The importance of presidential judicial appointments became clear Tuesday when two federal appeals courts reached opposite results on the same question: whether the tax subsidy offered by the Affordable Care Act is available to people who buy health insurance through federally established exchanges or only to those who purchased through state-run exchanges.
Obama (Associated Press photo)
A three-judge panel of the 4th U.S. Circuit Court of Appeals unanimously upheld the Obama administration’s view that the tax break applies to consumers of either the state or federal exchanges created under ACA, popularly known as Obamacare.
Meanwhile, a three-judge panel of the D.C. Circuit Court of Appeals ruled 2-1 that the tax break applies only to state-run exchanges, a view pressed by small businesses and other ACA opponents.
On the 4th Circuit panel, judges Stephanie D. Thacker and André M. Davis were appointed by President Obama, while Judge Roger L. Gregory was appointed by Republican President George W. Bush after first being nominated by Democratic President Bill Clinton too close to the end of his tenure to win Senate confirmation.
On the D.C. Circuit, the two judges in the majority — Thomas B. Griffith and A. Raymond Randolph — were appointed by Republican presidents George W. Bush and George H.W. Bush, respectively. The dissenting jurist, Senior Judge Harry T. Edwards, was appointed by Democratic President Jimmy Carter.
Obama has “put a big stamp on the 4th Circuit” by appointing six judges to the court, said University of Richmond School of Law Professor Carl W. Tobias.
The 4th Circuit, which hears appeals from federal courts in Maryland, North Carolina, South Carolina, Virginia and West Virginia, has traditionally been viewed as one of the most conservative courts; however, its broader reading of the ACA may reflect a shift to the left under Obama, added Tobias, who writes frequently on judicial selection.
However, he cautioned against placing ideological labels on the judges or courts based on the ACA rulings.
“Reasonable minds can differ about whether it [the law] is clear or not,” Tobias said. “Those six judges are pretty splintered.”
The 4th Circuit, in fact, stopped short of embracing the administration’s position, but said that since the law itself was unclear it would defer to the Internal Revenue Service’s interpretation of it.
Crucial to success
The availability of tax breaks for users of the federal exchange is crucial to the ACA’s success because most states — 36 in all — have been unable or unwilling to set up their own exchanges. The inaction stems in many instances from opposition to the law from Republican governors.
As a result, the federal exchange accounts for about 5.4 million of the 8 million people who have enrolled so far, and of those, about 4.7 million qualified for a subsidy, according to government statistics.
The small-business owners challenging the law say the tax credits enacted by Congress were intended to encourage states to set up their own health benefit exchanges and the penalty for not doing so was withdrawal of tax credits for lower-income residents.
Supporters of the act say the tax credit’s purpose was not to promote the establishment of state exchanges but rather to achieve Congress’ fundament purpose of making insurance affordable to all Americans.
The 4th Circuit, in its decision, found that purpose to be clear in the statute but said the ACA was ambiguous with regard to whether the tax break, or subsidy, applied to the federal as well as state-run exchanges.
Due to the ambiguity, the 4th Circuit said it must defer to the interpretation of the Internal Revenue Service, the federal agency assigned to enforce the ACA’s tax-break provision.
The IRS has ruled the tax credit provision applies to state and federal exchanges, said the Richmond, Va.-based 4th Circuit.
“It is … clear that widely available tax credits are essential to fulfilling the act’s primary goals and that Congress was aware of their importance when crafting the bill,” Gregory wrote for the 4th Circuit’s three-judge panel in King et al. v. Burwell et al., No. 14-1158. “Confronted with the act’s ambiguity, the IRS crafted a rule ensuring the credits’ broad availability and furthering the goals of the law. In the face of this permissible construction, we must defer to the IRS rule.”
Davis, an Obama appointee, wrote a concurring opinion in which he said the provision is not ambiguous but clearly gives the federal government authority to establish and operate an exchange within the state and to offer tax breaks. He analogized it to asking a friend to pick up a pizza from one of two pizzerias.
The D.C. Circuit, by contrast, found that the premium tax provision “unambiguously restricts the section 36B subsidy to insurance purchased on Exchanges ‘established by the state.’”
“[A] federal Exchange is not an ‘Exchange established by the state,’ and section 36B does not authorize the IRS to provide tax credits for insurance purchased on federal Exchanges,” Griffith, a George W. Bush appointee, wrote for the majority in Halbig et.al. v. Burwell et al., No. 14-5018. Griffith said it was a court’s duty to stick to the “words of the statute.”
“This limited role serves democratic interests by ensuring that policy is made by elected, politically accountable representatives, not by appointed, life-tenured judges,” Griffith wrote.
In dissent, Edwards said the ACA’s purpose and language call for tax breaks on federal as well as state exchanges.
“At the time of the ACA’s enactment, it was well understood that without the subsidies, the individual mandate was not viable as a mechanism for creating a stable insurance market,” wrote Edwards, the Carter appointee. “There is no credible evidence in the record that Congress intended to condition subsidies on whether a state, as opposed to [the federal Department of Health and Human Services], established the exchanges. Nor is there credible evidence that any state even considered the possibility that its taxpayers would be denied subsidies if the state opted to allow HHS to establish an Exchange on its behalf.”
Tobias, noting the 2-1 panel split, said the full D.C. Circuit would likely review the decision and may rule as the 4th Circuit did.
But even without a circuit split, neither the 4th Circuit nor the D.C. Circuit will have the last word, Tobias predicted.
“I think it is bound for the Supreme Court,” he said.
The Associated Press contributed to this article.