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Another court strikes down Obamacare subsidies in 36 states

Mark Wilson/Getty Images

The Eastern District Court of Oklahoma ruled to strike down Obamacare's subsides on federal exchanges, consistent with a ruling in a related lawsuit earlier in the summer.

The question at the center of these lawsuits is whether the text of the Affordable Care Act authorized subsidies — financial assistance offered to some people to help purchase health insurance — on all insurance exchanges, or only in those states that set up their own. In Obamacare's first year, 14 states and DC set up exchanges; the others defaulted to the federally-run Healthcare.gov.

Without subsidies, private insurance would become unaffordable for many people who have already enrolled. The judicial process is still playing out, but according to analysis from the Robert Wood Johnson Foundation, over 7.3 million people expected to receive subsidies in 2016 could be affected if this decision is upheld in higher courts.

What did the Eastern District rule?

The Eastern District ruled on Pruitt v. Burwell, a suit brought by Scott Pruitt, attorney general of Oklahoma. Curiously, this suit was filed prior to Oklahoma's decision to default to a federally-run exchange — suggesting that at least some state officials understood that subsidies could be yanked away from their citizens at some point in the future, if the attorney general's lawsuit prevailed.

Consistent with the DC Circuit's July ruling on Halbig v. Burwell, the Eastern District struck down subsidies on federally-run exchanges, asserting that the clear language of the law forecloses any interpretation authorizing those subsidies.

Judge Ronald White writes,

This is a case of statutory interpretation. "The text is what it is, no matter which side benefits." Such a case (even if affirmed on the inevitable appeal) does not "gut" or "destroy" anything. On the contrary, the court is upholding the Act as written. Congress is free to amend the ACA to provide for tax credits in both state and federal exchanges, if that is the legislative will. As the Act presently stands, "vague notions of a statute’s ‘basic purpose’ are nonetheless inadequate to overcome the words of its text regarding the specific issue under consideration" ...

The court holds that the IRS Rule is arbitrary, capricious, an abuse of discretion or otherwise not in accordance with law, pursuant to 5 U.S.C. §706(2)(A), in excess of statutory jurisdiction, authority, or limitations, or short of statutory right, pursuant to 5 U.S.C. §706(2)(C), or otherwise is an invalid implementation of the ACA, and is hereby vacated.

Nothing in this opinion has immediate effect, though — in its conclusion, Judge White's opinion anticipates an appeal from the government.

Does this make Supreme Court review more likely?

There's a fair chance that the Supreme Court will take up some version of this case, but the Pruitt ruling does little to change the context of that decision.

Two competing rulings on related cases were released last July from the Fourth Circuit and the DC Circuit, though the DC Circuit decision was recently vacated and the case will be reheard in December. The Pruitt decision, issued by a lower district court, wouldn't seem to change the degree of urgency for Supreme Court review, especially since this particular case faces another round of appeals at the circuit level.

If the Supreme Court is waiting for a "circuit split" — where two federal appeals courts offer contradictory opinions, which need to be resolved — that split isn't likely to come from Pruitt. The case will be appealed to the 10th Circuit Court of Appeals; given the composition of the 10th Circuit — seven active judges were appointed by Democrats, five by Republicans  — the ultimate decision at the circuit level would probably favor the government. That's not to say the courts are strictly playing politics; judges with different ideologies approach earnest interpretation of the law differently.

Eventually, we might see a circuit split from Indiana v. IRS, which is pending in a district court in Indiana and could be appealed to the 7th Circuit. In a debate at the University of Michigan Law School on Tuesday, Jonathan Adler, a law professor at Case Western Reserve University, said that the 7th Circuit would likely be receptive to the plaintiffs' argument.

All of that said, the Supreme Court doesn't need a circuit split to hear the case; if the issue is considered pressing enough, the case could be taken even if circuit courts are all in agreement.

Plaintiffs in one of these cases, King v. Burwell, have already petitioned the high court for a hearing. Only four justices need to vote in favor of taking a case to get it on the Court's agenda; Justices Scalia, Thomas, Alito, and Kennedy all dissented in the original Obamacare lawsuit and might be inclined toward the argument that the law is being improperly implemented. The court will decide sometime this fall whether to grant the King petition.

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