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U.S. asks appeals court to reconsider Obamacare subsidies ruling

By Lawrence Hurley

WASHINGTON (Reuters) - The U.S. Justice Department asked a federal appeals court on Friday to reconsider its July 22 ruling that poses a major setback to the Obamacare health insurance overhaul as it could limit the availability of federal health insurance subsidies for millions of people.

In the ruling last month, the appeals court said the subsidies, which help people afford health insurance, may only be paid in states that have their own online health insurance exchanges. There are 36 states that lack their own exchanges, which are a central feature in the Obamacare system.

Five million people could be affected, analysts have estimated, if subsidies were to disappear from the federally created marketplaces that have been set up in the states that did not set up their own exchanges.

In the court filing, the government, as expected, asked the full U.S. Court of Appeals for the District of Columbia Circuit to review the three-judge panel's decision.

If the court agrees to rehear the case, oral arguments will likely be held later this year, possibly delaying any consideration of the issue by the U.S. Supreme Court.

Government lawyers wrote in the court filing that the July decision, if left intact, would "impose a severe hardship" on people who currently get the subsidies in the form of tax credits. The appeals court's ruling led to "harsh and illogical results," the government lawyers' court filing said.

The decision to rehear the case will be made by the court's 11 active judges. Following a series of appointments to the court made by President Barack Obama, the court's Democratic appointees have a 7-4 majority.

The three-judge panel that ruled in July was split 2-1, with two Republican appointees in the majority.

Separately, the 4th U.S. Circuit Court of Appeals in Richmond, Virginia, ruled in favor of the Obama administration in an identical challenge.

The plaintiffs in that case said on Thursday they are planning immediate U.S. Supreme Court review of that ruling, but further action in the Washington appeals court could deter the justices from taking the case at such an early stage.

(Reporting by Lawrence Hurley; Editing by Kevin Drawbaugh, Meredith Mazzilli and Bernard Orr)

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