Health and Science

Obamacare's big threat hits new legal level

The Obama administration on Friday asked a top federal appeals court in Washington, D.C., to reverse a recent bombshell ruling that threatens to cripple the Obamacare health-care reform law.

The administration's move came a day after plaintiffs asked the Supreme Court to hear an appeal in an effectively identical case—and to rule once and for all on the fate of billions of dollars worth of financial assistance given to nearly 5 million Obamacare enrollees in two-thirds of the U.S.

Friday's motion by the Obama administration, which was expected, asks the entire judicial lineup of the U.S. Court of Appeals for the D.C. Circuit to hear arguments that will seek to overturn a 2-1 ruling by three judges in that circuit on July 22.

That decision found that subsidies given to customers of a federal insurance marketplace such as are illegal under the Affordable Care Act because the ACA only explicitly authorizes such financial aid in the form of tax credits to go to enrollees in a state-run exchange.

Hours after the D.C. Circuit panel ruled, another three-judge panel in the 4th Circuit federal appeals court unanimously ruled that the subsidies are legal.

Legal experts say the administration has a very good chance of getting the D.C. appeals court panel ruling in the case known as Halbig v. Burwell overturned if granted the so-called en banc review by the full court.

That's because the majority of judges on that circuit are appointees of Democratic presidents, including President Barack Obama himself.

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For that review to happen, a majority of the 11 active judges on the circuit need to vote to rehear the case, as requested in the motion that can be read here: Halbig en banc petition.

Two of the senior status judges who heard the original appeal in the Halbig case would be eligible to sit en banc with the active judges—but Republican appointees would still be outnumbered 8 to 5.

"Today, the government asked for a full review of a 2-1 decision in the Halbig case, as we said we would do last week," said a senior Obama administration official who spoke on the condition of anonymity. "We believe that this decision is an outlier and the full circuit court will agree with Congress and common sense, and the 4th Circuit's contrary ruling on the same issue."

"This litigation should be seen for what it is—another partisan attempt to undermine the Affordable Care Act," the senior official said.

Health and Human Services Secretary Sylvia Burwell testifies before the Senate Appropriations Committee on Capitol Hill in Washington.
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But if the Supreme Court in the next two months takes the appeal of the 4th Circuit ruling in favor of the subsidies it could fast track the subsidies' ultimate fate, and trump the Obama administration's move to have the full D.C. appeals court act as a legal firewall.

Four Supreme Court justices would need to vote in favor of hearing that appeal of the case known as King v. Burwell for the high court to take the case.

Both cases name current U.S. Health and Human Services Secretary Sylvia Burwell as the defendant because her department oversees the implementation of much of Obamacare, including the operation of

For now, it's an open question of whether the subsidies will remain in effect, as they now do, indefinitely, or whether they are at risk being taken away as early as next spring by the Supreme Court in a final ruling.

If the Supreme Court for now takes a pass on hearing arguments on the issue for its upcoming term, it would almost certainly be confronted with a another petition to decide the controversy over the subsidies in the future.

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If those subsidies are ruled illegal, it would have dramatic consequences not only for the people who receive that assistance in 36 states, but also for Obamacare rules mandating that health insurance be offered by many employers, and that individuals obtain coverage or pay a fine.

Without the subsidies, there would be no trigger to fining mid- and large-sized companies that fail to offer health insurance to workers in the states served by The lack of subsidies also would have the effect of exempting large numbers of people from the threat of a fine if they did not obtain health coverage.

Plaintiffs in four pending federal district court lawsuits claim those subsidies are illegal under the Affordable Care Act because that law explicitly states that such aid to help people afford insurance can be issued through a marketplace established by a state. About 2 million people got such subsidies for plans on 15 state-run exchanges this year.

The ACA says nothing explicitly about subsidies being issued to enrollees in a federal exchange like—which serves 36 other states—although an Internal Revenue Service rule later authorized them. The Obama administration argues that if read as as whole, the ACA allows those subsidies to be issued via, where 86 percent of enrollees, or 4.7 million people, got such financial aid due to their low or moderate incomes.

"The statutory text ... makes clear that Congress intended an Exchange to operate effectively in each State; intended each State to have a real choice between alternative ways to establish the same Exchange; and intended tax credits to serve their necessary and intended function throughout the country," said the administration's en banc petition.

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Two other similar challenges to the subsidies remain pending at the trial court level in Indiana and Oklahoma.

Either of those cases could lead to future appeals, which could in turn trigger a Supreme Court review of the issue, in the event that the high court does not take up either the current Halbig and King cases.

—By CNBC's Dan Mangan