NOTE TO READERS:  The following post was written before the federal government, on Friday evening, filed a brief in the Supreme Court urging the Justices not to get involved in this controversy at this point, and to let the dispute work its way first through the federal appeals court in Washington.  The new federal brief is discussed  at the end of this post.

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Arguing that minimizing the federal government’s role in providing health care coverage was crucial to getting the new federal law passed, a group of businesses and individuals on Friday urged a federal appeals court in Washington to bar tax subsidies for anyone who gets insurance at a federal marketplace — now numbering nearly five million people.

The arguments came in the opening brief before the en banc U.S. Court of Appeals for the District of Columbia Circuit, which is reconsidering a basic challenge to a key part of the Affordable Care Act.   That challenge had succeeded before a three-judge panel of the D.C. Circuit, but that ruling was wiped out by the full court’s decision to rehear the case of Halbig v. Burwell (Circuit docket 14-5018).

“There is no legitimate way” to read the ACA to allow subsidies in the federal marketplaces, the brief contended.

At stake in the dispute is the federal government’s claim that, if subsidies are not available to those who use them to be able to afford health insurance at a federal exchange, the economic foundations of the entire new law will be threatened and may even crumble.

Congress could avert that by passing a new law to clarify what it meant about the subsidies, but almost no one expects it to do so.  Thus, it is up to the courts to decide where subsidies can be provided.

If these tax credits are only available on exchanges that were set up and run by state governments, that would mean that subsidies can be provided only in sixteen states — not enough, the government has contended, to make the whole system economically workable.

Those sixteen states are the ones that had agreed to create their own exchanges.  Because the other thirty-four states refused to create insurance exchanges, the ACA then required the federal government to step in and set up one in each of those states.

The core of the challengers’ argument against expanding the availability of subsidies, which was also the central theme of their new brief in the D.C. Circuit, is the role that Congress expected the states to play when it included in the ACA the plan to set up new insurance exchanges to provide opportunities to purchase reasonably priced health coverage.

To get the final few votes necessary for passage of the overall ACA, the new brief said, Congress had to take special steps to avoid creating a system that looked like a national scheme run from Washington, a suspect “single payer” approach.

So, the brief said, to induce the states to set up the exchanges, Congress provided them with financial aid to do so, and fashioned the tax credit scheme to help lower-income Americans who had no insurance to shop for it at an exchange.

This system of incentives, the new filing argued, was deemed by the ACA’s authors to be sufficiently attractive that every state in the nation would decide to join in, creating fifty insurance exchanges.  When Congress allowed for subsidies for insurance shoppers, the law said they could go to those who purchased insurance on an exchange “established by the state,” the brief noted.

That language, the challengers contended, is the open-and-shut answer to the legal controversy over the subsidies.  Not only does the language speak in simple terms, their brief argued, but the context in which the subsidy question was debated in Congress confirms the centrality of the role that the lawmakers were counting on the states to play.

The text of the law, the document went on, has only one provision that “speaks to subsidies,” and that is the one that plainly limits them to state-run exchanges.   The interpretation of legislative language, the brief said, cannot work the “alchemy” of changing an exchange set up by the federal government into one “established by the state,” the challengers said.

Even if the law is understood to mean that the federal government set up its exchanges “on behalf of” the states that refused to do so on their own, that does not mean those U.S. exchanges were actually established by a state, the brief asserted.

The arguments by the government that the whole system cannot work unless subsidies are available at all exchanges are arguments about policy, and policy cannot override the specific text that Congress wrote in the law, the filing asserted.

The federal government’s brief in support of federal exchange subsidies is due at the D.C. Circuit on November 3.  The full bench of the D.C. Circuit will hear the case on December 17.

The federal government’s view at this point:

While this controversy unfolds in the filings in the D.C. Circuit, the Supreme Court is also being drawn into it.  A separate group of challengers to federal exchange subsidies asked the Justices at the end of July to overturn a ruling upholding those credits, by the U.S. Court of Appeals for the Fourth Circuit.  That case is King v. Burwell.

The Obama administration’s response to that appeal was filed in the Supreme Court on Friday evening, and it urged the Justices not to take up the case, at least until after the D.C. Circuit has completed its review.  There is now no split among federal appeals courts, since the D.C. Circuit panel’s ruling against the subsidies has been set aside, it noted.

The government argued that the challengers “identify no sound reason for this Court to depart from its usual practice of taking up the question presented in the absence of a disagreement among the courts of appeals and while the D.C. Circuit’s en banc proceeding remains pending.”

While there may have been uncertainty about the future of the ACA at the time that there was a split between the D.C. and Fourth Circuits over the subsidies question, the D.C. Circuit’s grant of en banc review “eliminated any uncertainty created by” the panel decision, the government contended.

The federal brief did recognize, in a footnote, that a federal trial judge in Oklahoma this week had ruled in favor of the challengers and against federal exchange subsidies, but the brief commented that the Supreme Court ordinarily does not grant review “to resolve conflicts between district courts and courts of appeals.”  And, it added, the Oklahoma judge “essentially adopts the reasoning” of the D.C. Circuit panel ruling that has now been vacated.

The government also sought in its Supreme Court brief to head off an argument by the challengers that the Justices needed to resolve the legality of federal exchange subsidies promptly because millions of people who already have obtained their insurance on those exchanges with the help of the credits might have to return the money to the federal treasury.

Tax cases in courts, the government said, often implicate actions by people relying upon a specific understanding of what the tax law was at the time that they acted.  The federal tax law, it said, gives the Internal Revenue Service discretion to refuse to apply retroactively any court ruling on tax liability.

Although the bottom line of the government’s new Supreme Court brief was that the Justices should deny review of the dispute at this point, much of the content of the document was an attempted point-by-point rebuttal to the arguments the challengers had made in taking the case to the Supreme Court.  The same points are likely to be made when the government files its brief before the en banc D.C. Circuit next month.

Among the central points on the merits, the federal government argued that the challenge has to depend entirely upon a single, small portion of the massive ACA in which Congress spelled out how shoppers on an insurance exchange could qualify for tax subsidies.  The great remainder of the ACA’s provisions on the exchanges, it argued, shows that Congress clearly intended for the exchanges to operate across the country, to help fulfill the goal of providing access to affordable health care.

There is no indication, the document argued, that Congress meant to craft a geographically limited system of access to health care coverage.

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

Recommended Citation: Lyle Denniston, New debate over health care subsidies, SCOTUSblog (Oct. 4, 2014, 12:07 AM), http://www.scotusblog.com/2014/10/new-debates-over-health-care-subsidies/