WASHINGTON (Reuters) – A U.S. judge on Thursday handed a victory to congressional Republicans who challenged President Barack Obama’s signature healthcare law, ruling that his administration overstepped its constitutional powers relating to government spending.
U.S. District Judge Rosemary Collyer, based in Washington, ruled that the administration cannot spend billions of dollars in federal funds to provide subsidies under the law known as Obamacare to private insurers without the approval of Congress.
At issue in the case, brought by the Republican-led House of Representatives, are reimbursements to insurance companies to compensate them for reductions that the law requires them to make to customers’ out-of-pocket medical payments.
Shares in hospital operators and managed care companies were down after the ruling.
In court papers, the administration had warned that a court victory for the House Republicans would lead to a spike in insurance premiums for Americans and force the government to pay more in tax credits to insurance policy-holders.
The administration is expected to appeal the ruling. White House spokesman Josh Earnest said the House Republicans ultimately would lose.
“This suit represents the first time in our nation’s history that Congress has been permitted to sue the executive branch over a disagreement about how to interpret a statute,” Earnest told a briefing.
“It’s unfortunate that Republicans have resorted to a taxpayer-funded lawsuit to re-fight a political fight that they keep losing,” Earnest added. “They’ve been losing this fight for six years, and they’ll lose it again.”
Conservatives have mounted a series of legal challenges to the law, known as Obamacare, since it was passed by Congress in 2010 over unified Republican opposition. Collyer was appointed to the bench by Republican former President George W. Bush.
The House Republicans argued that the administration’s action violated the U.S. Constitution because it is the legislative branch, not the executive branch, that authorizes government spending.
“BIG win for the Constitution,” House Speaker Paul Ryan wrote on Twitter.
Jonathan Turley, the lawyer who spearheaded the lawsuit, in a blog post called the ruling “a resounding victory not just for Congress but for our constitutional system as a whole.”
The ruling will not have an immediate effect on the law, considered Obama’s top domestic policy achievement, because the judge put the decision on hold pending appeal. As part of its expected appeal, the administration is likely to press its argument that the House does not have legal standing to sue.
The ruling brought new uncertainty to the law, which has helped bring insurance coverage to millions of Americans who previously had none.
Shares in hospital operators including Community Health Systems Inc, Tenet Healthcare Corp and HCA Holdings as well as managed care companies UnitedHealth Group Inc, Anthem Inc, Humana Inc, Cigna Corp and Aetna Inc declined after the ruling.
The appeals court in Washington may be more receptive to the administration’s arguments, in part because seven of the 11 active judges are Democratic-appointees, including four picked by Obama.
The case focuses on a cost-sharing provision of Obamacare that requires insurers to reduce deductibles and co-pays. Insurers are supposed to be reimbursed for these costs by the federal government. Cost-sharing is determined by the income of the policyholder and is a mechanism for reducing healthcare costs for lower-income households.
The Obama administration has interpreted the provision as a type of federal spending that does not need to be explicitly authorized by Congress. The House Republicans who filed the challenge disagreed.
Collyer ruled that the cost-sharing provisions cannot be funded through the same permanent appropriation that covers tax credits made available under the law.
The judge rejected the administration’s contention that the appropriation should be viewed as permanent because the alternative interpretation would lead to “absurd economic, fiscal and healthcare policy results.”
The U.S. Supreme Court in June 2015, in a ruling authored by Bush-appointed Chief Justice John Roberts, rejected a conservative challenge that could have gutted Obamacare, upholding nationwide tax subsidies crucial to the law. Roberts also wrote a major 2012 ruling preserving Obamacare.