Special Report

Appeals Court Slightly Wounds Obamacare

Without John Roberts, today’s ruling isn’t likely to hold.

By 7.22.14

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It’s too soon for champagne, but perhaps a beer is in order.

In a 2-1 decision in the case of Halbig v. Burwell, a three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit has ruled that the Internal Revenue Service cannot interpret the Affordable Care Act, also known as Obamacare, as allowing subsidies for those Americans who purchase health insurance from the federal health insurance exchange known as Healthcare.gov. This is because the text of the law specifies that subsidies or tax credits are available for insurance purchased on state-created exchanges.

Later on Tuesday, the Fourth Circuit Court of Appeals ruled oppositely: that the subsidies are permissible for the federal exchange. More in this in a moment.

Should the D.C. Circuit’s ruling ever actually take effect, this would mean that those who purchased Obamacare insurance in a state that did not create its own exchange but instead relied on the federal exchange must cover the full cost of their insurance rather than have others pay for some share of it. (What a novel concept in Barack Obama’s America!)

A lower court had ruled that the intent of the law was to permit subsidies for insurance purchased on either a state or federal exchange, but the panel ruled otherwise: “Because we conclude that the ACA unambiguously restricts the section 36B subsidy to insurance purchased on Exchanges ‘established by the State,’ we reverse the district court and vacate the IRS’s regulation.”

The ruling comes down to the permissibility of the IRS to interpret the law under a relatively lenient standard: “we will uphold an agency action unless we find it to be ‘arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.’”

Despite language that clearly states that tax credits apply to insurance purchased on a state exchange, the IRS’s relevant regulation allowed them “regardless of whether the Exchange is established and operated by a State (including a regional Exchange or subsidiary Exchange) or by HHS.”

Standing for the case came not due primarily to the subsidy issue but rather the not entirely obvious fact that permitting subsidies on the federal exchange also “significantly increases the number of people who must purchase health insurance or face a penalty” through the individual mandate provisions of Obamacare.

According to the D.C. Circuit’s opinion, the impact on employers through the employer mandate is even more significant: “If credits were unavailable in states with federal Exchanges, employers there would face no penalties for failing to offer coverage. The IRS Rule has the opposite effect: by allowing credits in such states, it exposes employers there to penalties and thereby gives the employer mandate broader reach.”

The potential impact of the ruling cannot be overstated. About two-thirds of the 8 million Americans who (we are told) have purchased health insurance through an exchange did so through Healthcare.gov because only 14 states have functioning state-based exchanges.

The D.C. Circuit majority closes their opinion with a paragraph that is worth reading in its entirety:

We reach this conclusion, frankly, with reluctance. At least until states that wish to can set up exchanges, our ruling will likely have significant consequences both for the millions of individuals receiving tax credits through federal Exchanges and for health insurance markets more broadly. But, high as those stakes are, the principle of legislative supremacy that guides us is higher still. Within constitutional limits, Congress is supreme in matters of policy, and the consequence of that supremacy is that our duty when interpreting a statute is to ascertain the meaning of the words of the statute duly enacted through the formal legislative process. This limited role serves democratic interests by ensuring that policy is made by elected, politically accountable representatives, not by appointed, life-tenured judges.

This is a fascinating bit of legal writing: On one hand, the judges suggest some sympathy for those Americans who are being put through uncertainty and perhaps even harmed financially by the panel’s obviously correct ruling. On the other hand, they issue a warning that doing anything other than what they did — standing up for the plain meaning of the law’s language — would be anti-democratic.

The warning has a very specific audience: the other judges of the D.C. Circuit Court of Appeals.

A party to a case may request an en banc hearing where the entire court rules, rather than just the 3-judge panel. In a press conference on Tuesday morning, White House Press Secretary Josh Earnest (one of the most ironically named public officials in memory) said that he anticipates that the Department of Justice “will ask for a ruling from the full D.C. Circuit.”

Late last year, anticipating this very moment, Senate Majority Leader Harry Reid changed Senate filibuster rules in order to permit the packing of this court with liberals. The court had been evenly divided between Republican and Democratic appointees and it was well known that the court did not have enough work to support even its existing judges. But the Obama administration knew that this day would come and that they would need an unbalanced court to defend the unconstitutional, poorly conceived, and poorly written law that is considered this president’s “signature achievement” — a dubious compliment at best.

