A federal district court judge in Oklahoma ruled health insurance policies purchased through the federal exchange are not eligible for subsidies under the Affordable Care Act. Judge Ronald White of the Eastern District of Oklahoma decided Pruitt v. Burwell on September 30.
White’s decision centered on the language of the Affordable Care Act, also known as Obamacare, which specifies subsidies are available for plans purchased on exchanges “established by a state under Section 1311.” No similar language authorizing subsidies exists elsewhere in the Obamacare law regarding exchanges established by the federal government, leading Judge White to conclude subsidies are only available for plans purchased through state-based exchanges.
“Today’s ruling is a consequential victory for the rule of law,” Oklahoma Attorney General Scott Pruitt, who brought the lawsuit, said in a statement after the decision was announced. “The administration and its bureaucrats in the IRS handed out billions in illegal tax credits and subsidies and vastly expanded the reach of the health care law because they didn’t like the way Congress wrote the Affordable Care Act.… Today’s ruling vindicates what we recognized early on, and that is the administration can’t rewrite the Affordable Care Act by executive fiat.”
Actual Wording vs. Presumed Intent
The heart of the dispute is whether the federal government can provide subsidies for individuals purchasing health plans through the federal exchange. Although the text of the law authorizes subsidies only on exchanges established by states, the IRS determined in May 2012 the statute allowed subsidies for plans bought on exchanges not set up by states.
Advocates of Obamacare claim it was not Congress’ intent to provide subsidies only to plans bought on exchanges established by the states, and that the language of the law suggesting otherwise is a drafting error.
Opponents, meanwhile, argue Congress knew exactly what it was doing, or at least it’s not clear lawmakers intended to offer subsidies for health plans purchased on federal exchanges, and that many others also understood the language of Obamacare meant no subsidies for plans sold through a federal exchange.
In a report for American Action Forum, a nonprofit organization that opposes Obamacare, health care policy researcher Brittany La Couture documents Idaho and Indiana contemporaneously understood the law to mean no subsidies would be available in their state if they relied on a federal exchange, leading the former to establish a state-based exchange and the latter to reject one.
“What is clear is that state legislators who spent a reasonable amount of time and resources to gain a thorough understanding of the law consistently recognized the true effect of establishing an exchange on subsidy eligibility for their citizens,” La Couture concluded. “These legislators understood the plain text of the law to say that eligibility for federal subsidies arises only from an exchange established by a state under Section 1311, and not from an exchange established by the federal government on behalf of the state. This understanding did ultimately contribute to states’ decisions on whether or not to establish their exchanges.”
Obamacare Architect: State-Only
Contradicting the argument for interpreting the letter of the law as an unintentional drafting error are several statements by one of the chief architects of the law, MIT professor Jonathan Gruber, stating subsidies were intended only for state-based exchanges.
In July, videotapes of Gruber speaking to different groups about state exchanges and subsidies surfaced. In one video he tells the group, “That is really the ultimate threat—will people understand that, gee, if your governor doesn’t set up an exchange, you’re losing hundreds of millions of dollars in tax credits to be delivered to your citizens.… So that’s the other threat, is will states do what they need to do to set it up.”
In another, even more explicit statement caught on tape, Gruber says, “What’s important to remember politically about this is if you’re a state and you don’t set up an exchange, that means your citizens don’t get their tax credits—but your citizens still pay the taxes that support this bill. So you’re essentially saying [to] your citizens you’re going to pay all the taxes to help all the other states in the country. I hope that that’s a blatant enough political reality that states will get their act together and realize there are billions of dollars at stake here in setting up these exchanges.”
Gruber, who was paid $400,000 by the Obama administration to consult on the law’s development, has since claimed he didn’t mean what he said, that his comments were a “speak-o,” the verbal equivalent of a typo.
Headed for Supreme Court?
Judge White’s ruling shows he was not swayed by the Obama administration’s argument that it was simply a drafting error.
“…[T]he court is upholding the Act as written,” Judge White wrote in his ruling, citing a 1993 case that found “…vague notions of a statute’s ‘basic’ purpose are nonetheless inadequate to overcome the words of its text…”
Judge White immediately stayed his order prohibiting subsidies for plans purchased on federal exchanges, assuming there would be an appeal. Appeals have also been filed over rulings in the DC Circuit Court of Appeals, which also ruled subsidies were available only through exchanges established by states, and the Fourth Circuit, which reached the opposite conclusion.
“Today’s ruling is a huge win for Oklahoma, but it’s just a first step,” Attorney General Pruitt concluded. “It’s likely this issue will ultimately be decided by the U.S. Supreme Court. We look forward to making our case and continuing the effort to hold federal agencies accountable to their duty to enforce the laws passed by Congress.”
Sean Parnell ([email protected]) is managing editor of Health Care News