2 courts split over subsidies for premiums

A view of the E. Barrett Prettyman Federal Courthouse that houses the U.S. Court of Appeals for the D.C. Circuit, on Tuesday, July 22, 2014, in Washington.  Obama's health care law is enmeshed in another big legal battle after two federal appeals courts issued contradictory rulings on a key financing issue within hours of each other Tuesday.  (AP Photo/ Evan Vucci)
A view of the E. Barrett Prettyman Federal Courthouse that houses the U.S. Court of Appeals for the D.C. Circuit, on Tuesday, July 22, 2014, in Washington. Obama's health care law is enmeshed in another big legal battle after two federal appeals courts issued contradictory rulings on a key financing issue within hours of each other Tuesday. (AP Photo/ Evan Vucci)

WASHINGTON -- Two federal appeals court panels issued conflicting rulings Tuesday on whether the government can subsidize health insurance premiums for people in three dozen states that use the federal insurance exchange. The decisions are the latest in a series of legal challenges to central components of President Barack Obama's health care law.


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The 4th U.S. Circuit Court of Appeals in Richmond, Va., upheld the subsidies, saying a rule issued by the Internal Revenue Service was "a permissible exercise of the agency's discretion."

The ruling came within hours of a 2-1 ruling by a panel of the U.S. Court of Appeals for the District of Columbia Circuit, which said the government could not subsidize insurance for people in states that use the federal exchange.

That decision could cut off financial assistance for more than 4.5 million people who were found eligible for subsidized insurance in the federal exchange, causing their share of premiums to increase sharply.

The Patient Protection and Affordable Care Act authorized subsidies specifically for insurance bought "through an exchange established by the state." When the health care law was adopted in 2010, Obama and congressional Democrats assumed that states would set up their own exchanges. But many Republican governors and state legislators opposed setting up their own exchanges.

Obama administration officials said an exchange established by the federal government was, in effect, established by a state because the secretary of health and human services was standing "in the shoes" of states when she established exchanges.

But the District of Columbia appeals court panel disagreed, saying subsidies are available only to people who obtained insurance through exchanges established by states.

The law "does not authorize the Internal Revenue Service to provide tax credits for insurance purchased on federal exchanges," said the ruling. The law, it said, "plainly makes subsidies available only on exchanges established by states."

The courts' decisions are not the last word, however, as other courts are weighing the same issue. And the Washington panel's ruling could be reviewed by the full appeals court there.

The White House rejected the panel's ruling and said the Justice Department would ask the entire appeals court to review it. Obama's aides noted that two district courts have thrown out similar lawsuits and therefore argued that judicial opinions have been mixed at worst. Moreover, they said, the ruling Tuesday seemed to fly in the face of common sense.

"You don't need a fancy legal degree to understand that Congress intended for every eligible American to have access to tax credits that would lower their health care costs, regardless of whether it was state officials or federal officials who were running the marketplace," said Josh Earnest, the White House press secretary. "I think that is a pretty clear intent of the congressional law."

Reacting to the ruling in Washington, a Justice Department spokesman, Emily Pierce, said: "We believe that this decision is incorrect, inconsistent with congressional intent, different from previous rulings and at odds with the goal of the law: to make health care affordable no matter where people live. The government will therefore immediately seek further review of the court's decision."

"In the meantime," Pierce said, "to be clear, people getting premium tax credits should know that nothing has changed. Tax credits remain available."

The majority opinion in the case filed in Washington, Halbig v. Burwell, was written by Judge Thomas Griffith, with a concurring opinion by Judge Raymond Randolph, a senior circuit judge. Thomas was nominated by President George W. Bush; Randolph was nominated by President George H.W. Bush.

Another member of that appeals court panel, Judge Harry Edwards, also a senior circuit judge, filed a dissenting opinion in which he described the lawsuit as an "attempt to gut" the health care law. The majority opinion, he said, "defies the will of Congress."

Edwards, who was nominated by President Jimmy Carter, said the Obama administration's reading of the law, considered in "the broader context of the statute as a whole," was "permissible and reasonable, and, therefore, entitled to deference."

A similar approach was sounded later by the 4th Circuit panel, which said, "We find that the applicable statutory language is ambiguous and subject to multiple interpretations."

The 4th Circuit panel said it would therefore give deference to the reading of the law by the IRS, which issued the rule allowing payment of subsidies for people in all states, regardless of whether the state had a federal or state exchange.

