A Court Ruling Just Blew A Huge Hole In Obamacare

Susan Walsh/AP

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 only be available in states that set up their own insurance exchanges.

The health care law specifically authorizes subsidies in "an exchange established by the State," and the plaintiffs in Halbig 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 law said that reading of the health care law is too narrow, and that Congress clearly intended for the financial assistance to be provided equally on all exchanges.

Two federal courts have dismissed similar challenges, making Tuesday's 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 an estimated 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 can now appeal the three-judge panel's ruling to the full D.C. Circuit, where Obamacare allies believe they're more likely to win.

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