Court Deals Setback to Health Care Law

One of the plaintiffs, David Klemencic, who has a retail carpet store in Ellenboro, W.Va., said: "If I have to start paying out for health insurance, it will put me out of business. As Americans, we should be able to make our own decisions in matters like this." By ROBERT PEAR July 22, 2014

WASHINGTON — A federal appeals court ruled Tuesday that the government could not subsidize health care premiums for people in three dozen states that use the federal insurance exchange, a ruling that could upend President Obama's health care law.

The 2-to-1 ruling could potentially cut off financial assistance for more than 4.5 million people who were found eligible for subsidized insurance in the federal exchange, or marketplace.

Under the Affordable Care Act, the court said, subsidies are available only to people who obtained insurance through exchanges established by states.

The law "does not authorize the Internal Revenue Service to provide tax credits for insurance purchased on federal exchanges," said the ruling, by a three-judge panel of the United States Court of Appeals for the District of Columbia Circuit. The law, it said, "plainly makes subsidies available only on exchanges established by states."

For many people, their share of premiums could increase sharply, making insurance unaffordable.

The decision is the not the last word, however, as other courts are weighing the same issue. And the panel's ruling could be reviewed by the full appeals court here.

The White House rejected the court's ruling and anticipated that the Justice Department will ask that the entire appeals court review it. Mr. Obama's aides noted that two district courts have thrown out similar lawsuits and therefore argued that judicial opinions have been mixed at worst. Moreover, they said the ruling Tuesday seemed to fly in the face of common sense.

"You don't need a fancy legal degree to understand that Congress intended for every eligible American to have access to tax credits that would lower their health care costs, regardless of whether it was state officials or federal officials who were running the marketplace," said Josh Earnest, the White House press secretary. "I think that is a pretty clear intent of the congressional law."

A Justice Department spokeswoman, Emily Pierce, said: "We believe that this decision is incorrect, inconsistent with congressional intent, different from previous rulings and at odds with the goal of the law: to make health care affordable no matter where people live. The government will therefore immediately seek further review of the court's decision."

"In the meantime," Ms. Pierce said, "to be clear, people getting premium tax credits should know that nothing has changed. Tax credits remain available."

The majority opinion in the case, Halbig v. Burwell, was written by Judge Thomas B. Griffith, with a concurring opinion by Judge A. Raymond Randolph, a senior circuit judge.

Another member of the appeals court panel, Judge Harry T. Edwards, also a senior circuit judge, filed a dissenting opinion in which he described the lawsuit as an "attempt to gut" the health care law. The majority opinion, he said, "defies the will of Congress."

Judge Edwards said that the Obama administration's reading of the law, considered in "the broader context of the statute as a whole," was "permissible and reasonable, and, therefore, entitled to deference."

The decision by the appeals court here is important because the federal exchange serves states with about two-thirds of the nation's population. In federal and state exchanges, people may qualify for subsidies if they have incomes of up to $45,960 for individuals and up to $94,200 for a family of four.

The health care law authorized subsidies specifically for insurance bought "through an exchange established by the state."

Obama administration officials said that an exchange established by the federal government was, in effect, established by a state because the secretary of health and human services was standing "in the shoes" of states when she established exchanges.

When the health care law was adopted in 2010, Mr. Obama and Congressional Democrats assumed that states would set up their own exchanges. But many Republican governors and state legislators balked, and opposition to the law became a rallying cry for the party.

The lawsuit was filed by several people, supported by conservative and libertarian organizations, in states that use the federal exchange: Tennessee, Texas, Virginia and West Virginia. They objected to being required to buy insurance, even with subsidies to help defray the cost.

One of the plaintiffs, David Klemencic, who has a retail carpet store in Ellenboro, W.Va., said: "If I have to start paying out for health insurance, it will put me out of business. As Americans, we should be able to make our own decisions in matters like this."

Similar lawsuits challenging subsidies under the Affordable Care Act are pending in other courts, which could reach different conclusions. In February, a federal district judge in Richmond, Va., upheld subsidies in the federal exchange. While plaintiffs' interpretation of the law has "a certain common sense appeal," the judge said, "there is no evidence in the legislative record" that Congress intended to make tax subsidies conditional on a state's decision to create an exchange.

Stuart F. Delery, an assistant attorney general, told the appeals court here in March that Congress had intended for subsidies to be available nationwide to low- and moderate-income people, regardless of whether they obtained insurance on a federal or state exchange.

Subsidies, in the form of tax credits, are a crucial element of the Affordable Care Act. Without them, insurance would be unaffordable to millions of Americans. The Congressional Budget Office estimates that subsidies this year will average $4,400 for each person who receives a subsidy.

The lawsuit here was filed by several people in states that use the federal exchange: Tennessee, Texas, Virginia and West Virginia. They objected to being required to buy insurance even with subsidies to help defray the cost.

Congress, they said, confined the subsidies to state exchanges for a reason: It wanted to provide an incentive for states to establish and operate exchanges, rather than leaving the task to the federal government.

Obama administration officials said that argument was absurd. The overriding purpose of the Affordable Care Act, they said, was to ensure access to health care for nearly all Americans, wherever they live.

Of the 8 million people who selected private health plans from October through mid-April, 5.4 million obtained coverage through the federal exchange, and most of them qualified for subsidies that reduce their premiums.

Peter Baker contributed reporting.

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