Federal appeals courts issue conflicting rulings on Obamacare

Reporting from Washington —  The legal battle over President Obama’s healthcare law ramped up again Tuesday, as two federal appeals courts handed down conflicting rulings on whether the government can continue to pay subsidies nationwide to millions of low- and middle-income people to help them with the cost of insurance.

The split decisions on a central element of the law increase the chances that the Supreme Court will take up another challenge to the Affordable Care Act as early as the coming year.

The legal battle gives Obamacare’s opponents another shot at trying to kill the law in the high court, a goal they fell one vote short of in 2012. In that case, four justices voted to strike down the entire legislation as unconstitutional. Chief Justice John G. Roberts Jr. joined the four liberal justices to uphold the core of the law.

This time, the outcome at the high court would turn on whether at least one of the five conservative justices agreed to uphold Congress’ broad goal of providing all Americans with insurance they can afford.

Soon after the Affordable Care Act won final approval in 2010, conservative groups pointed out an anomaly in its wording. The problem involved a key section of the law, which called for creating insurance marketplaces, or “exchanges,” where buyers could shop for coverage. People with low or middle incomes — up to $94,200 for a family of four — are offered tax credits to help pay for the insurance.

These exchanges were to be run by states. But if states refused the job, Congress authorized federal officials to “operate such exchange within the state” and carry out all the required duties. However, in another part of the law, Congress said tax credits would be offered for insurance purchased through an “exchange established by the state.”

Conservative legal groups have argued ever since that the wording “exchange established by the state” does not include the federal exchange. That reading of the law would block insurance subsidies in two-thirds of the nation.

Currently only 14 states, including California, run their own exchanges. In 36 states, including Texas, Florida and Illinois, the exchange is run by the federal government. Some states that ran their own exchanges this year but had trouble have announced plans to use the federal exchange for the open enrollment season that begins in November.

About 5 million Americans bought subsidized policies through the federal exchange this year, often reducing their costs by hundreds of dollars a month, healthcare experts say.

Two years ago, the Internal Revenue Service interpreted the law to mean that tax credits would be available for insurance purchased through any government-run exchange, regardless of whether it was run by state or federal authorities.

Conservative groups and Republican attorneys joined in four lawsuits to challenge that IRS rule. The two leading cases led to Tuesday’s opposing rulings.

In Washington, an appeals court focused strictly on the wording of the law and struck down the IRS rule on a 2-1 vote.

“A federal exchange is not an ‘exchange established by the state,’” Judge Thomas Griffith said for the U.S. Court of Appeals for the D.C. Circuit. His ruling would not allow tax credits in the 36 states with federally run exchanges.

“We reach this conclusion, frankly, with reluctance,” Griffith wrote for himself and Judge A. Raymond Randolph, both Republican appointees. “Our ruling will likely have significant consequences both for millions of individuals receiving tax credits and for health insurance markets more broadly.”

The panel’s lone Democratic appointee, Judge Harry Edwards, dissented, describing the case as a “not-so-veiled attempt to gut” the healthcare law.

Conservative leaders hailed the D.C. court’s ruling. Sen. Ted Cruz (R-Texas) called it “a repudiation of Obamacare and all the lawlessness that has come with it.”

Within hours, however, the U.S. 4th Circuit Court of Appeals in Richmond, Va., upheld the IRS rule. In its 3-0 decision, the judges focused on the overall intent of the law. They noted that the congressional sponsors wanted to provide affordable coverage to all and had devised the exchanges and the subsidies as a means to that end. By that logic, the judges concluded, it made no sense to deny the subsidies to millions whose states chose not to run an exchange.

Judge Roger Gregory, who was nominated by President Clinton and appointed under President George W. Bush, wrote that the wording of the law was “ambiguous and subject to multiple interpretations.” But in such a case, the balance tips in favor of the agency charged with implementing the law, he said.

Moreover, the “economic framework supporting the Act would crumble if the credits were unavailable on federal exchanges,” since millions of Americans could not afford to buy insurance, he wrote. Judges Stephanie Thacker and Andre Davis, both Obama appointees, joined him.

The pair of rulings will have no immediate impact pending further appeals, government officials said.

Obama administration lawyers will appeal the D.C. panel’s decision to the full D.C. Circuit Court. There, seven of the 11 judges are Democratic appointees.

“It’s important for people all across the country to understand that this ruling does not have any practical impact on their ability to continue to receive tax credits right now,” White House Press Secretary Josh Earnest said. “This will work its way through the legal process.”

Washington attorney Michael Carvin, a veteran of the Reagan administration, argued both cases decided Tuesday. He also was on the legal team that unsuccessfully argued before the Supreme Court two years ago that Obamacare was unconstitutional.

Although the lawsuits are backed by conservative and libertarian groups that oppose the law, the judges in both circuits said they would not rule on “purely ideological” claims. Each suit needed at least one real plaintiff who could show an economic injury from the workings of the law, they said.

In the D.C. Circuit case, that person was David Klemencic, a West Virginia resident who said he “expects to earn approximately $20,000 this year.” He does not wish to buy health insurance, according to his complaint, even if he receives a subsidy.

The law “confronts Klemencic with a choice he’d rather avoid,” the judges noted: buy insurance on the subsidized exchange or pay a tax penalty for lacking insurance. The cost of the Obamacare health insurance Klemencic went to court to reject: $21 per year.

david.savage@latimes.com