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Breaking Down Today's Conflicting Obamacare Court Rulings

"Applying deference to the IRS's determination, however, we uphold the rule as a permissible exercise of the agency's discretion."

WASHINGTON, DC - JUNE 25: The U.S. Supreme Court is shown after members of the court issued major rulings on cell phone privacy and copyright law June 25, 2014 in Washington, DC. The Supreme Court issued a ruling requiring law enforcement officials to have a search warrant to search the cellphones of suspects they arrest. In another case, the court ruled that the streaming service Aereo was in violation of existing copyright law by retransmitting broadcast televisions programs via miniature antennas for a fee from the company's subscribers. Win McNamee/Getty Images

Two federal appeals courts released conflicting decisions on Tuesday on the legality of giving people subsidies to buy Obamacare health plans under the federal healthcare exchange.

Tuesday morning, a panel in the Court of Appeals for the District of Columbia found that a plain reading of Obamacare says that only people who buy insurance from a state-run exchange can be given subsidies. That decision had Republicans cheering, and calling it a significant blow to the law that could unravel it entirely if millions of people were suddenly not eligible for subsidies.

The U.S. Supreme Court may have to get ready for another Obamacare case, as two federal appeals courts on Tuesday reached different verdicts on the legality of Obamacare subsidies.

But soon after, the Court of Appeals for the Fourth Circuit in Virginia released a decision that said the law is ambiguous, and that the government's regulations allowing subsidies for people who buy insurance under any Obamacare exchange are legal under one interpretation.

The conflicting rulings seem to increase the likelihood that the issue will have to be decided by the Supreme Court. If the fight advances to that level, the findings in each of Tuesday's rulings will likely provide an initial roadmap for how to think about the case.

The DC appeals court seemed to have an easy time deciding that the IRS regulations allowing subsidies for all violated Obamacare as the law is written. According to the majority opinion, Obamacare says subsidies in the form of tax credits are available for only those taxpayers who buy insurance under an exchange "established by the state" under Section 1311 of the law.

That section deals with state-level exchanges, and because the law is so specific, the DC court said it's clear subsidies can only go to those who buy a plan in one of the 14 states that run their own exchange.

The court said it reached this conclusion reluctantly, since it could force millions of people to give up their subsidies.

"We reach this conclusion, frankly, with reluctance," the opinion said. "At least until states that wish to can set up exchanges, our ruling will likely have significant consequences both for the millions of individuals receiving tax credits through federal Exchanges and for health insurance markets more broadly.

"But, high as those stakes are, the principle of legislative supremacy that guides us is higher still," it added. "Within constitutional limits, Congress is supreme in matters of policy, and the consequence of that supremacy is that our duty when interpreting a statute is to ascertain the meaning of the words of the statute duly enacted through the formal legislative process."

The Fourth Circuit Court of Appeals had a much harder time reading the law, decided that it is ambiguous, and as a result upheld the IRS regulations.

"[W]e find that the applicable statutory language is ambiguous and subject to multiple interpretations," it ruled. "Applying deference to the IRS's determination, however, we uphold the rule as a permissible exercise of the agency's discretion."

This court agreed that there is a "certain sense" to the arguments of those who say the IRS went to far by allowing everyone to receive subsidies. "If Congress did in fact intend to make the tax credits available to consumers on both state and federal exchanges, it would have been easy to write in broader language, as it did in other places in the statute," it said.

However, this court also noted that other language in the Obamacare law calls on federal exchanges to report subsidy information. "It is therefore possible to infer from the reporting requirements that Congress intended the tax credits to be available on both state- and federally-facilitated exchanges," the opinion said.

The DC court dismissed this by saying the reporting language was meant to apply to state exchanges and the federal exchange, and that portions that don't apply to the federal exchange, such as language on subsidies, was meant to be ignored.

But the Fourth Circuit said that muddies the waters enough, and also noted guidance from the Supreme Court that courts should not make it their mission to "try to re-write ambiguously drafted laws" in order to remove anomalies. As a result, the Fourth Circuit upheld the IRS's take on the law.

"[W]e are unable to say definitively that Congress limited the premium tax credits to individuals living in states with state-run exchanges," it said. "Simply put, the statute is ambiguous and subject to at least two different interpretations."

At first glance, the competing rulings do not seem to be affected by politics. Both Judge Thomas Griffith at the DC court and Judge Roger Gregory at the Fourth Circuit were appointed by President George W. Bush, although Gregory was also nominated by President Bill Clinton.

One last thing…
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