Two U.S. appeals courts reached opposite conclusions on thelegality of a key financing provision of the Affordable Care Act,increasing the chance of another showdown at the Supreme Court overPresident Barack Obama's signature health-care law.

In majority ruling by judges appointed by Republican presidents,the U.S. Court of Appeals in Washington struck down an InternalRevenue Service rule providing tax subsidies to needy customers onthe insurance exchange run by federal authorities, saying Congressauthorized payments only on state- run marketplaces.

A panel of three judges in Richmond, Virginia, appointed byDemocratic presidents reached the opposite conclusion hours later,saying that while the language of the law is ambiguous, the IRS hadthe discretion to write rules for the Patient Protection andAffordable Care Act.

The government will immediately seek review of the Washingtoncourt's decision and in the meantime nothing has changed for peoplegetting premium tax credits, Justice Department spokeswoman EmilyPierce said.

A White House official said the U.S. will seek petition the fullWashington appeals court, where seven of the 11 judges werenominated by Democratic presidents, including four by Obama. Thejudges didn't grant the plaintiff's request for a suspension of thetax credits, the official said.

If the Washington panel's ruling is upheld, it would be apotentially crippling blow to Obamacare because only 14 states andthe District of Columbia have opted to set up their ownmarketplaces. That makes delivery of tax credits via the federalexchange crucial to meeting the health-care plan's goal ofbroadening coverage in the U.S.

The plan's success hinges on enlarging the pool of the insured,including those of modest means who need financial aid, tosubsidize insurance costs for those who are ill.

Of the more than 8 million people who picked an insurance planon the exchanges from October through April 19, 5.4 millionselected one from the federal marketplace, according to a report bythe U.S. Department of Health and Human Services.

According to the report, 85 percent of those picking a planqualified for subsidies that reduce their premiums.

The 2-1 majority ruling in Washington held that the way Congresswrote the Affordable Care Act makes clear the subsidy is availableonly on state-run exchanges.

The law “unambiguously forecloses the interpretation embodied inthe IRS rule and instead limits the availability of premium taxcredits to state-established exchanges,” U.S. Circuit Judge ThomasGriffith wrote for the majority of a three- judge panel.

'With Reluctance'

The judges reached their conclusion “with reluctance,” Griffith,a appointee of Republican President George W. Bush wrote. He wasjoined A. Raymond Randolph, who was nominated by President GeorgeH. W. Bush, also a Republican.

“Our ruling will likely have significant consequences both formillions of individuals receiving tax credits through federalexchanges and for health insurance markets more broadly. But highas those stakes are, the principle of legislative supremacy thatguides us is higher still,” Griffith wrote.

U.S. Circuit Judge Harry Edwards, an appointee of DemocraticPresident Jimmy Carter, dissented, calling the decision a“not-so-veiled attempt to gut” Obamacare.

At least two other challenges to the health-care tax credits arepercolating in federal courts in Oklahoma and Indiana.

The three-judge Virginia appeals court panel unanimously courtturned aside the argument of Obamacare opponents that AffordableCare Act only allows assistance for buyers on the stateexchanges.

The court said while the language of the law is subject tomultiple interpretations, the IRS is entitled to deference ininterpreting it to write regulations for the program.

“We uphold the rule as a permissible exercise of the agency'sdiscretion,” the court said.

The ruling which upholds a lower court, is the third decisionaffirming the Obama administration's contention that tax creditsare intended for customers of state and federal exchangesalike.

The full circuit court in Washington will reverse the decision,said Timothy Jost, a law professor at Washington & LeeUniversity who has tracked implementation of Obamacare.

No Division

“There's not going to be a division of the circuits,ultimately,” Jost said.

The health-care overhaul was signed into law by Obama in March2010 after passing Congress with no Republican votes.

It's been under political and legal assault ever since whileplagued by computer failures that impeded sign-ups on state andfederal exchanges.

In June 2012, the law was narrowly upheld by the U.S. SupremeCourt which ruled that Congress has the power to make Americanscarry insurance or pay a penalty. The high court didn't rule on, orconsider, the question of whether the law allows subsidies for planbuyers on the federal exchange.

The Supreme Court on June 30 ruled that closely held companiescan claim a religious exemption from the requirement that theyoffer birth-control coverage in their worker health plans. Thatcase, involving the craft-store chain Hobby Lobby Stores Inc., wasamong dozens of suits spawned by Obamacare's contraceptivemandate.

Today's ruling applies to a portion of the law making financialaid available to income-qualified people who buy their healthinsurance on a marketplace “established by the state.”

The government contends that when considered with other parts ofthe law, this language covers marketplaces set up by statesthemselves and by the federal government when it acts in place ofstates.

The IRS in May 2012 issued a rule making that point explicit.Financial aid, in the form of tax credits, would be available totaxpayers who obtain coverage on the federal exchange because that“is consistent with the language, purpose and structure” of theAffordable Care Act, according to the regulation.

The government argued that limiting the credits to the 14 stateexchanges makes no sense because it flies in the face of the law'saim of reducing the number of uninsured.

Further, according to government lawyers, many sections of theAffordable Care Act anticipate the issuance of tax credits throughthe federal exchange.

For example, the law obligates exchanges to report taxinformation to the IRS, a requirement that would serve no purposeif the federal exchange wasn't “authorized to deliver tax credits,”government lawyers wrote court papers filed at the Washingtonappeals court

Opponents of Obamacare, including those who brought theWashington case, argued that the court is bound by the language ofthe law limiting the tax credits to customers of state exchanges.The language was deliberately chosen to induce states to set upexchanges, lawyers for opponents told the appeals panel.

The case is Halbig v. Sebelius, 14-5018, U.S. Court of Appealsfor the District of Columbia (Washington). The Virginia case isKing v. Sebelius, 14-1158, U.S. Court of Appeals for the FourthCircuit, (Richmond, Virginia).

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