The federal exchange serves states that include about two-thirds of the nation's population. In federal and state exchanges, people currently may qualify for subsidies if they have incomes of up to $45,960 for individuals and up to $94,200 for a family of four.

The subsidies, in the form of tax credits, are a crucial element of the Affordable Care Act. Without them, insurance would be unaffordable to millions of Americans. The Congressional Budget Office estimates that subsidies this year will average $4,400 for each person who receives one.

If it stands, the ruling by the District of Columbia court could undercut enforcement of the requirement for most Americans to have insurance. Without the subsidies, many more consumers would go without insurance and could be exempted from the "individual mandate" because insurance would be unaffordable for them.

The ruling also could undermine the requirement for larger employers to offer health coverage to their employees. That requirement is enforced through penalties imposed on employers if any of their employees receive subsidies to buy insurance on an exchange.

The lawsuit in Washington was filed by several people in states that use the federal exchange: Tennessee, Texas, Virginia and West Virginia. They objected to being required to buy insurance, even with subsidies to help defray the cost.

One of the plaintiffs, David Klemencic, who has a retail carpet store in Ellenboro, W.Va., said: "If I have to start paying out for health insurance, it will put me out of business. As Americans, we should be able to make our own decisions in matters like this."

Similar lawsuits challenging subsidies under the Affordable Care Act are pending in other courts.

In February, a federal district judge in Richmond upheld subsidies in the federal exchange. While plaintiffs' interpretation of the law has "a certain common sense appeal," the judge said, "there is no evidence in the legislative record" that Congress intended to make tax subsidies conditional on a state's decision to create an exchange.

Stuart Delery, an assistant attorney general, told the appeals court in Washington in March that Congress had intended for subsidies to be available nationwide to low- and moderate-income people, regardless of whether they obtained insurance on a federal or state exchange.

The plaintiffs said Congress had confined the subsidies to state exchanges for a reason: It wanted to provide an incentive for states to establish and operate exchanges, rather than leaving the task to the federal government.

Obama administration officials said that argument was absurd. The overriding purpose of the Affordable Care Act, they said, was to ensure access to health care for nearly all Americans, wherever they live.

Of the 8 million people who selected private health plans from October through mid-April, 5.4 million obtained coverage through the federal exchange, and most of them qualified for subsidies that reduce their premiums.

Fake identities

In another potential blow to the Affordable Care Act, a transcript of testimony to be delivered today shows that congressional investigators using fake identities were able to obtain taxpayer-subsidized health insurance under the law.

The nonpartisan Government Accountability Office says its undercover investigators were able to get subsidized health care under fake names in 11 out of 18 attempts. The office is still paying premiums for the policies, even as the Obama administration attempts to verify phony documentation.

The agency's findings are contained in testimony to be delivered at a House Ways and Means Committee hearing today. An advance copy was provided to The Associated Press.

Seto Bagdoyan, head of Government Accountability Office audits and investigations, also plans to testify that there's still a big backlog of applications with data discrepancies, even though the administration has resolved some 600,000 cases.

Ways and Means Chairman Dave Camp, R-Mich., said the investigation shows the health law is rife with "incompetence, waste and the potential for fraud."

House Republicans have voted some 50 times to repeal or scale back the health overhaul.

The Obama administration says six of the Government Accountability Office's fake online applications were blocked by eligibility checks built into computer systems at healthcare.gov. But the office says its undercover agents found a way around that and were able to enroll anyway.

"We are examining this report carefully and will work with GAO to identify additional strategies to strengthen our verification processes," administration spokesman Aaron Albright said.

The accountability office said its investigators concocted fake identities using invalid Social Security numbers and falsely claiming citizenship or legal residence. In other cases, they made up income figures that would disqualify them from getting subsidies.

Among the findings:

• Contractors processing applications for the government told the accountability office that their role was not to ferret out potential fraud.

• Five of six bogus phone applications went through successfully. The one exception involved an applicant who refused to provide a Social Security number.

• Six online applications were snagged by an identity checking system. But investigators dialed a call center and then all six were approved.

• The accountability office also tried to check the reliability of counselors providing in-person assistance. In five out of six cases, investigators were unable to get help. In the final case, the counselor correctly told the undercover investigator that his stated income would not entitle him to subsidized coverage.

Information for this article was contributed by Robert Pear of The New York Times and by staff members of The Associated Press.

A Section on 07/23/2014

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