Two More Hurdles for Obamacare

By Grace-Marie Turner

We can add two major legal hurdles to the many obstacles facing President Obama’s signature health-overhaul law, based upon oral arguments heard today in two courtrooms in Washington, D.C.

Carrie Severino has posted an excellent overview at Bench Memos of arguments before the Supreme Court in the Hobby Lobby and Conestoga Wood cases challenging the HHS contraceptive mandate and its violation of religious freedom.

A few blocks away in the D.C. Court of Appeals Judge Thomas. B. Griffith presided over arguments in Halbig v. Sebelius over whether subsidies for health insurance can flow through federal rather than state exchanges. This case gets to a key issue of the sovereignty of the states.

Sec. 1311 of the Affordable Care Act says that health-insurance subsidies are available only “through an exchange Established by the State.” The IRS, however, interpreted the statute to mean that the subsidies also could be distributed through federal exchanges in the 34 states that declined to create their own exchanges.

Judge A. Raymond Randolph indicated he felt the statute was quite clear in repeating “seven times” in that section that the subsidies are available only “through an Exchange established by the State.”  Disregarding the clear language of the law, the IRS issued a regulation allowing subsidies to also flow through exchanges established by the federal government.

The Galen Institute submitted an Amicus brief focusing on the crucial issues of federalism the cases raises:

So the ACA offered the States a choice: either take control of the state health insurance market through establishment of a State Exchange and accept the associated federal tax burdens, or yield control of the health insurance market to a federal Exchange and protect local citizens and businesses from the tax penalties associated with the individual and employer mandates. The premium assistance credit for health plans purchased through a State Exchange was intended to sweeten the deal and to encourage States to choose to establish State Exchanges and to accept the accompanying tax burdens. See Adler & Cannon, supra, at 153.

The IRS Rule eliminated the statutory choice by imposing those tax burdens in all States—even those that declined to establish their own Exchanges. The result is a more expansive exertion of federal regulatory control over health insurance than the statute contemplated. Because health insurance is traditionally within the province of State—not federal—regulation, the IRS’s interpretation of the relevant statutes violates the rule that “if Congress intends to alter the ‘usual constitutional balance between the States and the Federal Government,’ it must make its intention to do so ‘unmistakably clear in the language of the statute.’ Gregory, 501 U.S. 452, 460 (1991).

There was a great deal of discussion about legislative intent, with Judge Harry T. Edwards seeming to side with the government in saying that Congress’s overall intent to deliver subsidies should prevail.

There were several references to former Nebraska senator Ben Nelson, a former state-insurance commissioner who insisted on a strong role for the states in implementing the law. Without his vote, the bill would not have passed.

If those challenging the IRS interpretation should prevail, states could later set up an exchange to get the subsidy money since there is no deadline for a state to establish an exchange.

The case will likely hinge on Judge Thomas B. Griffith who seemed more skeptical of the government’s arguments than the plaintiff’s.

Judge Griffith seemed particularly interested in the legislative history of the provision, which is ambiguous, and said that without clarity, the government has a special burden to show why the statutory language should not prevail.

A decision is expected in late June, which could then be appealed to the full Circuit Court. This is one of three major cases — in Oklahoma, Indiana, and Virginia — challenging the authority of the IRS to rewrite the statute and allow subsidies to flow through the federal exchanges.

In a post over at Bench Memos, Jonathan Keim predicts, “A 2-1 panel decision seems likely, with Judges Griffith and Randolph firmly in favor of applying the plain meaning, and with Judge Edwards against the plain meaning. If the appellants win and the court declares the regulation ultra vires, the government would likely petition for en banc rehearing to the newly-packed D.C. Circuit to delay or reverse the effect of the panel’s decision. Based on what I saw today, though, this case may very well make its way to the only court that trumps the en banc D.C. Circuit.”

Posted on National Review Online: The Corner, March 25, 2014

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