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On Tuesday, two federal appeals court panels released different rulings as to whether Obamacare subsidies can be distributed to policyholders who have purchased health insurance through federal exchanges.   

Both rulings, released within hours of each other, garnered some long-overdue media attention. The D.C. Court of Appeals — the second most prominent court of the land — issued the first opinion. On a 2-1 vote, the court sided with the Halbig vs Burwell plaintiffs, issuing a 72 page ruling that the plain text of the Patient Protection and Affordable Care Act (ACA) clearly states that subsidies shall only be distributed in exchanges established by a state.  To briefly get into the specifics here, section 1311 in the ACA refers to state exchanges while section 1321 refers to the federal exchange.  Section 1401 presents the premium assistance subsidies that will assist individuals living between 100-400% of the federal poverty level (FPL) to purchase health coverage.  Section 1401 is expressly written with reference to section 1311 and section 1311 only – i.e. with reference only to state, and not federal, exchanges. 

Conversely, the U.S. Fourth Circuit Court of Appeals upheld the current subsidy flow into both state and federal exchanges. Because the panel was not fully persuaded by either argument, it ultimately deemed that it was Congress’s original intent to provide subsidized health coverage in both state and federal exchanges.  After all, wasn’t it Congress’s vision to offer affordable, quality health insurance for individual market policyholders?

So the government may have won over the Fourth Circuit, but it can be argued that the government has lost some ground based on the fact that its argument possesses ambiguity.

The Fourth Circuit attempted to gauge congressional intent as a tool to determine an ambiguous case, but Michael Cannon of the Cato Institute and Case Western Reserve law professor Jonathan Adler have thoroughly investigated this particular legislation for the past three years.  In their eyes, there is nothing fuzzy about the distinction between state and federal exchanges.  Rather, their published white paper in Health Matrix provides ample evidence that Congress and other prominent Obamacare supporters intended for these subsidies to be conditional.   

A few pieces of evidence:

Congress cannot force a state to establish its own exchange, since this would be considered "constitutional commandeering." Also, Congress never authorized any funding for setting up federal exchanges. Rather, restricting the flow of subsidies to state exchanges was done intentionally to create a financial incentive for states to establish those Obamacare exchanges themselves.  This is similar to the strategy used by the administration to push state Medicaid expansion, where the federal government will supposedly fully fund this entitlement program for the next three years while states increase the enrollment and eligibility levels.  States (like North Carolina) that do not opt for expansion or exchanges forfeit those subsidies.   

More importantly, the ACA would never have been signed into law without major concessions, one being limiting subsidies to state exchanges.   

Consider the law’s legislative history.  The special election in January 2010 in which Sen. Scott Brown (R) filled the seat of the late Sen. Edward Kennedy (D) — Mass, threw a wrench in the plans for final approval of the bill.  For House and Senate Democrats to avoid a Republican filibuster, they resorted to a budget reconciliation process for the final negotiations.  During that process, the House could impose limited amendments to the Senate’s final bill.  House Democrats had to tread lightly, for the Senate would ultimately need to give final approval to those amendments.  

Event Timothy Jost, law professor at Washington and Lee and a vocal supporter of the federal health law, originally affirmed that the reallocation of subsidies within state exchanges was conditional.  In a 2009 article published in the Journal of Law, Medicine, and Ethics, Jost wrote that Congress could,

offer tax subsidies for insurance only in states that complied with federal requirements (as it has done with respect to tax subsidies for health savings accounts) or by offering explicit payments to states that establish exchanges conforming to federal requirements.

At present, 36 states (including North Carolina) offer federally qualified health plans through a federally facilitated exchange, while 14 states offer plans on their own state-based exchanges.      

These two lawsuits (King v Burwell and Halbig v Burwell), however, have even larger ramifications than potentially putting Obamacare on life support.  The plaintiffs are asking for the Obama administration to follow its own law that it passed in 2010.    

Let’s imagine that it did.

Since subsidies would not be available in federal exchange states, employers would be freed from Obamacare’s employer mandate.

For example, in a state that has established its own exchange (and subsidies are therefore legal), if an employer with 50 or more full time workers does not provide health insurance, and one of the employees purchases an exchange plan and qualifies for a subsidy, then the employer is hit with a penalty.  Receiving a subsidy triggers a tax on the employer.

Meanwhile, if we apply the same scenario in a federal exchange state, the absence of subsidies would eliminate the law’s tax on large employers who either do not provide health coverage for their workers or who do offer coverage that is just below the law’s pricey standards.

It’s unfortunate that, instead of reporting on the crux of the plaintiffs’ argument, the media unleashed a flood of stories on the 5 million people who could potentially lose access to subsidized private coverage if this ruling is ultimately upheld.  These individuals would be exposed to how the law actually operates, and the dilemma cannot be ignored.  Congress would be tasked with the responsibility of reconsidering the way in which the law is written, as it possesses the legislative power to do so.  At some point, it would be ideal for Congress to repeal unhealthy layers of regulations and mandates that existed well before Obamacare and support free-market solutions that provide affordable health insurance products for all.

More to come on this next week. 

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