A First Swing at the Bat in the Battle against Obamacare’s Federal Subsidies

At 10 a.m. this morning in U.S. federal district court for the District of Columbia, Judge Paul Friedman will issue his ruling on at least two issues in Halbig, et al. v. Sebelius, et al.

(1) The federal government’s motion to dismiss a challenge to an Internal Revenue Service rule for Obamacare’s federal-run exchange tax credits (which provides tax credits on those exchanges, when the text of the law only provides for their provision on exchanges run by states), and

(2) The motion by a group of individuals and employers from six different states in the case for a preliminary injunction against enforcement of the rule.

Here are some quick impressions from yesterday’s three-hour hearing:

The oral argument went well for the plaintiffs and their lead attorney Michael Carvin of Jones Day. Judge Friedman appeared to be thorough, thoughtful, knowledgeable, and fair-minded – regardless of how his ruling turns out today. The federal government’s legal team threw up a lot of procedural dust in arguing that the plaintiffs lacked standing, the case was not yet ripe for decision, and matters of tax liabilities should be left to later challenges. But Judge Friedman himself warned that the government’s contention that certain essential parties (employees of the business firms involved in the lawsuit) were not before the court appeared to be a “silly argument.”

Although the government could win its case by getting a dismissal of the case on any one of the procedural grounds it presented, this appears unlikely. Other recent court precedents in related cases in the Fourth Circuit and Tenth Circuit federal courts of appeal suggest that the plaintiffs have alleged sufficient grounds for injury and that the Anti-Injunction Act (which can be used as a barrier to litigating tax obligations prematurely) can’t be brought out of mothballs to stop the lawsuit either.

Moreover, the most telling indicator came from Judge Friedman’s remarks that the case looked like a regular challenge to a federal regulation under the Administrative Procedure Act (APA) and that it was in everyone’s interest to know “sooner” rather than much later the legal status of the IRS rule (and the federal tax credit it claims to authorize).

What remains less clear cut is how the court finally will parse the sometimes clumsily written statutory text concerning health exchanges and premium-assistance tax credits within the Affordable Care Act. Carvin made a strong case for the key difference between exchanges established by a state (clearly intended to receive such tax credits as an inducement for state participation) and other exchanges established by another level of government. Nevertheless, several stray provisions elsewhere in the law passed by Congress – though less significant and more contradictory – could provide an escape route for a ruling that avoids nullifying a key provision of the health law enacted, under great political duress, more than three and a half years ago.

There remains a small chance that today’s ruling will not be the final one in this case by the D.C. federal court. Judge Friedman could keep the case alive by ruling against the motion to dismiss but then stop short of granting injunctive relief for the plaintiffs (although their likely injuries appear imminent). He spoke yesterday of considering instead an order to “vacate” the IRS rule as contrary to the APA. However, the federal defendants have yet to formally file a response to an earlier motion by the plaintiffs for summary judgment (part of a well-established pattern of delaying tactics), and they might be allowed an additional opportunity to file a brief on several points raised in yesterday’s oral argument.

It’s always speculative and risky to predict how a federal district-court judge will rule in a high-profile, politically charged case involving a confusing and complex law. But, with that caveat, I’ll lean strongly toward the plaintiffs defeating the motion to dismiss and having at least a 50–50 shot of prevailing on the merits. This matter then would move quickly up the appellate ladder to the D.C. Circuit Court of Appeals. Meanwhile, a very similar case filed in the Fourth Circuit’s eastern district of Virginia federal district court awaits a hearing on October 31 in Richmond. Two other lawsuits challenging the IRS rule, brought in federal courts in Oklahoma and in Indiana, also remain in play.

A final trial-court ruling in any one of those cases that knocks down the IRS rule and the subsidies through federally run exchanges would add substantially to the current headwinds facing the implementation of Obamacare. In this ballgame, it might require as many as four strikes in court to call “out” the opponents of federal-run exchanges in up to 36 states. And it looks like the Obama administration’s lawyers can’t keep pitching around some serious problems.

— Tom Miller is a resident fellow at the American Enterprise Institute and is a co-author of Why Obamacare Is Wrong for America.

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