Federal Court: No, Obamacare Doesn't Forbid Subsidies to Those Who Buy Insurance on the Federal Exchanges

This is Gabe's favorite case, our best-and-last-hope legal challenge to Obamacare -- and a district court judge (of course) found against those seeking to derail Obamacare.

Allah's summary is very good. Here's the theory the lawsuit is predicated upon:

Section 1311 of the law authorizes the states to develop their own ObamaCare exchanges. Section 1321 says that, if a state declines, the feds can step in and develop their own exchange for consumers in that state instead. That’s how we ended up with the technological marvel that is Healthcare.gov. The rub comes in Section 1401, which authorizes tax credits, i.e. premium subsidies, for anyone who’s in “an Exchange established by the State under 1311″. Wait a sec — does that mean that only people enrolled in state-run exchanges get subsidies? If people enrolled in the federal exchange get them too, why doesn’t Section 1401 say “an Exchange established by the State under 1311 or the federal government under section 1321“?

There’s a simple explanation, say critics like Jonathan Adler: Congress intentionally limited subsidies to state-run exchanges to give the states an incentive to set up their own exchange. The feds didn’t want to build Healthcare.gov; they’d prefer that each state deal with this themselves. But since they can’t force states to do the federal government’s bidding, the best they can do is tack on monetary inducements to get them to play ball. That’s where the subsidies come in..... Read Adler’s post about this from December 2012 citing a colloquy that Max Baucus, the so-called architect of ObamaCare, had on this subject with John Ensign while the law was still being drafted. That’s the proof that Congress intended to distinguish between state-run exchanges and the federal exchange on subsidies. It’s not a drafting error or the result of Congress, to paraphrase Nancy Pelosi, passing the bill only to find out later what’s in it. The subsidies restriction for states was always supposed to be in there.

That's a pretty strong case. The language of the law itself limits the subsidies to state exchanges. If there is any doubt that this was intended, one can look to the legislative history: And on this point, the architect of Obamacare did indeed suggest his intent to so limit the subsidies to the state exchanges.

Jonathan Adler explains this-- and it's requires a bit of background to understand the exchange between Baucus and John Ensign. Ensign questions how the Senate Finance committee has the jurisdiction -- authority -- to demand that states change their insurance laws under Obamacare. Baucus replies the jurisdiction is afforded by the "tax credits" (subsidies) to be supplied to the states under Obamacare.

Baucus’s response is hardly a model of clarity. But I can see no possible interpretation other than Baucus is admitting that (A) the statute makes tax credits conditional on states establishing an Exchange, and therefore does not authorize tax credits through federal Exchanges, and (B) that this feature was essential for the Senate’s tax-writing committee to have jurisdiction to legislate in the area of health insurance.

Nevertheless, a district court decided that "duly-enacted law" is a pretty flexible thing and that it's all close enough for government work.

I hope this will be reviewed by the Supreme Court, eventually. It requires, IIRC, four votes for the court to grant certiorari (discretionary review, granted at the whim of the court). One might imagine we'll have four votes for that, as four men voted to strike down Obamacare.

However, we could lose some of those votes: Kennedy could, hypothetically, have felt that the first Obamacare challenge was strong enough to merit striking the law, but might feel this latest challenge is too weak for that, and pass on granting cert. And all it takes for this ruling to stand is the appeals court and then the Supreme Court to simply decline to review it.

posted by Ace at 05:39 PM

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