oklahoma case, agrees with the idea that the language of the Affordable Care Act is decidedly specific. However, he isn’t the first judge to decide in favor of a plaintiff against the Obama administration when it comes to Obamacare. In July, a three-judge panel in Washington, D.C. ruled that the text of the ACA clearly established state-run health exchanges as prerequisites for obtaining subsidies.

A ruling issued by a different court on the same day offered conflicting interpretations of the text of the ACA. In this ruling, the Fourth Circuit decided that because the law is ambiguous about state-run exchanges, everyone is entitled to subsidies. Unfortunately for opponents of Obamacare, the Fourth Circuit’s ruling only complicated matters further.

Since the summer ruling in D.C., the Pacific Legal Foundation has petitioned the U.S. Circuit Court of Appeals for the Washington, D.C. Circuit to rehear the case. This comes as no surprise since two of the members on the original three-panel judge had been considered by some to be biased against Obamacare in the first place. Suggestions of bias aside, the issue remains unclear to the lower courts and to the average citizen receiving subsidies.

Now, the U.S. Supreme Court is expected to take up these challenges. The Supreme Court has already had to hear several cases against Obamacare since it became law in 2010, but dissatisfied politicians continue to challenge the law on various technicalities. Forbes contributor Michael F. Cannon offers a detailed summary of four recent lawsuits brought against the Obama administration concerning the Affordable Care Act.

Issues at Stake

Is the Affordable Care Act even legal? This question continues to be asked by opponents of Obamacare, but the Supreme Court already decided in June 2012 that the law itself is legal and binding. Obamacare’s legality is not up for discussion when these cases are inevitably brought before the Supreme Court at some point in time in the future. Instead, there are certain issues at stake within the text of the law that raise questions about the effectiveness of the ACA. At the heart of these issues is the question: How is “state” defined?

According to the plain language of the law and the rulings made by the courts mentioned above, subsidies will should only be awarded to people who buy insurance from exchanges “established by the state.” Opponents of the law claim that lawmakers specifically included this language to encourage states to establish their own state-run health insurance exchanges. However, the law does not require states to provide individual marketplaces. This is where the confusion lies, and it’s the principle on which several people have based their lawsuits against Obamacare.

What the Rulings Mean for the ACA

What would happen if the Supreme Court ruled in favor of the plaintiffs in these and other similar cases? For starters, millions of Americans who currently receive subsidies through the federal marketplace would lose those subsidies. Currently, 36 states redirect their residents to the federal health exchange instead of hosting their own sites. In those 36 states, people who need subsidies to afford insurance would not be able to buy any type of healthcare plan.

A favorable ruling would also invalidate the IRS’s ability to collect a penalty tax because the individual mandate and subsidies fall under the same federal jurisdiction. Without a penalty tax for non-compliance, there’s little incentive for anyone to purchase health insurance. In other words, the country would fall right back to square one as far as healthcare reform is concerned. Opponents of Obamacare might rejoice, but millions of people who finally gained access to affordable health insurance might object to the sudden loss of that coverage.

The text of the law implies that Americans must purchase health insurance using state-run exchanges. It’s up to the Supreme Court to decide whether this phrase literally means exchanges run by the state or the marketplace as a nationwide concept.

The Upside of Legal Challenges

In Ohio, Republican Representative James Lankford argues that the “blame for the latest mess in the implementation of the Affordable Care Act lies squarely on the shoulders of the federal legislators.” Rep. Lankford and others attribute the law’s failings to lawmakers and claim that the administration should have crafted a more specific bill. While it’s clear that the majority of the right side of the congressional aisle won’t support any form of Obamacare, conservatives and other opponents of the ACA make a fair point about the language of the law.

If the Supreme Court rules in favor of Obamacare’s current challengers, then its ruling could force lawmakers to re-examine the text of the law in detail. The Affordable Care Act was created with a clear objective, but like many laws in this country the bill itself may need amendments to make it viable as a long-term solution to the American healthcare problem. A simple amendment to the bill could resolve the subsidy issue and strengthen Obamacare against further technical lawsuits.

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