ANOTHER PREZ SETBACK–Appeals Court Guts Obamacare

Written by Suzanne Olden on July 24, 2014

Obamacare Redux – US Court of Appeals Guts Obamacare
In a move that has Obamacare opponents doing a serious happy dance, the U.S. Court of Appeals just gutted the hated Act.  In a well worded decision, the Court basically told Congress that if you want a law to say something, the words you choose are important.  I’m thinking “pass it so we can see what’s in it” just backfired on Nancy Pelosi.  In a very big way.
The case revolves around a few things, but basically it was challenged by those saying that the language of the act only allow subsidies for states that set up their own exchanges instead of relying on the federal exchange to step in.  Supporters of the law argued that while that may be true, it was just a “typo” and should be ignored. 

Sorry, that’s not how it works. 

The U.S. Court of Appeals agreed with the challengers and set up another go round over Obamacare in the Supreme Court for most likely the upcoming session.  Those in states that didn’t set up their own exchanges may find that the subsidies they thought they were getting will disappear because of Obamacare, much like their old policies did.

When Obamacare passed, only 14 states opted to set up their own health insurance marketplaces.  Those states were California, Colorado, Connecticut, Hawaii, Kentucky, Maryland, Massachusetts, Minnesota, Nevada, New York, Oregon, Rhode Island, Vermont and Washington.  Idaho and New Mexico were originally supposed to have state run sites, but went federal due to different constraints on their plans.  The District of Columbia also has its own exchange site.   Only those states, and DC, will be able to offer subsidies to people who purchase insurance through their state run exchanges.

In the rule making phase after the law was passed, someone realized there was a problem and wrote the IRS rules for subsidies, which are given in the form of tax credits.  Making those subsidies broadly available was important in the left’s cries of “See! There were plenty of people who wanted and needed insurance through Obamacare.” 

This, of course, led to the problems recently uncovered with verifying important information such as income and citizenship status.  That meant more people received subsidies than probably qualified for them in the first place.  Keep in mind that, per HHS records, 5.4 million have signed up in the 36 states that use the federal exchange, and 87% of those who did received federal subsidies.  Either way, not being able to extend subsidies to residents in the 36 other states who use the federal exchange means that they will most likely not sign up for coverage, or keep the Obamacare policies they currently have. 

The case itself, Halbig v. Burwell, was filed by small business owners.  All the issues revolve around four words in the Act.  Four.  Those words are “established by the state.”  The Court looked at the actual written law and the Congressional Record, which has the legislative history.  They looked at the legislative history because Defendants Burwell, et al, claimed that the intent of Congress was to extend the subsidies.  The Court found no such intent either implied or written in any of the legislative history, nor in the actual act itself. 

The decision itself is lengthy, but the important parts discuss choice of wording and how important it is in law.  “The crux of this case is whether an Exchange established by the federal government is an “Exchange established by the State under section 1311 of the [ACA].” We therefore begin with the provisions authorizing states and the federal government to establish Exchanges. Section 1311 provides that states “shall” establish Exchanges. 42 U.S.C. § 18031(b)(1). But, as the parties agree, despite its seemingly mandatory language, section 1311 more cajoles than commands. A state is not literally required to establish an Exchange; the ACA merely encourages it to do so. And if a state elects not to (or is unable to), such that it “will not have any required Exchange operational by January 1, 2014,” section 1321 directs the federal government, through the Secretary of Health and Human Services, to “establish and operate such Exchange within the State.” Id. § 18041(c)(1) (emphasis added). 

The phrase “such Exchange” has twofold significance. First, the word “such”—meaning “aforementioned”, see BLACK’S LAW DICTIONARY 1473 (8th ed. 2004); WEBSTER’S THIRD INT’L DICTIONARY 2283 (1981)—signifies that the Exchange the Secretary must establish is the “required Exchange” that the state failed to establish. In other words, “such” conveys what a federal Exchange is: the equivalent of the Exchange a state would have established had it elected to do so…

The problem confronting the IRS Rule is that subsidies also turn on a third attribute of Exchanges: who established them. Under section 36B, subsidies are available only for plans “enrolled in through an Exchange established by the State under section 1311 of the [ACA].” 26 U.S.C. § 36B(c)(2)(A)(i) (emphasis added); see also id. § 36B(b)(2)(A). Of the three elements of that provision—(1) an Exchange (2) established by the State (3) under section 1311—federal Exchanges satisfy only two: they are Exchanges established under section 1311. Nothing in section 1321 deems federally-established Exchanges to be “Exchange[s] established by the State.”

This omission is particularly significant since Congress knew how to provide that a non-state entity should be treated as if it were a state when it sets up an Exchange. In a nearby section, the ACA provides that a U.S. territory that “elects . . . to establish an Exchange . . . shall be treated as a State.”2 42 U.S.C. § 18043(a)(1). The absence of similar language in section 1321 suggests that even though the federal government may establish an Exchange “within the State,” it does not in fact stand in the state’s shoes when doing so.”

The Court went on to conclude that “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”;  and that section 36B of the IRS rules “plainly distinguishes Exchanges established by states from those established by the federal government.” 

What is really interesting is another small, yet key phrase in the decision:  “The government argues that we should not adopt the plain meaning of section 36B, however, because doing so would render several other provisions of the ACA absurd.”  Mostly because Obamacare is absurd on its face!  Here’s hoping that SCOTUS finds it just as absurd and concurs with the lower court!



Suzanne Reisig Olden is a Catholic Christian, Conservative, married mother of two, who loves God, family and country in that order. She lives northwest of Baltimore, in Carroll County, Maryland. She graduated from Villa Julie College/Stevenson University with a BS in Paralegal Studies and works as a paralegal for a franchise company, specializing in franchise law and intellectual property. Originally from Baltimore, and after many moves, she came home to raise her son and daughter, now high school and college aged, in her home state. Suzanne also writes for The Firebreathing Conservative website ( and hopes you'll come visit there as well for even more discussion of conservative issues.