An en banc hearing of a court with seven Democrat appointees and four Republican appointees is likely to overturn the panel because liberals, as constituted in 2014, simply do not believe in the rule of law. It is therefore unsurprising that Josh Earnest sounded unconcerned, even dismissive of Tuesday’s ruling: “For those who are keeping score, we’re still ahead two to one here.”

Earnest was referencing the fact that lower courts have ruled for the government in this case. There are other cases making their way through the appellate process now. If the D.C. Circuit en banc reverses its own panel and if the other circuits rule in favor of the government — which seems more likely than not — that would leave the possibility for the Supreme Court to refuse to hear the case.

Typically, the Supreme Court will “grant cert” when the circuits are divided, though it also takes many cases where an appeals court is simply wrong (in the opinion of a majority of the Justices). So while the Obama administration will work hard to get an en banc reversal of the panel to prevent a split among the circuits, the resolution of the question is most likely to hinge on whether Chief Justice John Roberts is looking for an opportunity to reverse his error in NFIB v. Sebelius in which he upheld the constitutionality of Obamacare — or whether he does not want to go through that morass again.

Should the Supreme Court take the case, it would suggest that Roberts has reconsidered and that a 5-4 opinion along the same lines as Tuesday’s D.C. Circuit ruling would eventually issue.

In that case, the entire structure of Obamacare will fall under its own cost and the enormous and impermissible differences between the operations of insurance exchanges in some states versus in other states. Unsubsidized millions will cancel their insurance. The resulting massive decline in revenue as well as actuarial changes in the composition of the insured (since the sickest will likely keep their insurance regardless of subsidy) will create a financially unsustainable system — or rather will hasten the recognition of socialized medicine as unsustainable. The political turmoil will also be enormous — but necessary and perhaps ultimately beneficial as long as the left is prevented from using another crisis to increase the size and scope of government.

The D.C. Circuit’s opinion, written by Judge Thomas Griffith, is obviously correct to anyone who believes that laws mean what they say and that, as concurring Judge A. Raymond Randolph notes, quoting Justice Brandeis, when a law omits something, it’s not a judge’s job to fix it: “What the government asks is not a construction of a statute, but, in effect, an enlargement of it by the court.… To supply omissions transcends the judicial function.”

Just try to tell that to the judges just appointed to the D.C. Circuit Court of Appeals by President Obama and permitted by Harry Reid’s changing generations of Senate protocol in order to protect Obamacare from this very occurrence.

And just try to tell that to the judges of the Fourth Circuit Court of Appeals, based in Richmond, which, just a few hours after the D.C. Circuit’s opinion was released, ruled unanimously that that tax credits for the federal exchange are in fact legal. Their ruling was based on a claim that “the applicable statutory language is ambiguous and subject to multiple interpretations.” Clearly these people went to the Bill Clinton school of English and are unsure whether “state” means “state.”

While the dispute among the circuits would normally point to the Supreme Court taking the case, the near certain en banc hearing in the D.C. Circuit and the likely overturning of the panel means that the Supreme Court may not face divided circuit opinions pushing them to hear the cases. In that case, the chances of the case being heard hinge almost entirely on whether John Roberts wants to revisit Obamacare — something I very much doubt.

While today’s ruling is welcome, it is far from dispositive.

It’s too early for champagne — and there may well never be occasion for a bigger celebration if John Roberts is not looking for vindication. But for the welcome reminder that Obamacare is fundamentally flawed and that it’s not a judge’s job to fix a bad law, we can at least pop open your favorite beer or pour a nice glass of Pinot Noir (or, if you prefer, Amarone) and toast the fact that all is not yet lost.

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About the Author
Ross Kaminsky is a self-employed trader and investor and is a senior fellow of the Heartland Institute. He is the host of The Ross Kaminsky Show on Denver's NewsRadio 850 KOA on Saturday mornings from 6 AM to 9 AM. You can reach Ross by e-mail at rossputin(at)rossputin(dot)com.