Appeals courts disagree on Obamacare subsidies: how it affects you

Two federal appeals courts issued contradictory rulings Tuesday on a core part of the Affordable Care Act – whether millions of Americans who are enrolled in the federal health insurance exchange, or marketplace, are entitled to subsidies.

The US Court of Appeals for the Fourth Circuit, in Richmond, Va., upheld the status quo: The subsidies do apply. The more than 4 million Americans who qualify for these subsidies could yawn and go back to sleep at this news, except that the appeals court for the District of Columbia – which has jurisdiction over federal agencies – said no, subsidies do not apply to people covered by the federal exchange.

What does this mean for those enrolled under the Affordable Care Act (ACA)? And what does it mean for the future of the act, also known as Obamacare?

Decoder looks at these and other questions:

Q. What is the immediate impact of these decisions?

A. For now, neither court’s rulings affect the ACA or people covered by it. Repeat. There is no immediate effect as a result of the rulings, because the D.C. Circuit Court suspended its ruling pending an appeal by the administration. The impact would come down the road, if eventually the Supreme Court agrees with the three-judge panel in the D.C. court, that those who have health insurance through the federal exchange do not qualify for subsidies.

Q. And if the Supreme Court eventually did strike down the subsidies?

A. There’s no way to sugar-coat this for those in the federal exchange: premiums would rise and so would the number of uninsured, says John Rother, chief executive officer of the National Coalition on Healthcare, a broad-based coalition which promotes affordable care for all Americans.

About 4.6 million Americans are enrolled in the federal exchange and qualify for subsidies. They would lose them. That would make insurance too expensive for many of those people, and they would likely drop it. Only the ill would hang on, worsening the risk pool, Mr. Rother explains.

Because of the deteriorating risk pool, and because people would have dropped their insurance, premiums would rise even for those in the federal exchange who do not qualify for subsidies. The worsening conditions would affect the private insurance industry, and premiums would rise there, too, Rother says.

People who would not be affected: Those covered by the state exchanges (only 16 states decided to set up such exchanges), and those covered by employer-based plans.

Q. What is the potential impact on the ACA itself?

A. Put it this way, ending subsidies for the federal exchange wouldn’t completely upend the law, but “it would upend one of its major purposes, which is to make insurance affordable and to stabilize the health insurance market,” Rother says.

Q. Why are the subsidies an issue?

A. Chalk it up to “sloppy drafting” and the “chaotic” passage of the health-care law, says Larry Levitt, senior vice president at the Kaiser Family Foundation, a nonpartisan health-policy think tank.

The law as written specifically covers subsidies for the state exchanges, but not a word is said about subsidies for the federal exchange. Realizing this oversight, the Internal Revenue Service issued a rule allowing subsidies for everyone covered by the act, regardless of whether they are in state exchanges or the federal exchange. The issue is whether the IRS can make such a determination on its own. The Fourth Circuit said yes, the D.C. Circuit said no.

Congress could clear up the ambiguity by amending the law to reflect the lawmakers’ original intent. But in this polarized Congress, and especially on this polarized subject – well, don’t even go there. As House Speaker John Boehner (R) of Ohio said, the D.C. Circuit Court ruling shows that the health-care law “is completely unworkable” and “cannot be fixed.” Republicans, he said, remain committed to repealing and replacing the law.

Q. What happens next?

A. The rulings are not the end of it, as other courts are weighing this issue. The US Justice Department is also expected to seek a review by the entire D.C. Circuit Court – and not accept the ruling of the three-judge panel that struck down the subsidies. The administration has worked hard to appoint judges to that court who might be friendly to its policies.

White House press secretary Josh Earnest said the intent of the law is clear. “You don’t need a fancy legal degree to understand that Congress intended for every eligible American to have access to tax credits that would lower their health-care costs,” he said Tuesday.

Still, you can count on opponents of the law to take the issue as far as they can, not stopping until they reach the Supreme Court. So far, the court has not acted particularly favorably toward the law.

In 2012, the justices struck down a key component of Obamacare by making the expansion of Medicaid – health care for the poor – voluntary for states instead of a requirement. Half the states have declined the expansion.

In the recent Hobby Lobby case, the court ruled – albeit narrowly – in favor of family-owned, for-profit corporations that do not wish to provide contraceptive coverage for religious reasons.

Expect the legal battles to continue.