A Court Ruling Just Blew a Huge Hole in Obamacare

Opposite court rulings leave the future of Obamacare subsidies in 36 states unknown.

WASHINGTON, DC - JUNE 30: U.S. President Barack Obama delivers remarks about the faltering immigration reform agenda to the news media with in the Rose Garden at the White House June 30, 2014 in Washington, DC. Speaker of the House John Boehner (R-OH) said today that the House of Representatives would not take up immigration reform legislation this year and Obama said he would continue to use his executive power to bolster enforcement on the southern border. (Photo by Chip Somodevilla/Getty Images)
National Journal
Sophie Novack Sam Baker
July 22, 2014, 6:25 a.m.

Obama­care was just dealt a ma­jor loss in court.

The U.S. Court of Ap­peals for the D.C. Cir­cuit ruled Tues­day that more than half the coun­try shouldn’t be re­ceiv­ing tax sub­sidies un­der Obama­care””a rul­ing that could cripple the health care law if it’s ul­ti­mately up­held.

The 2-1 de­cision in Hal­big v. Se­beli­us is the first vic­tory, in any court, for a leg­al chal­lenge that says the tax sub­sidies should be avail­able only in states that set up their own in­sur­ance ex­changes.

Just a few hours later, a three-judge pan­el of the 4th Cir­cuit Court of Ap­peals ruled the op­pos­ite way in King v. Bur­well, re­ject­ing a sim­il­ar law­suit that aimed to block the very same in­sur­ance sub­sidies.

The health care law spe­cific­ally au­thor­izes sub­sidies in “an ex­change es­tab­lished by the state,” and the plaintiffs in both cases said the ad­min­is­tra­tion vi­ol­ated the law by also ex­tend­ing sub­sidies to the 36 states us­ing the fed­er­al sys­tem. They said Con­gress meant for the tax cred­its to serve as an in­cent­ive for states to es­tab­lish their own ex­changes.

De­fend­ers of the health care law said that read­ing of the Af­ford­able Care Act is too nar­row, and that Con­gress clearly in­ten­ded for the fin­an­cial as­sist­ance to be provided equally on all ex­changes.

The 4th Cir­cuit pan­el agreed, say­ing the stat­ute it­self was un­clear. It al­lowed the IRS to con­tin­ue provid­ing fin­an­cial as­sist­ance in all 50 states, say­ing the agency’s in­ter­pret­a­tion of the law was en­titled to de­fer­ence in the courts.

The D.C. Cir­cuit, mean­while, ruled against the ad­min­is­tra­tion.

Two fed­er­al courts have pre­vi­ously dis­missed sim­il­ar chal­lenges, mak­ing Tues­day’s Hal­big vic­tory es­pe­cially im­port­ant for the chal­lengers.

The D.C. Cir­cuit rul­ing guar­an­tees that the is­sue will move for­ward””something that should ser­i­ously scare the ad­min­is­tra­tion. An ul­ti­mate win would deal a dev­ast­at­ing blow to the health care law.

A re­cent re­port from Urb­an In­sti­tute re­search­ers es­tim­ated that a rul­ing against the Obama ad­min­is­tra­tion could cause 7.3 mil­lion people””about 62 per­cent of the 11.8 mil­lion people ex­pec­ted to en­roll in fed­er­ally fa­cil­it­ated mar­ket­places by 2016””to lose out on $36.1 bil­lion in in­sur­ance sub­sidies.

Con­sumers in Texas and Flor­ida could be hard­est hit, ac­cord­ing to the re­port, with $5.6 bil­lion and $4.8 bil­lion re­spect­ively at risk.

The fed­er­al gov­ern­ment plans to ap­peal the three-judge pan­el’s rul­ing to the full D.C. Cir­cuit, where Obama­care al­lies be­lieve they’re more likely to win. The split rul­ings have opened the pos­sib­il­ity that the is­sue could make it to the Su­preme Court next year, but this will re­main un­cer­tain at least un­til after the Hal­big de­cision is ap­pealed. 

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