Federal judge set to rule on Obamacare subsidies quandary

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A federal judge will decide Tuesday on a case that could blow a major hole through the Obamacare exchanges when he rules on whether the government can dole out tax credits to Americans whose states declined to run their own Affordable Care Act insurance markets.

U.S. District Court Judge Paul L. Friedman heard oral arguments Monday and said he would rule Tuesday morning on the challenge by seven plaintiffs, who want an injunction from the rule that extends credits to all of the exchanges. He will also rule on the government’s attempt to kill the lawsuit.

The 2010 law says the tax credits go to help Americans enrolled in exchanges “established by the state.” But about three dozen states declined to create their own exchanges, leaving it to the federal government to step in — and opening up the question of whether residents in those states can still get the subsidies.

“They are asking you to interpret ‘north’ to mean ‘south,’” the plaintiffs’ attorney, Michael A. Carvin, told Judge Friedman.

Justice Department lawyer Joel L. McElvain argued that Congress did not want to favor some states over others through the health care law. Instead, he said the Department of Health and Human Services was poised to “stand in the shoes” of those states that decided to let the federal government run their insurance portals.

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

Yanking away subsidies from about three dozen states that decided not to set up exchanges on their own would make joining the markets less attractive. Coming on the heels of serious glitches on the exchanges’ online portals, such a ruling would be another dent.

Attorneys from both sides — and even Judge Friedman himself — said the case is likely to climb the judicial ladder.

“Nobody cares what I say,” the judge quipped.

The exchanges, designed to offer plans to those who don’t have insurance through their employers, began enrollment on Oct. 1, though many users have reported major delays or difficulties in signing up.

Once enrolled, those 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.

To strike the tax credits from enrollees in those states would “extinguish” the rights of numerous people who are seeking affordable insurance, Mr. McElvain said.

But Mr. Carvin said the authors of the law tried to give each state “an offer you can’t refuse” by dangling generous subsidies and hoping they would take responsibility for their respective exchanges.

When many states balked, the administration chose to ignore the letter of the law, he said.

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

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