A Nerd's Guide To The Obamacare Subsidy Court Rulings

Two huge rulings came down on the taxpayer subsidies in Obamacare recently.

One of them is right, and one of them is wrong. If you don't have time to read through the pertinent parts of the law or the court rulings, then look no further.

Here is your guide to the rulings: [note: all emphasis is mine]

It all starts with Section 36B of the U.S. tax code, which is titled "Refundable credit for coverage under a qualified health plan." Under 36B(b)(2)(A) the tax code defines the "Premium assistance amount" as:

"the monthly premiums for such month for 1 or more qualified health plans offered in the individual market within a State which cover the taxpayer, the taxpayer’s spouse, or any dependent (as defined in section 152) of the taxpayer and which were enrolled in through an Exchange established by the State under 1311 of the Patient Protection and Affordable Care Act."

Further, under 36B(c)(2)(A)(i), the law defines the term "coverage month" and reiterates the very same language found above:

"covered by a qualified health plan described in subsection (b)(2)(A) that was enrolled in through an Exchange established by the State under section 1311 of the Patient Protection and Affordable Care Act."

Clearly, for the purposes of determining who can get a tax credit or subsidy for their health plan, the individual would have to be enrolled in an exchange established by the state and section 1311 of Obamacare is vitally important.

Speaker of the House John Boehner (R-OH) stands next to a printed version of the Patient Protection and Affordable Care Act, or Obamacare, during a news conference on Capitol Hill May 16, 2013 in Washington, DC. Credit: Getty Images

Let's look at section 1311.

Starting right off the bat, the heading of the first subsection (a) is "Assistance to States to Establish American Health Benefit Exchanges." In this subsection, it outlines funds that will be given to a state so that "A State shall use amounts awarded under this subsection for activities (including planning activities) related to establishing an American Health Benefit Exchange."

But there's more!

• 1311(b)(1) - "Each State shall, not later than January 1, 2014, establish an American Health Benefit Exchange (referred to in this title as an "Exchange'')"
• In 1311(d)(1) it is absolutely crystal clear - "In general.--An Exchange shall be a governmental agency or nonprofit entity that is established by a State."

Does it get any clearer than that?

Section 1311(b)(5)(A) talks about federal funding limitations for the state run and established exchanges. Subsection (f) establishes rules for regional or interstate exchanges, but nowhere in section 1311, referenced to in the tax code, does it talk about a federal exchange. Only once in 1311(c)(5)(A) does it mention a different "Internet portal" that the secretary will "operate, maintain and update."

This Internet portal? Section 1103(a)(1) states the establishment of this portal and its purpose:

"the Secretary, in consultation with the States, shall establish a mechanism, including an Internet website, through which a resident of any State may identify affordable health insurance coverage options in that State."

The specific purpose of this federal site was to "provide ways for residents of any State to receive information" about coverage options, not to get coverage.

The notion that the federal exchange website qualifies under section 1311 of Obamacare is utterly absurd. The law's own definition of a "Qualified Health Plan" even points this out in 1301(a)(1)(A) which defines it as a health plan that "meets the criteria for certification described in section 1311(c)."

The only loophole that one could possibly conjure up to say that the federal exchange site qualifies under section 1311 is that the word "State" is capitalized and could possibly mean a general government, rather than a slightly more narrow definition of a literal state within our union.

Photo credit: Shutterstock

Unfortunately, this holds absolutely no water as every mention of "a State" or "each State" in section 1311 and even in 1301 (which establishes the federal Internet portal) has the word capitalized. Sorry, but no luck there either.

The federally run exchange that we have all become familiar with is established in 1321(c)(1) so that if the State (capital letter S) does not set up an exchange, that the secretary shall "establish and operate such Exchange within the State."

The federal exchange website that stood in place for the 34 states who did not set up an Obamacare exchange, plainly and clearly does not apply to the tax credit or subsidy in section 36B of the tax code referenced above. Regardless of the "intent" of Congress, or the Fourth Circuit Court's interpretation of their intent, the federal exchange site is not legally allowed to offer subsidies or tax credits for the purpose of purchasing health insurance.

As the D.C. Circuit Court points out, the way this law was written will "likely have significant consequences, both for the millions of individuals receiving tax credits through federal Exchanges and for health insurance markets more broadly."

While many on the left will be quick to blame (and some already have) the D.C. Circuit Court for this ruling and claim it to be political, the fault for this gross oversight lies with the authors of this grotesquely enormous bill, the Congress who passed it, the president who signed it and the complexity of the bill itself which will unfortunately have unintended (and some intended) consequences for years to come.

Perhaps this is yet another first step in learning a lesson on moderation.

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