Federal judge set to decide Obamacare battle over subsidies

A federal judge is set to decide this month whether Obamacare insurance markets run by the federal government can dole out subsidies to help consumers pay for their coverage — a key element to making President Obama’s health law work as intended.

U.S. District Judge Paul L. Friedman in Washington, D.C., gave no clear indication Tuesday of which direction he is leaning after hearing oral arguments from seven plaintiffs suing to halt the subsidies as a violation of the letter of the law, and from Obama administration lawyers who say they are acting within the spirit of the law.

As written, the law says the taxpayer subsidies designed to help low-income and middle-class Americans purchase insurance must be paid to those enrolled in exchanges “established by the state.” But most states refused to set up exchanges, leaving that to the federal government — and raising the question of whether those customers are now ineligible for subsidies.

“The government wants to rewrite that,” said Michael Carvin, a lawyer for the businesses and individuals suing.

The Obama administration says that Congress never intended to separate the states into two camps, and that taking away financial assistance will do real harm to people living in nearly a three dozen states with federally run exchanges.

Justice Department lawyer Joel L. McElvain said the plaintiff’s argument defies the spirit of Obamacare — to get Americans insured — and “defies common sense as well.”

“They’re not two different classes of exchanges,” he said.

The Affordable Care Act allowed states to choose to set up and run their own exchange or defer the responsibility to the federal government.

Once enrolled, consumers who earn between 100 percent and 400 percent of the federal poverty level will be eligible for subsidies, an income-based credit that’s calculated by using the second-lowest-cost silver plan available to the enrollee as a baseline.

The case takes a nuanced look at legislative intent, but the stakes could not be broader for Mr. Obama’s signature domestic achievement.

Taking away subsidies from states that decided not to set up exchanges would make the exchanges less attractive and put another dent in the overhaul, which is mired in controversy over the flawed HealthCare.gov website, a series of administration delays and broken promises about Americans getting to keep their existing insurance plans if they liked them.

An inspector general at the Treasury Department added fuel to the firestorm Tuesday with a report that says the administration must do more to prevent fraud when it hands out the subsidies in the coming year and beyond.

Among the seven plaintiffs suing in court Tuesday were business owners from states that opted not to set up an exchange on their own. They said the federal government, by extending subsidies to their states, has exposed them to penalties tied to the law’s employer mandate.

The mandate requires companies with 50 or more employees to offer insurance or pay fines, which kick in when at least one employee takes advantage of tax credits on the exchanges.

Mr. Carvin said Congress intended to give subsidies to states as an incentive to get them to create their own markets rather than leave it to federal officials. When many states balked at the task, the administration had the Internal Revenue Service issue a rule saying federal exchange participants also were eligible.

“Everyone assumed that the states would take the deal,” Mr. Carvin said.

Mr. McElvain ticked off a litany of interlocking parts of the law and agency functions that he said would make little sense unless Congress meant all eligible Americans who get insurance through the exchanges could get subsidies.

Mr. Carvin acknowledged both sides were attempting to “psychoanalyze” Congress.

“Always a difficult job,” Judge Friedman said.

The judge gave no clear indication of when he would rule, but attorneys said they expected a decision by the end of the year.

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