Federal Judge: Lawsuit Against Obamacare Subsidies OK to Move Forward

A federal judge Tuesday gave the go-ahead to a lawsuit challenging Obamacare insurance subsidies — but refused to immediately block them while the case proceeds.

The latest legal challenge focuses on whether the controversial 2010 law allows for subsidies in all states — or only in states that have set up exchanges.

Only 16 states and the District of Columbia chose to set up online marketplaces where people without private health insurance can shop for it.

The federal government is running the exchanges in the remaining states.

Subsidies, in the form of tax credits, are available to people with annual incomes of up to 400 percent of the federal poverty level, or $94,200 for a family of four.

The Obama administration views the subsidies as essential if the law is going to work, because otherwise many people could not afford private insurance.

The suit was brought by a mix of individuals and businesses from Texas, Kansas, Missouri, Tennessee, West Virginia, and Virginia. The plaintiffs argue the subsidies are unlawful and impose a burden by forcing them to purchase the insurance or else pay a penalty.

U.S. District Judge Paul Friedman, who sits in Washington, D.C., refused to block the insurance subsidies immediately, reasoning the challengers have until the end of March to apply for an exemption from Obamacare.

"As long as we get a decision in a timely manner, that's what we've been looking for," Michael Carvin, a lawyer for the plaintiffs, said after the hearing in Washington, D.C.
Carvin was among lawyers who argued before the U.S. Supreme Court in 2012 to strike down Obamacare.

Two similar lawsuits are pending in federal courts in Oklahoma and Indiana. Neither has reached a final ruling.

What complicates the new law is wording in the 2010 law, the Wall Street Journal noted.

Carvin argues Obamacare specifies the subsidies can only be offered to those who buy their insurance on the state exchanges -- and none of his clients are in states where that is the case.

If no subsidies are available, Carvin argues, his clients shouldn't have to face a tax penalty for not acquiring coverage under the law's individual-mandate requirement.

But government lawyers countered that Congress clearly intended for the subsidies to be available to consumers who bought insurance on either state-run or federally run exchanges.

Reuters contributed to this report