Court Hearing Suggests Serious Challenge to Health Care Law

WASHINGTON - Two of the three federal judges hearing a challenge to the Affordable Care Act expressed some sympathy on Tuesday for the argument that tax subsidies should not be available to people buying health insurance in 36 states using the federal exchange.

Their comments, at a hearing in the United States Court of Appeals for the District of Columbia Circuit, were the first indication that the White House was facing a potentially serious legal challenge as it defended payment of the subsidies, a pillar of President Obama's health care law.

Plaintiffs in the case, supported by conservative and libertarian organizations, say the plain language of the law makes subsidies available only to people who buy insurance through marketplaces established by a state. However, a rule issued by the Internal Revenue Service in 2012 also allows subsidies, in the form of tax credits, for people who purchase insurance in exchanges established by the federal government.

Of the 4.2 million people who selected private plans from October through February, 2.6 million obtained coverage through the federal exchange, and four-fifths of them qualified for subsidies that reduce their premiums. Without subsidies, many would have been unable to afford insurance.

Stuart F. Delery, an assistant attorney general, told the appeals court on Tuesday that Congress intended for subsidies to be available to low- and moderate-income people regardless of whether they bought insurance on the federal exchange or state exchanges.

One member of the appeals court panel, Harry T. Edwards, a senior circuit judge, agreed with that argument. Judge Edwards said 'it seems preposterous' to suggest that subsidies should not be available in the federal exchange, which serves states with two-thirds of the nation's population.

That suggestion, he said, would 'gut the statute.'

Another member of the panel, Judge Thomas B. Griffith, asked questions indicating that he was skeptical of the Obama administration's argument. And the third member of the panel, A. Raymond Randolph, a senior circuit judge, sounded downright hostile to the government's case.

The administration's argument boils down to an assertion that an exchange established by the federal government is, in effect, established by a state, Judge Randolph said. But, he said, the two are not the same.

Graphic: Health Exchange Enrollment Remains at 75 Percent of Target

Mr. Delery, the Obama administration lawyer, insisted that the federal secretary of health and human services was 'standing in the shoes of a state' when she established exchanges for 36 states that were unwilling or unable to do so.

Mr. Delery said the purpose of the law was clear: to provide affordable health care to all Americans, wherever they live.

But, Judge Griffith asked, if Congress did not write the law clearly enough to achieve its purpose, do judges have an obligation to fix the problem?

The appeal follows a January decision by a Federal District Court judge, Paul L. Friedman, rejecting the challenge.

'The plain text of the statute, the statutory structure and the statutory purpose make clear that Congress intended to make premium tax credits available on both state-run and federally facilitated exchanges,' Judge Friedman said.

After analyzing the law and its legislative history, he said, 'Congress assumed that tax credits would be available nationwide' and 'on any exchange, regardless of whether it is operated by a state' or by federal officials.