UPDATED 7:19 p.m.   The U.S. Court of Appeals for the Fourth Circuit, in a decision directly contrary to the D.C. Circuit decision discussed below, on Tuesday afternoon upheld the government rule that cleared the way for subsidies for those buying health insurance on exchanges run by the federal government.  The Fourth Circuit’s decision is here.  Ruling unanimously, the panel found that the phrase in the health care law that was at issue was ambiguous, so it accepted the government’s interpretation.  The split in the appeals courts, if it remains after potential en banc reviews, would practically guarantee Supreme Court review.  (This post also has been updated to clarify which judges may participate in en banc review in the D.C. Circuit.)

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In a potentially crippling blow to the new federal health care law, a federal appeals court ruled on Tuesday that the government may not provide subsidies to encourage people to  health insurance on the new marketplaces run by the federal government.  The U.S. Court of Appeals for the District of Columbia Circuit, in a two-to-one decision, ruled that those subsidies are only available on “exchanges” run by state governments.  The two opinions in the ruling and the dissenting opinion are here.

As of now, only fourteen states and Washington, D.C., operate those insurance marketplaces, and the federal government has stepped in to provide the same facility in the other thirty-six states.  Under the new decision, striking down a two-year-old government regulation, subsidies would be confined to the state-run exchanges.

Conceding that the ruling will sharply reduce the number of uninsured individuals who will be able to gain coverage under the Affordable Care Act, the D.C. Circuit majority held that the plain language of the Act is that the subsidies — in the form of tax credits to those with limited incomes — were to be available only on marketplaces “established by the state.”

The insurance exchanges are central to the main goal of the new law — that is, making sure that millions of people now without health insurance are able to get it.  The subsidy scheme at issue in the new decision affects two of the main parts of the new coverage-assuring law:  the individual mandate, requiring individuals to obtain such coverage or else pay a penalty, and the employer mandate, requiring companies with at least fifty employees to assure that they have minimum coverage.

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,” the Circuit Court majority said. “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.”

Circuit Judge Thomas P. Griffith wrote the court’s main opinion.  Senior Circuit Judge A. Raymond Randolph wrote a one-page concurring opinion, but noted that he joined the Griffith opinion in full.

Circuit Judge Harry T. Edwards wrote a lengthy dissenting opinion, commenting that the aim of the challengers in the case was “to gut” the health care law.  His main argument was that the language of the law dealing with the subsidy issue was ambiguous, and that the majority “strains fruitlessly to show plain meaning where there is none to be found.”

The Obama administration has the option of asking the en banc Circuit Court to reconsider the case, or of going directly to the Supreme Court.  If the government chooses the en banc alternative, it could have a more favorable reception: four new judges on the Circuit Court were put there by President Obama’s nominations and they would be free to take part. (UPDATE: The two senior judges who took part in the panel decision — on opposite sides — would be eligible to take part in en banc review, but that would not make the difference because they had split.  Senior judges who were on a panel may not vote on whether to grant en banc review, but if review is granted by a majority of the active judges, then those senior judges may join in.   If en banc is granted in this case, a total of thirteen judges will be able to take part, and it would take only the votes of a majority to decide the case.)

Posted in Affordable Care Act ‘Exchange’ Challenges, Cases in the Pipeline, Featured

Recommended Citation: Lyle Denniston, Major new blow to health care law (UPDATED), SCOTUSblog (Jul. 22, 2014, 11:15 AM), http://www.scotusblog.com/2014/07/major-new-blow-to-health-care-law/