One of the key features of the highly complicated Affordable Care Act is the subsidy that is given to lower income people to enable them to afford to purchase health insurance. These subsidies are provided through both the state exchanges for those states that set them up and through the federal exchanges in those states that decided that they wanted to have no part of the ACA or decided to let the federal government set them up. So far, 16 states have set up their own exchanges and 34 exchanges are run by the Department of Health and Human Services. The subsidies come in the form of tax credits provided by the IRS.

But some argue that the language of the statute says that only state exchanges can provide these subsidies and opponents of the ACA have sued to overturn the subsidies provided by the federal exchanges. If successful this would be a crippling blow to the ACA since it would make health insurance too expensive for many people who now have them. About 85% of the people who have signed up on the federal exchanges qualified for the subsidies.

Why did the statute not explicitly include the federal exchanges? It is not clear. It is likely to have been simple oversight in writing the text of the complicated legislation. At the time the legislation was being written, it was envisaged that almost all the states would set up their own exchanges and the federal backup system was seen as being a small part of the program. It was likely not foreseen how cruel and vicious Republicans were in those states that had their party in the majority and the extent to which they would go to sabotage the implementation by willful noncompliance and opposition, even if it meant that many people would be denied health insurance. The fact that they would even oppose the Medicare expansion is a sign of how callous and repulsive their views are.

But whatever the reason, opponents of the ACA argue that the plain text of the legislation seems to say (I have not read it) that only state exchanges can provide subsidies. Of course, courts don’t simply go by the text to establish intent, they also look at the legislative history and what legislators said during the debates and this is where much of the argument has centered, with questions about what the legislative intent was and whether legislative history can trump the plain text, even if the latter seems unambiguous.

There have been four challenges to the ACA on these grounds. Two US District Court judges (in Washington DC and Virginia) ruled in favor of the government and two cases in Indiana and Oklahoma have been heard but the District Court judges still have to issue their rulings. The DC verdict in Halbig v. Sebelius was issued on January 15, 2014 and can be read here and the ruling in the Virginia case King v. Sebelius was issued on February 18, 2014 and can be read here.

In the DC case, the judge concluded:

In sum, the Court finds that 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. What little relevant legislative history exists further supports this conclusion and certainly – despite plaintiffs’ best efforts to suggest otherwise – it does not undermine it. The Court therefore concludes that “Congress has directly spoken to the precise question” of whether an “Exchange” under 26 U.S.C. § 36B includes federally-facilitated Exchanges. And that must be “the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress.” The IRS has done exactly that by promulgating regulations authorizing the provision of tax credits to individuals who purchase health insurance on federally-facilitated Exchanges as well as to those who purchase insurance on state-run Exchanges.

Both decisions were appealed and oral arguments were heard in the DC case on March 25, 2014. The government’s case seemed to run into opposition by definitely one and possibly two members of the three-judge panel on the DC Circuit Court of Appeals. Their verdict is due later in the year.

So what happens if they rule that the federal subsidies are illegal? The matter will not end there. It is highly likely that the case is so important it will then be heard en banc, meaning the entire Appeals Court bench of 17 judges will hear the case. Whatever verdict they arrive at will likely be appealed to the US Supreme Court but whether they will want to hear another Obamacare case is in doubt. It will likely depend on whether the other cases lead to different outcomes and thus require a definitive Supreme Court ruling.

But suppose the worst happens and the federal subsidies are ruled to be illegal. What happens then? That will likely not happen until sometime in 2015 and by that time the ACA will be quite well entrenched. Deciding that the federal subsidies are illegal will cause a major upheaval as millions of people who now have health insurance will have it snatched away from them. It will be a political mess on a grand scale.