Right after the U.S. Court of Appeals for the District of Columbia Circuit ruled that tax credits offered on the federal health insurance exchange (which operates in 36 states) are illegal, the Fourth Circuit Court of Appeals upheld the same tax credits in a similar case, in a decision that used pizza as an analogy.
Continue Reading Below
The D.C. court ruled that the health reform law, as it is sloppily written, never allowed for tax credits to be used for health insurance bought on healthcare.gov, effectively outlawing the use of these credits claimed by 4.7 million people. The court decided that tax credits were only lawfully available on state-run health exchanges, sticking to the letter of the law. The Congressional Budget Office (CBO) has already estimated health reform subsidies will cost just over $1 trillion over the next decade.
This is what happens when Congress rams though a huge reform bill without going through normal budgetary procedures and skipping going to conference, which could have cleaned up the language. Chaos. Then pizza.
The lawsuit heard by the D.C. court, Halbig v. Burwell, has the potential to cripple Obamacare in the three dozen states where the federal government runs the insurance marketplaces. About 9 in 10 of the enrollees in the ACA's first open enrollment season bought health insurance on the exchanges using tax credits, according to the Robert Wood Johnson Foundation, a health industry research shop.
The D.C. court ruling overturns a regulation the Internal Revenue Service had enacted two years ago that said taxpayers can receive a tax credit "regardless of whether the exchange is established and operated by a state."
But Judge Andre M. Davis of the Fourth Circuit seems to agree in a ruling that contradicts the D.C. court decision, and used a take-out order for pizza to make his argument that regardless where the insurance came from, a federal or state exchange, the tax credit should be made available:
Continue Reading Below
“If I ask for pizza from Pizza Hut for lunch but clarify that I would be fine with a pizza from Domino’s, and I then specify that I want ham and pepperoni on my pizza from Pizza Hut, my friend who returns from Domino’s with a ham and pepperoni pizza has still complied with a literal construction of my lunch order.”
“That is this case: Congress specified that Exchanges should be established and run by the states, but the contingency provision permits federal officials to act in place of the state when it fails to establish an Exchange. The premium tax credit calculation subprovision later specifies certain conditions regarding state-run Exchanges, but that does not mean that a literal reading of that provision somehow precludes its applicability to substitute federally-run Exchanges or erases the contingency provision out of the statute.”
Given the upheaval, these conflicting cases may not be headed for Supreme Court review. The Obama Administration has already indicated it would request what’s called "en banc" review of the D.C. circuit court decision. If the D.C. circuit court grants that request, that would mean all 11 judges would review the initial ruling issued by the panel of three judges drawn for the case. That said, the Supreme Court could still choose to hear the case.
In the interim, the Congress could try to clarify the law to allow for tax credits on the federally run exchanges—but the U.S. House of Representatives, dominated by the GOP, would be sure to block them.