Second Court Strikes Down Obamacare Subsidies In Federal Exchanges

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Another federal court has struck down an IRS rule that gives Obamacare subsidies to customers in federally-run exchanges.

The United States District Court in Oklahoma ruled Tuesday in Pruitt v. Burwell that the IRS rule extending health insurance tax credits to Obamacare exchange customers in states that chose not to build their own exchange is illegal.

The Obama administration’s rule is “arbitrary, capricious, an abuse of discretion or other not in accordance with law,” according to federal district Judge Ronald White.

The question comes down to the repeated instruction in the text of the Affordable Care Act that advanced premium tax credits are to go only to customers of exchanges “established by the state.” The plaintiff in this case, Oklahoma attorney general Scott Pruitt, argues that Congress’ text says customers in Oklahoma, which doesn’t run its own exchange, aren’t eligible for the subsidies.

The decision follows two highly-charged appeals court cases. The Washington, D.C. Circuit Court ruled in Halbig v. Burwell that Obamacare’s tax credits are only applicable to the several state-run exchanges; but hours later, the Fourth Circuit Court ruled that the IRS was within its rights to make the adjustments in its extension of the subsidies. (RELATED: Federal Court Takes Down Obamacare)

But at the Department of Justice’s request, the D.C. Circuit Court agreed to re-hear its case with a full court — which has been packed with three new judges appointed by President Obama since Senate majority leader Harry Reid deployed his nuclear option to avoid Republican opposition last fall.

With liberal judges outnumbering conservatives now by eight to five, it’s likely that the court will take back its initial ruling and approve the subsidies, taking the pressure off the Supreme Court to hear the case.

But Pruitt’s victory in Oklahoma paves the way for another court split in the future. The Department of Justice will presumably appeal the district court’s decision to a United States appeals court, and if the Obama administration loses again, the Supreme Court will once again be presented with a split decision by two equal courts below it. That may prompt the justices to take the decision into their own hands.

That said, Judge White pushed back on the idea that the challenge to an IRS interpretation is inherently an unjustified attack on Obamacare, which has been peddled by opponents of the several lawsuits. Even the Fourth Circuit Court blasted King v. Burwell as a perceived attempt to withdraw “desperately-needed” subsidies from customers.

“A lawsuit challenging a federal regulations is a commonplace occurrence in this country, not an affront to judicial dignity,” White wrote. “Such a case … does not ‘gut’ or ‘destroy’ anything. On the contrary, the court is upholding the Act as written. Congress is free to amend the ACA to provide for tax credits in both state and federal exchanges, if that is the legislative will.”

Were subsidies to disappear entirely, many customers (it’s unclear exactly how many federal sign-ups have paid their premiums) would likely not to be able to afford the true cost of exchange insurance.

Many experts argue that Congress meant to withhold the subsidies as a means of convincing states to build their own exchanges in the first place. Even Obamacare architect Jonathan Gruber, who now solidly supports the IRS rule, has made comments suggesting the exclusion was intentional in the past. (RELATED: Obamacare Architect Says AGAIN That Subsidies Were Only Meant For State Exchanges)

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