Subsidies under Obamacare federal exchanges look illegal

Johnathon Kiem:

There were fireworks at the D.C. Circuit today as the IRS and HHS squared off against appellants challenging the IRS’s power grab in Halbig v. Sebelius. I attended arguments today and provide the following synopsis. (Carrie Severino has discussed the district court’s opinion here, here, here, and here. Carrie also filed anamicus brief in the case.)

The central question is: Does the phrase “established by the State” actually mean what it says, or is that just a fancy way of saying “established by either the State or by the federal government?” At issue is a tax subsidy that the IRS currently grants to anyone who buys health insurance on an exchange under Obamacare. The plain language of the statute says that the subsidy only applies to insurance plans in states that have established an exchange, apparently as an incentive for states to start their own exchanges. But the IRS has decided that the tax subsidy should apply to every state, no matter who established the exchange. The problem, as these challengers point out, is that the IRS’s interpretation turns the actual language on its head.

Though news media have largely ignored this case so far, today’s argument should wake them up. We already had indications that today would be interesting. For starters, DOJ (which represents the IRS in arguments) filed a letter with the courtonly a couple of weeks ago stating essentially that because this wasn’t a class action, the IRS might consider not abiding by an order enjoining enforcement of its regulation. Two judges brought that “improper” filing up at the end of the argument today, admonishing the DOJ lawyer for filing it against court rules. When the poor DOJ lawyer had no ready response (one imagines it wasn’t his idea), the third judge advised him to just conclude his argument and sit down.

There were plenty of fireworks on the merits. Right at the beginning, Judge Edwards (a Carter appointee) began an aggressive line of questioning pressing appellant’s counsel, Michael Carvin, to explain where the legislative history showed that one of the purposes of Obamacare was to incentivize states to start state-based health-care exchanges. Judge Edwards’s point was apparently that “no one” who voted for the Affordable Care Act intended to encourage states to create health-insurance exchanges. (Which is an odd thing to say, since Congress explicitly created a mechanism to do so.) Carvin could barely get his answers out because of repeated interruptions by Judge Edwards, prompting Judge Randolph to suggest specific examples of the legislative history that Judge Edwards was seeking.

The two other judges, Judges Griffith and Randolph, both Republican appointees, seemed genuinely puzzled by the basis for the government’s interpretation of the phrase, and spent most of the government’s argument trying to divine a coherent interpretive methodology underlying the IRS’s position. Judge Griffith was most pointed in his skepticism, at one point asking the DOJ attorney to parse the phrase “established by the State under [Section] 1311,” which he more or less couldn’t accomplish without compromising his litigation position. DOJ counsel also conceded that the exchange in West Virginia (where one of the appellants lives) was “established by” the Secretary of Health and Human Services, not the State of West Virginia, but refused to concede defeat on those grounds.
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The administration is going to lose with this panel, but Harry Reid and Obama packed the DC circuit with radical leftist so an en banc finding may go their way which means it will then go the the Supreme court later.