Court Blows A Hole Through Obamacare Subsidy System

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CBS News – A federal three-judge panel on Tuesday ruled that the government cannot dole out subsidies to consumers on federally-run Obamacare marketplaces, delivering a significant blow to the new health insurance system.

More than half of the states rely on federally-run marketplaces, and were subsidies not available in those states, Obamacare could be too costly for many customers.

The D.C. Circuit Court of Appeals’ ruling rests on the interpretation of one sentence in the Affordable Care Act. Section 1311 of the law says the federal government will give subsidies to eligible consumers who buy insurance from an exchange “established by the State.” Consequently, the court panel agreed with the argument put foward in Halbig v. Burwell that subsidies aren’t available to customers in the 34 Obamacare exchanges that were established by the federal government. (Here’s a list of which states have state-run exchanges and which have federally-run exchanges.)

After its loss Tuesday, the Obama administration is expected to request an en banc hearing, which would require all 11 active judges on the D.C. Circuit Court of Appeals to reconsider the case. Given that most of the judges were appointed by Democrats, the administration should have a better chance of winning that round. If the government lost yet again, it would likely ask the Supreme Court to review the case.

Michael Cannon of the Cato Institute, a libertarian think tank, and Jonathan Adler of Case Western Reserve University School of Law first made the case against the subsidies, arguing that Congress wanted the subsidies to serve as a reward for states that established their own exchanges. Obamacare’s “congressional sponsors created incentives for states to implement much of the law and reasonably expected that states would do so,” they wrote.

However, seven high-ranking Democrats who helped craft Obamacare, as well as dozens of state lawmakers, filed a brief in the case to explain what they said is the true intent of the law.

“The purpose of the tax credit provision was to facilitate access to affordable insurance through the Exchanges–not, as Appellants would have it, to incentivize the establishment of state Exchanges above all else, and certainly not to thwart Congress’s fundamental purpose of making insurance affordable for all Americans,” they wrote.

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