In a crippling blow to President Barack Obama's signature health care law on Tuesday, a federal appeals court ruled that the federal government may not subsidize health insurance plans purchased by consumers in 36 states operating federal insurance marketplaces.
The 2-1 ruling by the three-judge panel of the U.S. Court of Appeals for the D.C. Circuit would affect almost 5 million Americans without employer-provided health plans who are receiving tax credits to pay their premiums for health coverage under a federal exchange.
Writing the court's majority opinion, Judge Thomas Griffith, an appointee of former President George W. Bush (R), argued that the law’s insurance subsidies apply only to states that have created their own exchanges, thereby invalidating an IRS regulation permitting nationwide subsidies.
But Senior Judge Harry T. Edwards, appointed by former President Jimmy Carter (D), sharply disagreed with the conservatives on the court.
"This case is about Appellants’ not-so-veiled attempt to gut the Patient Protection and Affordable Care Act," Edwards wrote in his dissent Tuesday. "This claim is nonsense, made up out of whole cloth. There is no credible evidence in the record that Congress intended to condition subsidies on whether a State, as opposed to HHS, established the Exchange."
Edwards' full opinion:
This case is about Appellants’ not-so-veiled attempt to gut the Patient Protection and Affordable Care Act (“ACA”). The ACA requires every State to establish a health insurance “Exchange,” which “shall be a governmental agency or nonprofit entity that is established by a State.” 42 U.S.C. § 18031(b)(1), (d)(1). The Department of Health and Human Services (“HHS”) is required to establish “such Exchange” when the State elects not to create one. Id. § 18041(c)(1).
Taxpayers who purchase insurance from an Exchange and whose income is between 100% and 400% of the poverty line are eligible for premium subsidies. 26 U.S.C. § 36B(a),(c)(1)(A). Appellants challenge regulations issued by the Internal Revenue Service (“IRS”) and HHS making these subsidies available in all States, including States in which HHS has established an Exchange on behalf of the State. In support of their challenge, Appellants rely on a specious argument that there is no “Exchange established by the State” in States with HHS-created Exchanges and, therefore, that taxpayers who purchase insurance in these States cannot receive subsidies.
As explained below, there are three critical components to the ACA: nondiscrimination requirements applying to insurers; the “individual mandate” requiring individuals who are not covered by an employer to purchase minimum insurance coverage or to pay a tax penalty; and premium subsidies which ensure that the individual mandate will have a broad enough sweep to attract enough healthy individuals into the individual insurance markets to create stability.
These components work in tandem. At the time of the ACA’s enactment, it was well understood that without the subsidies, the individual mandate was not viable as a mechanism for creating a stable insurance market.
Appellants’ proffered construction of the statute would permit States to exempt many people from the individual 2 mandate and thereby thwart a central element of the ACA. As Appellants’ amici candidly acknowledge, if subsidies are unavailable to taxpayers in States with HHS-created Exchanges, “the structure of the ACA will crumble.” Scott Pruitt, ObamaCare’s Next Legal Challenge, WALL ST. J., Dec. 1, 2013. It is inconceivable that Congress intended to give States the power to cause the ACA to “crumble.”
Appellants contend that the phrase “Exchange established by the State” in § 36B unambiguously bars subsidies to individuals who purchase insurance in States in which HHS created the Exchange on the State’s behalf. This argument
fails because “the words of a statute must be read in their context and with a view to their place in the overall statutory scheme.” Nat’l Ass’n of Home Builders v. Defenders of Wildlife, 551 U.S. 644, 666 (2007) (internal quotation marks
omitted). When the language of § 36B is viewed in context – i.e., in conjunction with other provisions of the ACA – it is quite clear that the statute does not reveal the plain meaning that Appellants would like to find.
Because IRS and HHS have been delegated authority to jointly administer the ACA, this case is governed by the familiar framework of Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). Under Chevron, if “the statute is silent or ambiguous with respect to the specific issue,” we defer to the agency’s construction of the statute, so long as it is “permissible.” Id. at 843. The Government’s permissible interpretation of the statute easily survives review under Chevron. The Act contemplates that an Exchange created by the federal government on a State’s behalf will have equivalent legal standing with State-created Exchanges. 42 U.S.C. § 18041. And the ACA would be self-defeating if taxpayers who purchase insurance from an HHS-created Exchange are deemed ineligible to receive subsidies.
Appellants’ argument cannot be squared with the clear legislative scheme established by the statute as a whole.
Apparently recognizing the weakness of a claim that rests solely on § 36B, divorced from the rest of the ACA, Appellants attempt to fortify their position with the extraordinary argument that Congress tied the availability of subsidies to the existence of State-established Exchanges to encourage States to establish their own Exchanges. This claim is nonsense, made up out of whole cloth. There is no credible evidence in the record that Congress intended to condition subsidies on whether a State, as opposed to HHS, established the Exchange. Nor is there credible evidence that any State even considered the possibility that its taxpayers would be denied subsidies if the State opted to allow HHS to establish an Exchange on its behalf.
The majority opinion ignores the obvious ambiguity in the statute and claims to rest on plain meaning where there is none to be found. In so doing, the majority misapplies the applicable standard of review, refuses to give deference to the IRS’s and HHS’s permissible constructions of the ACA, and issues a judgment that portends disastrous consequences. I therefore dissent.
Read the full decision here.