Obamacare Got Blown Up In Federal Court Today

Major, major news.

In a potentially crippling blow to Obamacare, a federal appeals court panel declared Tuesday that government subsidies worth billions of dollars that helped 4.7 million people buy insurance on HealthCare.gov are illegal.

The 2-1 ruling said such subsidies can be granted only to people who bought insurance in an Obamacare exchange run by an individual state or the District of Columbia—not on the federally run exchange HealthCare.gov.

“Section 36B plainly makes subsidies available in the Exchanges established by states,” wrote Senior Circuit Judge Raymond Randolph in his majority opinion, where he was joined by Judge Thomas Griffith. “We reach this conclusion, frankly, with reluctance. At least until states that wish to can set up their own Exchanges, our ruling will likely have significant consequences both for millions of individuals receiving tax credits through federal Exchanges and for health insurance markets more broadly.”

In his dissent, Judge Harry Edwards, who called the case a “not-so-veiled attempt to gut” Obamacare, wrote that the judgment of the majority “portends disastrous consequences.”

Obamacare was written in such a way that it would, the drafters hoped, make it a political necessity for states to set up exchanges. If you don’t set up an exchange, Mr. Republican Governor, the harangue would go, then our people will be paying more for health insurance and our tax dollars will pay for people in other states.

That’s precisely the argument Democrats are using around the country in order to push for Obamacare’s Medicaid expansion, of course.

But there’s more to this, because it’s not just the subsidies which go away. That penalty the IRS is supposed to charge you for not having health insurance? That’s gone, too, if you’re in a state without an exchange.

So if you’re no longer penalized for not having Obamacare-compliant insurance, say goodbye to the folks who didn’t buy health insurance because they didn’t think they needed it.

At the Washington Post, the Volokh Conspiracy’s Jonathan Adler puts this in perspective and maps out what happens from here…

If this decision is upheld, it will present some three-dozen states with a choice: Establish exchanges so as to authorize tax credits for state citizens while also triggering penalties on employers and individuals who do not wish to purchase qualifying health insurance.  As my co-author Michael Cannon notes, the implications of this decision go beyond its effect on tax credits.  How will states respond?  Time will tell.  As with the Medicaid expansion, it is not entirely clear how states will react now that so much of PPACA implementation is clearly in their hands.

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