10.03.2014 2

Obamacare subsidies fall in Pruitt ruling

No ObamacareBy Robert Romano

“The court holds that the IRS rule is arbitrary, capricious, an abuse of discretion or otherwise not in accordance with law… in excess of statutory jurisdiction, authority, or limitations, or short of statutory right… or otherwise is an invalid implementation of the [Affordable Care Act], and is hereby vacated.”

That was U.S. District Judge Ronald White of the Eastern District of Oklahoma, breathing new life into legal efforts questioning whether federal exchanges are allowed to issue insurance subsidies under an IRS rule.

At issue is that the health care law only ever authorized subsidies to private insurers be paid through the state exchanges, not the federal ones. By not setting up state exchanges, as 36 have not done, whether a key aspect of the law — some $800 billion a year of subsidies — may be implemented is very much in question.

“This is a case of statutory interpretation,” White wrote, adding, “Such a case (even if affirmed on the inevitable appeal) does not ‘gut’ or ‘destroy’ anything. On the contrary, the court is upholding the Act as written. Congress is free to amend the ACA to provide for tax credits in both state and federal exchanges, if that is the legislative will.”

The ruling comes after the D.C. Circuit Court of Appeals and the Fourth Circuit Court of Appeals have ruled in opposite directions on the Obama administration’s interpretation of the law that exchanges “established by [a] state” may also include exchanges established by the federal government, even though the law never originally provided that subsidies could be given through those. That, because the law was somehow ambiguous, the IRS had deference in constructing the rule.

The D.C. Circuit’s ruling will be heard again in an en banc hearing on December 17, with all of the Democrat-appointed judges getting an opportunity to likely reverse.

There are at least two more rounds of appeal for the Obama administration in the Pruitt case, first through the 10th Circuit Court of Appeals.

But just like the D.C. and Fourth Circuits, the active judges on the 10th Circuit are stacked with Democrat appointees, making a favorable ruling for the state of Oklahoma, which brought the case, far less likely.

Which would mean a shutout in terms of circuit court rulings against those bringing challenges against federal exchange subsidies. Some legal analysts have suggested this means the Supreme Court taking up the case would be far less likely.

Yet, not impossible. It only takes four justices to decide to take up a case, and considering the split decisions at the district level, and the general importance of the issue, the Supreme Court may still want to hear it, win or lose.

If there is any silver lining to what may be the inevitable legal outcome in these cases — say, opponents of Obamacare lose again — it would be if courts determine the statute is ambiguous on whether federal exchanges can issue subsidies. Why would that be potentially helpful?

Because then, the agency has deference and therefore discretion in constructing regulations now and, importantly, in the future. Therefore, even if the plaintiffs do not prevail on the ultimate question of whether federal exchanges can issue the subsidies, a potential down-the-road solution might be for a Republican administration to simply issue another regulation that denies the subsidies being given through the federal exchanges.

It is not the optimal outcome, but if the Roberts court ultimately rules that $800 billion a year of Obamacare subsidies via the federal exchanges are open to interpretation, then that cuts both ways. Then, those subsidies can be denied without an act of Congress being necessary.

Correction: An earlier version of this piece stated that the Halbig D.C. Circuit ruling had found in favor of the Obama administration, but it did not. There is an en banc hearing before the full panel on December 17, after the 3 judge panel had found that federal exchanges could not issue the subsidies.

Robert Romano is the senior editor of Americans for Limited Government.

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