Appeals court bars Obamacare subsidies on federal exchanges



The Affordable Care Act required states to set up health insurance exchanges when it was passed in 2010, but 34 states refused. The federal government set up exchanges on their behalf, which seemed like a reasonable expedient at the time. This morning, however, a DC Court of Appeals ruled 2 to 1 that the ACA prohibits the IRS from offering subsidies to people who bought their insurance on federal exchanges. That includes about 70% of the people getting subsidies, meaning that 4.7 million people just got some very bad news. For reference, it also means that 70% of the people who needed Obamacare the most live in states whose governors fought it the hardest.

If you like the Affordable Care Act and want it to work, this morning’s ruling in Halbig v. Burwell is bad news. It turns on particular language in the law, which makes subsidies available to people “enrolled through an Exchange established by the State.” The Obama administration argues that context makes it clear Congress intended subsidies to be available on federal exchanges set up on behalf of the states, but the DC Appeals panel didn’t buy it.

The administration will almost certainly ask for an en banc review from the full 11-member court, so this decision is by no means final. It’s hard to see a question of this import concluding anywhere but the Supreme Court. For now, though, Republican intransigence appears to have paid off.

And in what way has it paid off, exactly? If the purpose of opposing Obamacare is to embarrass the president, then today’s ruling is a big win. If the purpose of opposing Obamacare is to protect their constituents, however, the governors who refused to set up state exchanges have cut off their noses to spite their collective face.

As we mentioned in the first paragraph, 70% of the people whose subsidies were declared unlawful this morning bought their health insurance in states that didn’t set up their own exchanges. By definition, these people have lower incomes than most other people in the health insurance pool. Several experts are arguing that the withdrawal of federal subsidy money from the exchanges will raise premiums across the board, but the people most directly impacted by Halbig v. Burwell are poor people in conservative states.

Ironically, those people helped motivate Republican governors’ relentless opposition to Obamacare. Your Haley Barbours and Matt Meads aren’t winning votes from poor people on policy; they’re winning poor people by standing up to that damned Obama. It’s a classic case of cultural identity trumping rational self-interest. When a Wyoming voter who bought health insurance for $99 a month on learns that his premium has increased to $400 because his state didn’t set up its own exchange, policy and standing up to Obama are going to collide sharply in his mind.

It is possible, in other words, that this morning’s decision will backfire on conservative governors. It has the potential to create the kind of pocketbook issue that galvanizes low-information voters, and quadrupling the price of constituents’ health insurance just may trump rhetoric in red-state politics. As much as Halbig v. Burwell is a disaster for poor people, though, it is also a windfall for employers.

The mechanism in the Affordable Care Act that punishes large employers who don’t provide health insurance kicks in when their employees receive subsidies on the exchange. If those subsidies disappear, the employer penalties disappear, too. The same governors who won a potentially pyrrhic victory with poor voters just won a regular victory with large corporations. As if the implications of the Halbig v. Burwell decision were not yet depressing enough, it also promises to tell us which group is more valuable in contemporary state politics.

Take heart, though. The Polish Hammer, our official Kombat! Kounsel, informs us that the Fourth Circuit Court of Appeals just reached the opposite conclusion in a similar case, so this one is almost certainly going to the Supremes. I’m sure they would never cleave to the letter of the law in a way that favors large corporations at the expense of poor people. In the meantime, the White House has vowed to keep providing subsidies until there’s a final ruling, because Wyoming doesn’t have an IRS.

On the whole, though, this is a setback for Obamacare. It’s hard not to view it as a setback for everyone. I bought my (recently reinstated) health insurance without subsidy on a federally-facilitated exchange, so maybe nothing will happen to my premium next year. Montana is among the poorest states in the union, though, so maybe my premiums will shoot up as subsidized buyers leave the pool. More importantly, though, individual states seem to have moved incrementally closer to sabotaging an ambitious federal program. They had to break it, because it wasn’t going to work. Today, ideology wins by default.

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  1. You’re pretty smart.
    That doesn’t make any sense to me.

    That sounds like a bunch of lawyerese shell-game jibber jabber IMO.

    By design as usual.
    I wish they would just tell you what they really mean.

    I also wish that wishes and buts were candies and nuts.

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