U.S. Cannot Subsidize Health Plans in States With No Marketplace, a Judge Rules

WASHINGTON — A federal district judge in Oklahoma dealt a blow to the Affordable Care Act on Tuesday, ruling that the federal government could not subsidize health insurance in three dozen states that refused to establish their own marketplaces. This appears to increase the likelihood that the Supreme Court will ultimately resolve the issue.

Federal appeals courts in Washington and in Richmond, Va., split on this question in July.

Judge Ronald A. White of the Federal District Court in Muskogee, Okla., said Tuesday that a rule issued by the Obama administration allowing subsidies in the 36 states was arbitrary and capricious, in excess of statutory authority or simply “an invalid implementation” of the 2010 health care law.

The ruling, if ultimately upheld, could cut off financial assistance for more than 4.5 million people who were found eligible for subsidized insurance in the federal exchange, or marketplace. However, the judge stayed the effect of his decision to allow for an appeal, and Emily Pierce, a Justice Department spokeswoman, said the federal government would file one.

Subsidies, in the form of tax credits, are at the heart of the health care law. Without them, many consumers would be unable to afford coverage.

Judge White noted that the law authorized subsidies specifically for insurance bought “through an exchange established by the state.”

The Obama administration argued that it was “standing in the shoes” of states when it established exchanges for states that had failed to do so.

The judge rejected this reading of the law, saying it “does not appear to comport with normal English usage.” The word “state,” he said, does not and cannot mean the federal government.

The Obama administration said Congress intended for subsidies to be available in all states, regardless of who established their exchanges. To deny subsidies in the federal exchange would eviscerate the law, the administration said.

Judge White, who was appointed by President George W. Bush in 2003, insisted that his ruling would not gut or destroy anything. “On the contrary,” he said, “the court is upholding the act as written. Congress is free to amend the Affordable Care Act to provide for tax credits in both state and federal exchanges, if that is the legislative will.”

Vague notions of a statute’s “basic purpose” cannot overcome the words of the law itself, he said.

The case, Oklahoma v. Burwell, was filed by the state against the federal government.

The Oklahoma attorney general, E. Scott Pruitt, called the decision “a victory for the rule of law” and said it showed that “the administration can’t rewrite the Affordable Care Act by executive fiat.”

“The administration and its bureaucrats in the Internal Revenue Service,” he said, “handed out billions in illegal tax credits and subsidies and vastly expanded the reach of the health care law because they didn’t like the way Congress wrote the Affordable Care Act.”

In its 2-to-1 ruling in July, a panel of the United States Court of Appeals for the District of Columbia Circuit struck down the rule on subsidies, issued by the Internal Revenue Service. The court recently vacated that decision and said that the case should be heard in December by the full court, not just the three-judge panel.

Plaintiffs in the Virginia case have not asked for a rehearing in the circuit court there, but have appealed to the Supreme Court, where they apparently believe that they have a better chance of success.

A fourth case, filed by the State of Indiana and local school districts, is pending in the Federal District Court in Indianapolis, which plans to hear arguments this month.