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Federal appeals courts disagree on Obamacare subsidies

| Tuesday, July 22, 2014, 10:48 a.m.
A view of the E. Barrett Prettyman Federal Courthouse that houses the U.S. Court of Appeals for the D.C. Circuit, on Tuesday, July 22, 2014, in Washington.
A view of the E. Barrett Prettyman Federal Courthouse that houses the U.S. Court of Appeals for the D.C. Circuit, on Tuesday, July 22, 2014, in Washington.

More than 250,000 low-income workers in Pennsylvania could lose subsidies that reduce the cost of their health insurance under a federal appeals court decision on Tuesday that invalidated a key piece of President Obama's health care law.

The ruling by U.S. Court of Appeals for the District of Columbia Circuit would be a significant setback for the law if it stands. It was contradicted by another ruling hours later from the U.S. Court of Appeals for the Fourth Circuit in Richmond that upheld subsidies.

The courts were asked to decide whether the government can help pay the cost of premiums for people who obtain medical coverage from the federal marketplace in Pennsylvania and 35 other states — many of which are led by Republicans opposed to the law.

The issue is one of several challenges to the law, known as Obamacare, but the White House said billions of dollars in subsidies would continue to flow as the case works its way through the courts. It is expected to appeal the ruling by the D.C. panel of judges.

The cases revolve around four words in the Affordable Care Act, which says the tax credits are available to people who enroll through an exchange “established by the state.” The D.C. court, in a 2-1 decision, said that means subsidies under Obamacare can be given only to people who buy insurance through 14 state-run exchanges and not the federal government's site.

That interpretation could mean higher costs for more than half the 8 million Americans who have purchased taxpayer-subsidized coverage under the law. Four out of five Pennsylvanians who selected coverage on — about 257,000 low- and middle-income workers — qualified for the subsidies, which reduce premium payments and out-of-pocket costs.

Because the Washington case was decided by a three-judge panel, the administration will ask the full 11-member appeals court to hear the case. The full U.S. Court of Appeals for the District of Columbia Circuit has seven judges appointed by Democratic presidents, including four by Obama.

If the full court comes out in favor of the administration, the prospect of Supreme Court involvement would be greatly diminished. On the other hand, if the full Washington court stays out of it or, after a hearing, essentially leaves the panel's decision in place, then the Supreme Court would almost certainly weigh in.

Democratic appointees constitute a majority of the full appeals court in Richmond.

Effect on premiums

In the meantime, people who this year were able to afford health coverage for the first time were left wondering if they would be able to keep it.

Joe Lucas, 52, a self-employed house painter from the South Side, saves about $230 a month on his premiums thanks to the tax credits.

He said he wouldn't be able to afford the $380 a month premium if his subsidy ended — meaning he would either have to cancel his health coverage or work many more hours to generate additional income.

“I finally reached the point where I was hoping to slow down a little,” said Lucas, who noted that he has a heart condition and suffered an aneurysm a few years ago.

“I'm at the point where I'm working 35 to 40 hours a week. I would have to go back up to 60 to 70 hours a week, and that would probably endanger my health,” he said.

Highmark Inc., the state's largest health insurer, enrolled 131,000 people in the state in health plans through the federal exchange. Eighty percent of them are receiving subsidies, spokesman Aaron Billger said.

The company doesn't expect the upfront credits the government pays insurers each month to stop, he said.

“A court ruling like this one could take months to resolve,” he said.

Law's intention argued

In the D.C. Circuit case, a group of small-business owners argued that the law authorizes subsidies only for people who buy insurance through markets established by the states.

A divided panel of judges agreed. The majority opinion concluded that the law, as written, “unambiguously” restricts subsides to consumers in exchanges established by a state. That would invalidate an Internal Revenue Service regulation that tried to sort out confusing wording in the law by concluding that Congress intended for consumers in all 50 states to have subsidized coverage.

Justice Department spokeswoman Emily Pierce said the Washington court essentially got it wrong.

“We believe that this decision is incorrect, inconsistent with congressional intent ... and at odds with the goal of the law: to make health care affordable no matter where people live,” Pierce said.

The three-judge U.S. appeals court in Virginia turned aside the argument of Obamacare opponents.

In a unanimous decision, the court said the language of the law is ambiguous and subject to multiple interpretations, and the IRS is entitled to deference in interpreting it.

“We uphold the rule as a permissible exercise of the agency's discretion,” the panel said.

Opposing groups react

The ruling is the third decision affirming the Obama administration's contention that tax credits are intended for customers of state and federal exchanges.

Groups on both sides reacted to the rulings.

The Pennsylvania Health Access Network said people should be confident that subsidies will remain in place pending further legal action.

“Opponents of the law refuse to accept the reality that the Affordable Care Act is working for millions of Americans — thanks in part to the tax credits that will still be available to them despite this one ruling,” said Antoinette Kraus, director of the Harrisburg-based network that supports the law.

“Today's court decision to strike down the illegal IRS rule is a victory for the rule of law,” said Sam Kazman, general counsel for the Competitive Enterprise Institute, a libertarian think tank in Washington.

David Bernstein, a professor at George Mason University School of Law and constitutional law expert, observed that the six appeals court judges who ruled in the two cases on Tuesday followed party lines. Two Republicans ruled against the subsidies and four Democrats were in favor.

“Given the 5-4 partisan split on the Supreme Court (in favor of the GOP), this does not bode well for the ACA,” Bernstein said.

The Associated Press and Bloomberg News contributed to this report. Trib Total Media staff writer Alex Nixon can be reached at 412-320-7928 or

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