President Obama's healthcare law was dealt a new blow Tuesday as a federal appeals court ruled that due to a wording glitch in the Affordable Care Act, some low- and middle-income residents are not entitled to receive government assistance to subsidize their insurance.
In a 2-1 vote, a panel of judges on the U.S. Circuit Court of Appeals for the District of Columbia rejected the Obama administration's argument that the problem was triggered by imprecise language in the complex law and that Congress had always intended to offer the subsidies nationwide to low- and middle-income people who bought insurance through one of the state or federal health exchanges created under the law.
As written, the law states that subsidies should be paid to those who purchase insurance through an "exchange established by the state."
That would seem to leave out the 36 states in which the exchanges are operated by the federal government, including Virginia. If upheld, the ruling could raise insurance costs for people buying plans through federal exchanges, because the taxpaper subsidies would be gone.
Lawyers and congressional staffers who worked on the 2010 law have described the problem as a classic wording glitch in a long and complicated piece of legislation.
One part of the law says that states, which normally regulate insurance, could create exchanges that would help consumers and small businesses shop for coverage. The law also said that if a state failed to establish an exchange, the federal government could step in and run one in its place.
A second part of the law described the subsidies that could be offered to low- and middle-income people to cover the cost of the insurance. This part of the law said these subsidies — or tax credits — would be offered for insurance bought on an exchange "established by the state."
Apparently no one noticed the problem until the law was passed. Then, because of fierce political opposition and the 2010 Republican takeover of the House, supporters of the law could not fix the wording through an amendment. Moreover, the administration did not anticipate that most Republican-led states would refuse to create an insurance exchange for their residents.
The Internal Revenue Service adopted a regulation in 2012 that said individuals who qualify for subsidized insurance that is purchased on a government-run exchange may receive a tax credit, "regardless of whether the exchange is established and operated by a state."
But the libertarian Competitive Enterprise Institute filed a lawsuit, Halbig vs. Burwell, on behalf of several plaintiffs, contending that regulation is illegal.
They lost in January before a federal judge who decided Congress intended to offer the insurance subsidies to everyone who qualified.
The administration is expected to appeal the panel’s decision to the full 11-member appeals court. In the last year, Obama has added four judges to the D.C. Circuit court, giving Democratic appointees a majority for the first time since the mid-1980s.
If that effort should fail, the administration could appeal to the Supreme Court.