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Judge dismisses PPACA subsidy suit

(Bloomberg) -- People who buy insurance on the public health exchanges run by the U.S. Department of Health and Human Services (HHS) are eligible for tax credits to reduce their premiums, a U.S. judge ruled, dismissing claims that only state-run exchanges can offer the subsidies.

“The plain text of the statute, the statutory structure and the statutory purpose make clear that Congress intended to make premium credits available on both state-run and federally facilitated exchanges,” U.S. District Judge Paul Friedman in Washington said in a ruling today dismissing a lawsuit.

The ruling undercuts what one supporter of the Patient Protection and Affordable Care Act (PPACA) called an “existential” threat to the law. PPACA opponents say the law forces consumers and businesses in a state to participate in a program their state governments opted out of.

Drafters created the PPACA tax credit program to help consumers pay for private "qualified health plan" (QHP) coverage through the PPACA exchanges.

HHS is running 36 exchanges. The District of Columbia and states are running the other exchanges.

PPACA opponents have argued that PPACA drafters gave the state-run exchanges the authority to offer the tax credit but did not include language giving the HHS-run exchanges the authority to offer the tax credit.

Friedman’s ruling is “a major blow to the states that chose not to participate in the Obamacare insurance exchange program” Sam Kazman, general counsel of the Competitive Enterprise Institute, a group that advocates for limited government, said in an e-mailed statement. “This decision guts the choice made by a majority of the states to stay out of the exchange program.” 

‘Real cost’

The subsidies “hide the real cost of Obamacare” by enabling some insurance customers to pay artificially low rates, Kazman said in a phone interview. The subsidies also indirectly burden businesses because they could be subject to financial penalties when their employees receive the tax credits, according to Kazman.

They also create an incentive to cut full-time employees to reduce potential penalties, he said.

The institute is helping to pay for the lawsuit. The plaintiffs today filed a notice that they will appeal the ruling.

The ruling blunts an attack on the foundation of PPACA, according to Ron Pollack, executive director of Families USA, a consumer health-care organization that filed a brief in support of the Obama administration.

“This, in our view, has been the greatest existential litigation threat to the Affordable Care Act,” Pollack said in a conference call with reporters following release of Friedman’s decision.

The case is Halbig v. Sebelius, 13-cv-00623, U.S District Court, District of Columbia.

A similar PPACA subsidy case, Pruitt v. Sebelius et al., 6:11-cv-00030-RAW, is still under way in the U.S. District Court for the Eastern District of Oklahoma.

--Editors: Andrew Dunn, Michael Hytha

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