Second Federal Court Rushes To Save Obamacare From Devastating Ruling

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A second federal court ruled Tuesday that Obamacare subsidies in federal exchanges are in fact legal, just hours after the D.C. Circuit Court ruled just the opposite.

While the Affordable Care Act statute reads that premium tax credit subsidies are available only to those exchanges “established by the state,” the Internal Revenue Service issued a rule that allowed it to issue subsidies to federally-run exchange states as well as state-run exchanges.

The Fourth Circuit Court of Appeals ruled Tuesday that the IRS action to hand out subsidies in the federal exchange doesn’t violate the law; the U.S. District Court of Appeals ruled earlier in the day that the federal exchange subsidies are illegal. (RELATED: Federal Court Takes Down Obamacare: Subsidies In Federal Exchange Are Illegal) 

The D.C. appeals court found the subsidies to federal exchange customers illegal largely based on the letter of the law. The Fourth Circuit, instead said the language was “ambiguous” and deferred to the administration’s “discretion,” while also giving weight to their interpretation of Congress’s intent — and to their feeling that Obamacare subsidies are “desperately-needed.”

“It is…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,” the court ruled. “The statute as a whole clearly evinced Congress’s intent to make the tax credits available nationwide.” 

The Affordable Care Act’s “applicable statutory language is ambiguous and subject to multiple interpretations,” Judge Roger Gregory wrote in the majority opinion. “Applying deference to the IRS’s determination, however, we uphold the rule as a permissible exercise of the agency’s discretion.” 

The Fourth Circuit’s case focused on individuals who would be exempt from Obamacare’s individual mandate had premium subsidies not been available on the federal exchange. The individual mandate applies only to those with health insurance options that cost less than a statutory percentage of a person’s income; but the premium tax credits lower that threshold, subjecting a larger swath of the population to the requirement to purchase health insurance.

The judges surprisingly took space in the ruling to slam the appellants themselves for objecting to the IRS ruling, snidely writing that the individuals should simply pay the “tiny tax penalty” if they don’t wish to purchase health insurance.  (That tiny penalty is $95 this year, but will grow to $695 per person or 2.5 percent of their income.)

“What they may not do,” the court wrote, “is rely on our help to deny to millions of Americans desperately-needed health insurance through a tortured, nonsensical construction of a federal statute whose manifest purpose, as revealed by the wholeness and coherence of its text and structure, could not be more clear.”

The Obama administration has already announced that it will fight the D.C. appeals court’s decision by requesting an en banc ruling, which will require all 11 judges on the court to rule on the case. The second ruling in favor of the Obama administration’s IRS rule will make it even more likely that the question of federal exchange subsidies reaches the Supreme Court.

The White House will continue to pay billions in premium subsidies to Obamacare customers in the 36 states with federally-run exchanges until they’re finished fighting the cases in court. (RELATED: White House To Ignore Court Ruling, Keep Handing Out Obamacare Subsidies) 

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Sarah Hurtubise