Less than two hours after an appeals court in Washington ordered the Obama administration to turn off the spigot of federal subsidies to consumers through U.S.-run health-care exchanges,an appeals court in Virginia ruled that the subsidies should be allowed to keep on flowing.

With the future of Obamacare hanging in the balance, the back-to-back opinions raise the likelihood of another Supreme Court showdown over the the president’s marquee law.

The two circuits split over an issue fundamental to the implementation of the Affordable Care Act. That is, whether the Internal Revenue Service had the authority under the statute passed by Congress to extend federal subsidies to coverage acquired through federal exchanges.

In 36 states, the federal government runs some or all of the online exchanges. So, if the subsidies are invalidated, the number of people who must purchase health insurance or face a penalty could shrink significantly.

The plaintiff challengers argue that the IRS overstepped its bounds. The Obama administration argues that the IRS was well within its rights.

The first of the two rulings — a 2-1 opinion issued by a panel of the U.S. Court of Appeals for the District of Columbia Circuit — held that the language of the statute does not give the IRS that authority. A unanimous three-judge panel of the Fourth U.S. Circuit Court of Appeals in Richmond found the language of the statute ambiguous, and therefore deferred to the IRS’s more flexible interpretation.

The decision could have “significant consequences both for the millions of individuals receiving tax credits through federal Exchanges and for health insurance markets more broadly,” wrote D.C. Circuit Judge Thomas B. Griffith.

But such an impact assumes the subsidies ruling will ultimately stand. The Obama administration is already drawing up backup plans to knock it down.

Justice Department officials say they will immediately ask the full D.C. Circuit to review the panel’s 2-1 ruling. That process, called requesting a hearing en banc —  is certain to put off any enforcement of Tuesday’s D.C. decision.

But lawyers following the case say that eventually, all eyes will turn to the Supreme Court.

There’s no guarantee that the high court would take up the matter. And the government, given that it prevailed at the Fourth Circuit,  is likely hoping that a reversal by the full D.C. Circuit would dissuade the justices from entering the fray at all.

“If [the government] eliminates a potential circuit split, it makes it less likely the Supreme Court would take it up,” said Jonathan Adler, a law professor at Case Western Reserve University who was among the first to suggest a potential legal challenge to the IRS regulation.

But the lawyers challenging the subsidies don’t have to wait to see what the D.C. Circuit does next to ask the Supreme Court to take up the case.

And if the justices consent to hear it, that sets up another lengthy battle, further delaying any judgment day for Obamacare.

For now, the two sides are bracing for a long haul.

“We believe that [the D.C. Circuit] decision is incorrect, inconsistent with Congressional intent, different from previous rulings, and at odds with the goal of the law: to make health care affordable no matter where people live,” Emily Pierce, a spokeswoman at the Justice Department, said Tuesday.

Michael A. Carvin, a partner at the law firm Jones Day who represents plaintiffs in both cases, said the D.C. Circuit made clear “that laws are made by the plain language of the statutes and not by administrative agencies’ policy preferences.”

from wsj.com