A federal judge ruled Tuesday that an anti-Obamacare lawsuit can proceed, but refused to issue an injunction that could have foreshadowed disaster for the health care law in nearly three dozen states.
U.S. District Judge Paul L. Friedman, presiding in the nation's capital, said the seven plaintiffs have a legitimate case in charging that the Obama administration is illegally paying health care subsidies to some of those trying to sign up for coverage on Obamacare exchanges.
But the judge rejected a request for an injunction while the case is decided. Plaintiffs had argued they should not be forced to choose between paying for insurance they don't want or a tax penalty for failing to obtain insurance.
Additionally, business plaintiffs say the subsidies will trigger fines under a section of the law known as the employer mandate, which penalizes large employers that do not provide coverage to full-time employees.
The Obama administration had asked that the entire lawsuit be tossed.
The judge said he will issue a final ruling by mid-February on the merits of the case, which could blow a major hole through the health care program if he decided the federal government can pay subsidies only to those covered by state-run exchanges.
"So that's where I am," Judge Friedman told attorneys, after delivering a two-hour oral opinion to lay out his thinking.
The case could seriously dent Mr. Obama's signature domestic achievement if it does not go the administration's way and the appeals courts uphold such a ruling.
Taking away subsidies from 34 states that decided not to set up exchanges on their own would make joining the markets less attractive. Since the administration is reeling from serious glitches on the exchanges' online portals, such a decision would be a devastating blow.
For months, some analysts and Republican lawmakers have argued the exact language of the Affordable Care Act reserved the tax credits to people who enroll through an exchange established by a state. They say the subsidies were dangled to entice states to set up their own exchanges under Obamacare, but 34 states let the federal government take on the task.
The plaintiffs told Judge Friedman the Internal Revenue Service is violating the law by extending credits to all exchanges.
Their attorney, Michael A. Carvin, told the judge Tuesday he would like a ruling on the merits of their claims "as fast as possible," as provisions of Obamacare take effect in the coming months.
Judge Friedman said the plaintiffs made "a very good argument" about the strict language of the health care law, but that the government also has been persuasive in saying Congress intended to have the Department of Health and Human Services stand in for any state that opted not to set up an exchange.
The judge wants to render his decision by mid-February, which is when uninsured Americans must sign up for coverage so they are not penalized by the government for lacking insurance.
Insurance is sold monthly, so currently uninsured Americans will have to obtain coverage that takes effect by March 1 to stay within the law's three-month limit for going uninsured, because April 1 would be too late.
Abbe R. Gluck, an associate professor at Yale Law School, said the case could come down to a long-standing rule known as "administrative deference," in which the courts defer to the agency's interpretation if the statute's text is ambiguous.
"Here," she said, "that means the IRS wins."
She said the text of the law "is not a model of clarity," but politics have prevented technical changes and cost assessments of the law assumed that all states would garner subsidies.
"Anyone who understands how Congress works, and specifically how this particular statute was put together, knows that Congress intended for these subsidies to be available regardless of whether states or the feds are operating these exchanges," she said.
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