Could This Little-Watched Court Case Sink Obamacare?

Innovare may be Latin for innovate, but the values at Innovare Health Advocates are traditional: An “Old School” commitment to delivering “Healthcare the Way it Ought to Be.” 

The Missouri-based health practice is run by Dr. Charles Willey, a staunch tea party conservative who’s been mentored by former Sen. Jim Talent, one of his patients. “I’ve personally, for a long time, been interested in politics,” he told a radio show in 2010, noting that he’d been leading efforts “to get doctors excited about resisting Obamacare.”

But Willey’s doing more than just resisting the health law these days — he’s become an active player in Halbig et al v. Sebelius, a lawsuit that threatens a key element in the Affordable Care Act: Whether the tax subsidies slated to help many Americans purchase coverage through many insurance exchanges are even legal under the ACA’s language.

(Innovare Health is one of the small businesses that has joined the suit.)

And the stakes are higher than most people realize, according to Michael Greve, a law professor at George Mason University.

“If the statute means what it says, Obamacare’s machinery simply doesn’t apply in half the country,” Greve contends.

“This is for all the marbles.”

Law’s Language a Sticking Point

Conservative scholars say it’s obvious in the text of the Affordable Care Act, right as rain. (Italics added by “Road to Reform.”)

    Sec. 1401.

    The premium assistance amount determined under this subsection with respect to any coverage month is the amount equal to the lesser of—

    (A) the monthly premiums for such month for 1 or more qualified health plans offered in the individual market within a State which cover the taxpayer, the taxpayer’s spouse, or any dependent (as defined in section 152) of the taxpayer and which were enrolled in through an Exchange established by the State under 1311 of the Patient Protection and Affordable Care Act, or

    (B) the excess (if any) of

    (i) the adjusted monthly premium for such month for the applicable second lowest cost silver plan with respect to the taxpayer, over

    (ii) an amount equal to 1/12 of the product of the applicable percentage and the taxpayer’s household income for the taxable year.

Got that?

In short: Certain Americans will be able to get tax credits through the ACA to help purchase health insurance through state-run insurance exchanges. So far, so normal.

But what’s not there is also key: There’s no mention of getting tax credits to help buy insurance through the federal exchanges. In fact, you can scan the entire text of the ACA, including the key provisions in Sections 1311 and 1321, and find no mention of subsidies being made available through federally run exchanges.

While that could be a major sticking point, considering that two-thirds of the states have opted out of running the exchange themselves, the IRS has said it doesn’t matter. Under the agency’s proposal, subsidies will be available nationwide.

But Halbig et al v. Sebelius — and an earlier lawsuit filed by Oklahoma’s attorney general, Pruitt v. Sebelius — are challenging the IRS interpretation of the law.

Plaintiffs’ Argument: Law Is Clearly Written

The argument was first advanced by conservative scholars Jonathan Adler and Michael Cannon, who parsed Sections 1311, 1321, and 1401 of the ACA and came away convinced they’d found a glitch.

According to Adler and Cannon, the ACA’s authors intentionally chose to exclude subsidies for federal exchanges — an attempt to dangle a carrot for states to run their own exchanges, they contend. In their eyes, the IRS is acting illegally without congressional authorization.

Some supporters of the ACA say that the law’s critics are grasping at straws after last summer’s defeat at the Supreme Court. But Cannon and Adler point out that they first voiced their concerns many months before that.

The “IRS rule we are challenging is at war with the act’s plain language and completely rewrites the deal that Congress made with the states on running these insurance exchanges,” according to Michael Carvin, the lawyer for the plaintiffs in Halbig.

ACA Supporters: Intent of Law Is Clear

Tim Jost of Washington and Lee has been perhaps the most vocal defender of the IRS’ interpretation. And he’s consistently dismissed the challenges, suggesting that the language around subsidies represents one of the ACA’s many drafting errors, and noting that Congress clearly intended to have tax credits available in all the states. For example, other measures related to the insurance markets — like requiring insurers to meet new community rating requirements — apply in every state, regardless of who’s running the exchange.

The theory advanced by Adler and Cannon “has little chance in succeeding in the courts,” Jost concluded in a post for Health Affairs last year.

Abbe Gluck, a professor at Yale Law School, agrees that the law’s structure and legislative history “amply support the IRS’s position.”

But “if more is wanting,” she adds, “the [Congressional Budget Office] evidence makes it a slam dunk.” Namely, the CBO estimates and score of the ACA consistently assumed that all qualifying purchasers on the exchanges would receive subsidies to purchase health coverage.

Given the oddity of turning down free subsidies — although the plaintiffs say that the ACA’s tax provisions mean that the subsidies are hardly free — some liberal supporters charge that these court challenges are less about damage to income and more about politics. Like Innovare Health’s Willey, the plaintiffs in Halbig — who all hail from states that have yet to set up insurance exchanges — are generally notable for their conservative track records.

The lead plaintiff, Jacqueline Halbig of Virginia, was appointed by President George W. Bush to be deputy director of the center for faith and community-based initiatives. David Klemencic, a West Virginia-based member of the National Federation of Independent Business, was one of the plaintiffs in the NFIB’s lawsuit over the mandate’s constitutionality. Sarah Rumpf of Austin, Texas, describes herself as a “Republican operative” on her blog.

Observers: Case is Worth Watching

While the earlier challenges to Obamacare captivated the nation, there’s been relatively little attention paid to these two lawsuits. In part, that’s because they’re still far from the Supreme Court; the cases were only filed in the last year and are on the District Court level. And the resolution of last summer’s legal saga over the individual mandate, coupled with President Obama’s re-election, seemed to cinch the ACA’s survival and put to rest constitutional questions.

But a handful of experts acknowledge that there’s a real possibility the courts will find in favor of the plaintiffs, possibly issuing an injunction and throwing a wrench in the ACA’s implementation.

Simon Lazarus, senior counsel at the Constitutional Accountability Center, told The Hill‘s Sam Baker that the conservative majority on the Supreme Court might even overturn the IRS’ approach to insurance subsidies if it gets the chance.

Nicole Huberfeld, a professor at the University of Kentucky College of Law, thinks the challenges raise “an interesting federalism conundrum,” she tells California Healthline, noting the difference in how Oklahoma and the federal government have chosen to interpret the ACA’s language on tax credits.

And given the mix of other tax provisions and federalism questions in the ACA, a win in Halbig or Pruitt could encourage “additional interest in testing the legality of the law,” she adds.

Meanwhile, plaintiffs’ lawyers for Halbig last week filed a motion for summary judgment, asking for the case to be decided now given the looming implementation of the ACA’s coverage mandates.

“Plaintiffs need a determination on the merits far enough in advance of Jan. 1, 2014, to allow them to conform their behavior to the law,” they wrote.

Weekly Roundup

Here’s a look at what else is making news in the world of health reform.

ACA remains unpopular: A poll released by NBC News/Wall Street Journal last week found that 49% of respondents thought the law was a “bad idea,” the highest level in the survey’s four-year history.

The misleading claims of Ohio’s ‘rate shock’: At The New Republic, Jonathan Cohn investigates reports that the Buckeye State will see premium increases averaging 88% next year — and finds them wanting. The figure stems from a top GOP official’s report, which left out “some pretty important facts,” Cohn writes.

Understanding the market for individual insurance: At Project Millennial, Josh Fangmeier and Adrianna McIntyre also drill down on claims of rising rates, but in a very different way — graphically breaking down what the individual insurance market will look like under the ACA.

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