Obamacare Suffers a Blow

Obamacare Suffers a Blow

The D.C. Circuit Court of Appeals has ruled 2-1 that the law's subsidies cannot legally be given out through the federal exchanges, as opposed to the state-run exchanges.

As I explained last week, Obamacare gives a formula for calculating premium subsidies, and that formula relies on the prices of plans available through "an Exchange established by the State under 1311 of the Patient Protection and Affordable Care Act." About three dozen states are using the federal exchanges instead of creating their own -- and it's section 1321, not 1311, that authorizes the federal government to step in when a state fails to set up an exchange. A literal reading of the law, therefore, suggests that subsidies are not legally available in much of the country.

However, as I also explained, precedent gives courts an "out" when an administration wants to interpret a statute broadly -- courts can decide that the law doesn't make Congress's intent sufficiently clear, and then turn to other clues to determine that intent. So this case partly hinges on the question of whether Congress wanted to deny subsidies in states that failed to set up exchanges. This is a much trickier issue -- it's plausible that Congress would have done this to create an incentive for the states to set up exchanges, but the law's architects deny that this was their intention and there's little direct evidence either way. (See the previous post for more details.)

At any rate, the D.C. appeals court reached the obvious conclusion regarding the text -- "a federal Exchange is not an 'Exchange established by the State'" -- despite finding that 1321 exchanges could otherwise be treated as 1311 exchanges. (This argument stems from the fact that section 1321 says the federal government may set up "such Exchange," referring to the exchange otherwise set up under section 1311. As the dissent notes, though, this is a hard case to make while maintaining that federal exchanges are not "established by the State," considering that section 1311 specifically defines an exchange as something established by a state.)

The court then responded to a variety of arguments that go beyond the text. For example, the court emphasized that legislative history must play a secondary role to the text itself, and noted that the evidence on this particular provision is scant. It also noted (as I did in my previous post) evidence that Congress at least considered the idea of intentionally limiting the availability of subsidies.

What happens next? Well, the government is sure to keep fighting, and another appeals court upheld the subsidies today, creating a circuit split. It seems likely that the Supreme Court will end up stepping in eventually (you can see the gory details of the process here). And over the past week or so we've run several pieces in our morning updates explaining what will happen policywise if federal subsidies are shut down.

Robert VerBruggen is editor of RealClearPolicy. Twitter: @RAVerBruggen

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