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Obamacare—One; Rule of Law—Zero

Tom Miller | 01/16/2014 |

U.S. District Court Judge Paul Friedman upheld yesterday in Halbig, et al., v. Sebelius, et al an Internal Revenue Service rule that authorized the payment of premium assistance tax credits in federal-run health exchanges. The plaintiffs had argued that the statutory text of the Affordable Care Act only provided for such subsidies through exchanges “established by a state.” 

This is an unfortunate setback for opponents of Obamacare’s flawed structure, but not a fatal one. Three other similar lawsuitsin federal district courts in Virginia, Oklahoma, and Indiana—remain under review at this time before final rulings on their merits. The District of Columbia—based decision will be appealed to the U.S. Court of Appeals for the D.C. Circuit.

To place today’s decision in context, it was a closer call than the final ruling might suggest. Judge Friedman acknowledged that there is more than one plausible reading of the challenged phrases involving federal tax credits in the law passed by Congress in March 2010. 

”Looking only at the language of [section 36B], isolated from [other] cross-referenced text, the plaintiffs’ argument may seem the more intuitive one,” wrote Friedman. But he decided to explore and interpret several other sections of the law, plus the ACA’s broader policy objectives, to conclude that it was the intent of Congress to make premium tax credits available on both state-run and federally-facilitated exchanges. This apparently overrode, in his opinion, the clear-cut distinction in the statutory text, between state-established exchanges (in section 1311) and federal-run exchanges (in section 1321).    

The plaintiffs’ attorneys will have additional arguments to challenge this ruling at the appellate level. It was notable that Judge Friedman based his decision on a Chevron step one analysis under the Administrative Procedure Act (all “traditional tools of statutory interpretation”) rather than a step two analysis utilizing the extremely limited legislative history behind the law. Essentially, the plain-language meaning of the primary provisions of the law controlling exchange-based subsidies was not enough to overcome their lesser inconsistencies with other muddled bits and pieces tucked away in other sections of the law. With the court placing an extra burden on the plaintiffs to rebut every imaginable hypothetical, any close calls went to the government's less-plausible interpretation of the law under the Chevron-style deference to the administrative discretion of the IRS. Once again, "close enough for government work" was good enough to keep a key part of Obamacare legally alive for another day (only to fail again soon in other ways). 

On some leftover, preliminary jurisdictional issues, Judge Friedman decided to dismiss several employer plaintiffs (as opposed to individual plaintiffs) from the case. His ruling that the Anti-Injunction Act bars the former’s claims, because the employer mandate they were indirectly challenging was a “tax” rather than a “penalty.” was quite a stretch. However, appellate courts in the 4th Circuit and 7th Circuit, and arguably the 10th Circuit, have ruled differently. That should keep employer plaintiffs in federal exchange tax credit cases in play in the Oklahoma and Indiana cases (only individual plaintiffs are involved in the other Virginia-based federal exchange lawsuit).     

So, Obamacare apparently exhausted another one of its dwindling number of “lives” in court today. The troubled law seems to stagger erratically along a path littered with near-death experiences. In some ways, the ACA was so haphazardly and inconsistently cobbled together in last-minute scrambles behind closed doors in Congress to pass something “by any means necessary” in late 2009 and early 2010 that any straightforward interpretation of its meaning today  remains elusive. But now other judges in other courts will have further opportunities to weigh in on the issue of whether the Obama administration and Congress should be held accountable to administer the law they actually enacted, rather than the latest improvisations around its contradictions and growing unpopularity. 


Tom Miller is a resident fellow at the American Enterprise Institute.

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