A federal judge ruled Wednesday that Congress intended for the Internal Revenue Service to issue Obamacare subsidies in the federal exchange as well as state exchanges.
The plaintiffs in the lawsuit Halbig v. Sebelius argued that Congress’ intent was to provide Obamacare subsidies only for consumers in states that adopted their own exchanges, as an incentive for states to take up the burden of building and running the Obamacare marketplaces themselves.
D.C. Circuit Court judge Paul Friedman issued a 39-page ruling denying the plaintiff’s argument and affirming that Congress intended to provide subsidies to any exchange, whether run by a state or federal government.
Friedman was appointed by President Bill Clinton.
The lawsuit was sparked by IRS regulation which interprets the text of the Affordable Care Act as providing subsidies to both state and federal exchanges. If the suit is ultimately successful, the IRS would not legally be allowed to issue subsidies to consumers in the 36 states that opted out of building their own exchanges.
Obamacare’s text states that subsidies are calculated based on insurance costs in “an Exchange established by the State,” leading the plaintiffs, a group of business owners and individuals, to argue that they shouldn’t be subject to the IRS subsidies or various taxes that come with.
For instance, one plaintiff, David Klemencic, is required to purchase health insurance as a result of Obamacare’s individual mandate, but given his $20,000 annual salary, the IRS subsidies would only bring the cost of insurance down to 8 percent of his income.
Without the IRS subsidies, Klemencic would be able to claim an “unaffordability exemption” from the individual mandate.
While Friedman denigrated Klemencic’s financial burden as “rather small,” he affirmed his standing in court, which the federal government had argued against.
However, Friedman ruled that the business owners that had joined the case against the federal government did not have standing, and dismissed them from the case. Any appeals will be left in the hands of the individual plaintiffs alone.
The case has widely been regarded as a serious challenge to Obamacare and it’s likely Friedman’s decision will be appealed.
In December, the Wall Street Journal cited the case as one of several reasons Senate Democrats changed filibuster rules in order to confirm an Obama nominee for the D.C. appeals court.
Judge Patricia Millett, the first confirmed after the rules change, gives Democratic appointees a 5-4 lead in the D.C. Circuit Court, where any appeal to Friedman’s decision will be heard.
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