Kyla Asbury Jul. 22, 2014, 9:15pm

WASHINGTON (Legal Newsline) - The U.S. Court of Appeals for the District of Columbia Circuit issued an opinion Tuesday that held a part of President Barack Obama's health care plan is invalid.

Circuit Judge Thomas B. Griffith and Senior Judge A. Raymond Randolph voted in the majority, with Griffith authoring the majority opinion and Randolph authoring a concurring opinion.

Senior Judge Harry T. Edwards authored his dissenting opinion.

"After resolving several threshold issues related to its jurisdiction, the district court held that the [Affordable Care Act']'s text, structure, purpose and legislative history make 'clear that Congress intended to make premium tax credits available on both state-run and federally-facilitated Exchanges,'" Tuesday's opinion states.

"Our review of the orders is de novo, and '[o]n an independent review of the record, we will uphold an agency action unless we find it to be arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.'"

Because we conclude that the ACA unambiguously restricts the section 36B subsidy to insurance purchased on exchanges 'established by the State,' we reverse the district court and vacate the IRS's regulation."

Republican attorneys general released statements in support of the court's decision.

"Today's decision is yet another rejection of the Obama Administration's flawed interpretation of the new health care law," West Virginia Attorney General Patrick Morrisey said. "I always have supported providing extra financial assistance to those who need it most, but the president can't simply ignore the will of Congress and reinterpret the law as he sees fit."

Morrisey said in this case, the president used the IRS to disregard part of the law.

"Regardless of whether you like a law or not, the president and his administration cannot decide on their own which portions of laws should be adhered to and which should be overlooked," Morrisey said. "If the law needs to be changed, that is a job for Congress."

Alabama Attorney General Luther Strange praised the ruling, saying if the court of appeals warning stands, it would mean Obamacare's exchange-based subsidies, taxes and penalties will not be enforceable in states that did not set up a state exchange.

"I am proud to have joined my fellow Republican Attorneys General in filing a brief in support of this result," Strange said.

"This lawsuit has the potential to cripple Obamacare and free millions of Americans from the individual mandate. The court's decision was also a stinging rebuke to the Obama Administration for making up the law as it goes along, instead of following the law as it was passed by Congress."

In February, Morrisey and Strange joined attorneys general from Georgia, Kansas, Michigan, Nebraska, South Carolina and Oklahoma, urging the appeals court to review the case after a federal judge ruled in favor of the federal government.

Congress enacted the Patient Protection and Affordable Care Act in 2010 "to increase the number of Americans covered by health insurance and decrease the cost of health care."

The ACA pursues these goals through a complex network of interconnected policies focused primarily on helping individuals who do not receive coverage through an employer or government program to purchase affordable insurance directly. Central to this effort are the exchanges.

Exchanges are "governmental agenc[ies] or nonprofit entit[ies]" that serve as both gatekeepers and gateways to health insurance coverage. Among their many functions as gatekeepers, exchanges determine which health plans satisfy federal and state standards, and they operate websites that allow individuals and employers to enroll in those that do.

Section 1311 of the ACA delegates primary responsibility for establishing exchanges to individual states. However, because Congress cannot require states to implement federal laws, if a state refuses or is unable to set up an exchange, section 1321 provides that the federal government, through the Secretary of Health and Human Services "shall...establish and operate such Exchange within the State."

Only 14 states and the District of Columbia have established exchanges and the federal government has established exchanges in the remaining 36 states, in some cases with state assistance but in most cases not.

Under section 36B, exchanges also serve as the gateway to the refundable tax credits through which the ACA subsidizes health insurance.

Section 36B authorizes credits for "applicable taxpayer[s]" but section 36B's formula for calculating the credit works further limits on who may receive the subsidy, the opinion says.

"According to that formula, the credit is to equal the sum of the 'premium assistance amounts' for each 'coverage month,'" it says.

The "premium assistance amount" is based on the cost of a "qualified health plan...enrolled in through an Exchange established by the State under [section] 1311 of the [ACA]."

"But, in a regulation promulgated on May 23, 2012, the IRS interpreted section 36B to allow credits for insurance purchased on either a state- or federally-established exchange," the opinion states.

"Specifically, the regulation provided that a taxpayer may receive a tax credit if he 'is enrolled in one or more qualified health plans through an Exchange...which the IRS defined as 'an Exchange serving the individual market for qualified individuals..., regardless of whether the Exchange is established and operated by a State (including a regional Exchange or subsidiary Exchange) or by HHS.'"

In promulgating this broader rule, the IRS acknowledged that "[c][/c]ommentators disagreed on whether the language in section 36B(b)(2)(A) limits the availability of the premium tax credit only to taxpayers who enroll in qualified health plans on State Exchanges," but asserted without elaboration that "[t]he statutory language of section 36B and other provisions of the [ACA]," as well as "the relevant legislative history," supported its view.

"This broader interpretation has major ramifications," the opinion states. "By making credits more widely available, the IRS Rule gives the individual and employer mandates-key provisions of the ACA-broader effect than they would have if credits were limited to state-established Exchanges."

The individual mandate requires individuals to maintain "minimum essential coverage" and, in general, enforces that requirement with a penalty.

"We reach this conclusion, frankly, with reluctance," the opinion states. "At least until states that wish to can set up exchanges, our ruling will likely have significant consequences both for the millions of individuals receiving tax credits through federal exchanges and for health insurance markets more broadly."

"But, high as those stakes are, the principle of legislative supremacy that guides us is higher still," the opinion states. "Within constitutional limits, Congress is supreme in matters of policy, and the consequence of that supremacy is that our duty when interpreting a statute is to ascertain the meaning of the words of the statute duly enacted through the formal legislative process."

In his dissenting opinion, Edwards states that the case is about the appellants' "not-so-veiled attempt to gut the Patient Protection and Affordable Care Act."

The appellants' argument cannot be squared with the clear legislative scheme established by the statute as a whole, according to the dissenting opinion.

"Apparently recognizing the weakness of a claim that rests solely on §36B, divorced from the rest of the ACA, appellants attempt to fortify their position with the extraordinary argument that Congress tied the availability of subsidies to the existence of state-established exchanges to encourage states to establish their own exchanges," the dissenting opinion states.

"This claim is nonsense, made up out of whole cloth," Edwards' dissenting opinion continues. "There is no credible evidence in the record that Congress intended to condition subsidies on whether a state, as opposed to HHS, established the exchange. 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."

The majority opinion "ignores the obvious ambiguity in the statute and claims to rest on plain meaning where there is none to be found."

"In so doing, the majority misapplies the applicable standard of review, refuses to give deference to the IRS's and HHS's permissible constructions of the ACA, and issues a judgment that portends disastrous consequences. I therefore dissent," his opinion states.

U.S. Court of Appeals for the District of Columbia Circuit case number: 14-5018

From Legal Newsline: Kyla Asbury can be reached at

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