Meet the next possible big court challenge to Obamacare

A ruling is imminent from a federal appeals court on the next possible big challenge to the Affordable Care Act, and it could have a much bigger impact than the recent Hobby Lobby decision.

healthcaresiteThe D.C. Circuit Court of Appeals will soon reach a decision in the case of Halbig v. Burwell, which could shut down tax credits for people who purchased health insurance in 34 states.

After the partisan fallout from the Supreme Court’s Obamacare ruling in 2012, governors and legislatures in those 34 states decided to pass on setting up their own health-care exchanges, and opted to let the federal government set them up instead.

The plaintiffs in Halbig argue that a strict reading of the Affordable Care Act’s language says that only people in state-run health-care exchanges can qualify for the Obamacare tax breaks. If the language had been interpreted properly, they say, they also would have ineligible for the individual mandate tax penalty because of their income levels.

The Obama administration says that an Internal Revenue Service ruling makes it clear that the tax credits apply to states that have federally run insurance exchanges.

The Halbig hype within the legal community has gained steady momentum after the Supreme Court’s last June ruling in Burwell vs. Hobby Lobby. The Court’s decision was seen as a significant case in terms of the Religious Freedom Restoration Act, but Hobby Lobby was not a case that was seen as having a huge financial impact on Obamacare.

The Halbig case could remove a big financial incentive, in most states, for people to buy insurance and it could also give more people a way to avoid the individual mandate penalty, so it has implications for Obamacare’s future.

The case is focused on a single sentence in the Affordable Care Act law. Section 1311 states that the federal government will give tax subsidies to eligible consumers who buy insurance from an exchange “established by the State.”

The three-judge panel considering the case for the D.C. Circuit Court of Appeals shows signs of being split; one of the three judges openly questioned the Obama administration’s arguments during hearings.

Regardless of the court’s opinion, the Halbig case is expected to be appealed. One option would be another hearing in front of the entire 11-judge court, with the Supreme Court a possible option depending on the decisions in the lower courts.

George Washington University’s Jonathan Turley argued in a Los Angeles Times op-ed last month that Halbig would pose a potential worst-case scenario for the Obama administration.

“Where Hobby Lobby exempts only closely held corporations from a portion of the ACA rules, Halbig could allow a mass exodus from the program. And like all insurance programs, it only works if large numbers are insured so that the risks are widely spread. Halbig could leave Obamacare on life support — and lead to another showdown in the Supreme Court,” Turley said.

Among other legal experts there are split opinions about the case. Michael Cannon of the Cato Institute and Jonathan Adler of Case Western Reserve University School of Law have said since 2013 that the ACA’s true intent was for states to run the exchanges and the tax incentives were a measure to push states into participation.

University of Michigan law professor Nicholas Bagley believes the case doesn’t have legs. He recently told CBS News that Halbig represented an attempt to “exploit poorly-drafted statutory language and transform that into a radical re-conceptualization of what the Affordable Care Act was meant to do.”

In addition to the Halbig case, three other similar cases are in front of federal courts on related matters.

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