Another Major Obamacare Legal Decision Looms

There's another big Obamacare legal decision on the way—and this one could be the most consequential yet.

Sometime soon, perhaps as early as this week, the DC Circuit Court will rule on the case of Halbig vs. Burwell, which challenges the legality of the insurance subsidies that are the foundation of the health law's private coverage expansion.

The potential impact is huge: If the court rules against the law, the subsidies of the vast majority of individuals who signed up for health coverage in the federally facilitated exchanges operating in 36 states would be put at risk. A decision against the administration would not destroy the law—but it would completely upend the current implementation of Obamacare.

The challengers in this case have the virtues of clarity and simplicity on their side: The text of the law clearly and unequivocally states that subsidies are only available through exchanges "established by the State." This is not some one-off drafting mistake, as many initially believed. The language is repeated throughout the law, and "State" is even explicitly defined to mean state government.

And yet the Internal Revenue Service (IRS) issued a rule allowing for the disbursement of subsidies, in the form of tax credits, to individuals who sign up for coverage in exchanges run by the federal government. That's exactly what the administration has done. During Obamacare's first open enrollment period, which ran from October 2013 thru March 2014, the federal government ran exchanges for 36 states, signing up about 5.4 million people for coverage, 86 percent of whom were subsidized. The tax credits are substantial. On average, they cover about 76 percent of the monthly premium payment for people who get subsidized coverage within the federal exchange. 

Yet by the plain language of the law, those subsidies are illegal. The spending is not authorized by law. As Michael Cannon of the Cato Institute and Jonathan Adler of Case Western Reserve University Law School have argued in a paper laying out the legal case against the IRS rule, the "largest effect" of the IRS rule allowing subsidies in the federal exchanges is to "increase federal spending." Essentially, they write, the rule "appropriates federal dollars without statutory authority."

Because they do not have the plain language of the law on their side, Obamacare's defenders have taken a decidedly more impressionistic approach. Their argument is that the "structure" and "purpose" of the law make it clear overall that the health law's insurance subsidies were meant to be available in all exchanges, regardless of whether the exchange was set up by the feds or by a state. "Congress is clearly indicating that it wants a system of exchanges, nationwide, to provide affordable health care for all Americans," argued Justice Department lawyer Stuart Delery in March.

If that's what Congress meant to clearly indicate, then perhaps that's what Congress should have written. The administration's argument, then, boils down to the idea that Congress could not have meant what it actually wrote when it said that subsidies are available in exchanges established by states, and that what Congress is supposed to have "indicated" in the law's larger structure and statement of purpose should rule rather than the plain text itself. Squint your eyes and look at the general shape of the law, but ignore the contradictory specifics.

One lower-court judge has already been convinced by this approach, but the challengers may have more luck with the three-judge panel in the Circuit court, which heard oral arguments in March. As National Journal's Sam Baker reports, "Two judges appeared to split along partisan lines, leaving Judge Thomas Griffith, a George W. Bush appointee, as the likely swing vote. Griffith seemed during oral arguments to at least be open to the challengers' arguments, and perhaps leaning in their direction."

The Circuit court's decisions are typically released on Tuesday and Friday mornings, which means a decision could arrive as soon as tomorrow.