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Appeals Court Strikes Down Subsidies In Federal Health Exchange

A three-judge panel at the U.S. Appeals Court for the D.C. Circuit threw the fate of an important part of the Affordable Care Act into doubt Tuesday.

In a 2-1 decision, the court ruled that the Internal Revenue Service lacked the authority to allow subsidies to be provided in exchanges not run by the states. The ruling could put at immediate risk the millions of people who bought insurance in the 36 states where these online insurance marketplaces are run by the federal government.

"Because we conclude that the ACA unambiguously restricts the section 36B subsidy to insurance purchased on the Exchanges 'established by the state,' we reverse the district court and vacate the IRS's regulation," said the decision by Judge Thomas Griffith.

The Obama administration said it will appeal. The Justice Department will ask the entire appeals court panel to review the decision, and that panel is dominated by judges appointed by Democrats (7-4).

"There's a lot of high-minded case law that's applied here," White House spokesman Josh Earnest said. "There's also an element of common sense that should be applied as well, which is that 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."

"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," said a statement from the Justice Department.

Meanwhile, just an hour later, another three-judge panel on the 4th Circuit Court of Appeals in Richmond, Va., came to the opposite conclusion – upholding the federal subsidies. "It is therefore clear that widely available tax credits are essential to fulfilling the Act's primary goals and that Congress was aware of their importance when drafting the bill," said the decision written by Judge Roger Gregory.

In any event, Elizabeth Wydra, chief counsel for the Constitutional Accountability Center said the D.C. Circuit ruling wouldn't take effect right away. "The court's rules are that it doesn't happen for 45 days," to give the government time to ask for a full en banc hearing, "or 7 days after the en banc hearing has been denied."

Should the decision eventually stand, however, it could mean at least 5 million Americans would face an average premium increase of 76 percent, according to a projection done by the consulting firm Avalere Health.

The court said that the wording of the health law "plainly makes subsidies available only on Exchanges established by states," and that the legislative history of the bill "provides little indication one way or the other of congressional intent."

But Judge Harry T. Edwards offered a strong dissent: "It makes little sense to think that Congress would have imposed so substantial a condition in such an oblique and circuitous manner."

The case could wind up in the Supreme Court.

Copyright 2014 Kaiser Health News. To see more, visit http://www.kaiserhealthnews.org/.

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