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Second Judge Rules Against ACA Subsidies if There's No State-Run Exchange

Mary K. Caffrey
No state-run exchange, no subsidy for health coverage. That's what a federal judge in Oklahoma ruled yesterday, marking the second such ruling against a key component of the Affordable Care Act and setting up a potential return trip to the US Supreme Court to decide the fate of a key piece of the law.
No state-run exchange, no subsidy for health coverage. That’s what a federal judge in Oklahoma ruled yesterday, marking the second such ruling against a key component of the Affordable Care Act (ACA) and setting up a potential return trip to the US Supreme Court to decide the fate of a key piece of the law.

Judge Ronald A. White found the Internal Revenue Service (IRS) overstepped its bounds when it interpreted the 2010 legislation broadly, allowing consumers in states that opted to rely upon the federal exchange to receive subsidies for coverage if they met income requirements. Plaintiffs in Oklahoma, as well as those in an earlier case, Halbig vs. Burwell, argued that a drafting error meant that only those enrollees living in areas with state-run exchanges were eligible for subsidies.

In the Halbig case, the 4th Circuit Court of Appeals in Richmond, Va., sided with the White House, saying the IRS interpretation was correct, but a three-judge panel of the DC Court of Appeals ruled against that regulation initially. However, that ruling was vacated when the full court opted to hear the case.

The whole issue appears headed higher up the legal ladder, as the losing party in the Halbig case has asked the Supreme Court to hear the matter. The Obama Administration must reply by Friday.

Some legal experts who support the ACA were initially alarmed at the Halbig ruling but were calmer after the full court agreed to rehear the matter. However, as Forbes’ contributor Michael F. Cannon noted, the language from the Oklahoma case, Pruitt vs. Burwell, was scathing:

The ACA (quoting Halbig) “unambiguously restricts the subsidy to insurance purchased on Exchanges ‘established by the State.’”  In his ruling, White wrote that that the IRS interpretation “leads us down a path toward Alice’s Wonderland, where up is down and down is up, and words mean anything.”

Decisions by opponents of the ACA to continue this path may be politically risky, however. A recent article in The American Journal of Accountable Care found that from a consumer perspective, healthcare reform is doing better than anticipated, once the initially technical problems were overcome.

In polls, the ACA has been overtaken by the economy as the most important issue on voters’ minds as they head into the 2014 midterm elections, the Journal found. The American Journal of Accountable Care is a title of The American Journal of Managed Care devoted to research and commentary on healthcare reform.

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