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Obamacare Subsidies OK for Federal Exchanges Too, 4th Cir. Rules

By Brett Snider, Esq. on July 23, 2014 | Last updated on March 21, 2019

A three-judge panel of the 4th U.S. Circuit Court of Appeals has affirmed the use of Obamacare subsidies in both state- and federally run healthcare exchanges.

Tuesday's unanimous ruling in King v. Burwell flatly contradicts an earlier ruling (hours earlier) by the D.C. Circuit Court of Appeals, which denied the use of Obamacare tax credits to anyone who enrolled via a federally created exchange. USA Today reports that this circuit split may lead to a "Supreme Court showdown."

Why did the 4th Circuit allow Obamacare subsidies for all healthcare exchanges, when the D.C. Circuit limited them?

It's All About the Word 'State'

The dueling Obamacare subsidy decisions seem to hang perilously on one phrase, or maybe even just one word: "Exchange established by the State" (emphasis added).

It can be argued that the plain meaning of the word "State" seems unambiguous. It's not only nicely capitalized, but the statutes which buttress Obamacare make various references to both state and federal exchanges.

The IRS attempted to add its two cents in interpreting this statutory language broadly, allowing all eligible consumers -- in both federal and state exchanges -- to receive Obamacare subsidies. This is where the D.C. Circuit disagreed, finding that the IRS didn't have the authority to that interpretation when the "plain meaning" evinces a clear Congressional intent: "States" means 50 states and Washington, D.C.

In a 2-1 decision, the D.C. Circuit struck down the IRS' interpretation of the Obamacare subsidy law, attempting to limit the subsidies' use to only those consumers who obtained insurance through state-created exchanges. But as USA Today reports, only 16 states have managed to create their own exchanges.

4th Circuit Thinks More Broadly

Where the D.C. Circuit saw no ambiguity in the language, the 4th Circuit had a more holistic view. After all, why view a statute in isolation when you can look at the purpose of the legislative enterprise as a whole?

The U.S. Supreme Court has encouraged courts not only to defer to agency interpretations of laws when there is ambiguity, but also to view the statute in terms of the entire statutory scheme. The 4th Circuit appears to be applying this to Obamacare: To make insurance more affordable for all Americans, it seems commonsensical that an interpretation which passes subsidies to more Americans (via both federal and state exchanges) would be consistent with that goal.

With these dueling interpretations of Obamacare subsidies from the 4th and D.C. Circuits, consumers may need to wait on the nation's highest court to clear the air.

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