Federal Court Takes Down Obamacare: Subsidies In Federal Exchange Are Illegal

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A federal court ruled Tuesday that Obamacare premium subsidies are illegal for all customers in the federal exchange — the vast majority of all the health care law’s enrollees.

The far-reaching, long-awaited ruling, Halbig v. Burwell, concerns the language of the health care law itself. The text of the Affordable Care Act stipulates that the law’s hallmark premium subsidies are available only to exchanges “established by the state.” The three-judge panel on the U.S. Court of Appeals for the D.C. Circuit has decided that the phrase stipulates that all 5.4 million Obamacare exchange customers in exchanges established by the federal government, not a state, cannot legally be given subsidies.

The plaintiff argued that the phrase “established by the state” was included intentionally by the health care law’s authors, in order to convince states to create their own health care exchanges.

When a whopping 36 states decided building an exchange wasn’t worth it, their customers should have become ineligible for premium subsidies. But the Internal Revenue Service issued its own belated rule that subsidies would also apply to exchanges set up by the federal government.

The case has disastrous consequences for Obamacare. While the health care exchanges have signed up 8 million customers, 5.4 million are in federal exchanges and no longer legally allowed subsidies. It’s highly unlikely that many customers will be able to afford hefty premiums without the premium tax credits they were promised. This leaves the Obama administration in a precarious legal position. Obamacare customers have been promised premium subsidies and many have been receiving them for months.

The case isn’t over yet.  The Obama administration is requesting an en banc ruling from the full D.C. Circuit Court, which would require each of the judges on the court — not just the typical three-judge panel — to rule on the case. The case is likely to reach the Supreme Court.

But if the court’s ruling is upheld in the end, it could tear apart the health care law itself. Exchange enrollment will likely plummet in states that choose not to build their own exchanges, as the actual price of Obamacare health coverage is unaffordable for many sign-ups. And states will have their own incentive to continue not to build their own exchange — the unpopular employer mandate is tied to the availability of premium subsidies and will not apply to those states that continue to work with a federal exchange.

The case was brought on behalf of several business owners by the libertarian Competitive Enterprise Institute.

“The court’s ruling implements the Affordable Care Act the way it was actually written,” said CEI general counsel Sam Kazman. “It may not fix Obamacare as a whole, but it will likely force Congress and the administration to address at least some of Obamacare’s fundamental flaws, which have driven the real costs of health care in this country even higher.”

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