What just happened with Obamacare?

In a two-to-one decision, the U.S. Court of Appeals for the District of Columbia Circuit dealt a serious blow to Obamacare by ruling the government may not provide subsidies to encourage people to buy health insurance on the new marketplaces run by the federal government.

What did the court decide?

Section 36B of the Internal Revenue Code, enacted as part of the Patient Protection and Affordable Care Act (Obamacare) makes tax credits available as a form of subsidy to individuals who purchase health insurance through marketplaces—known as “American Health Benefit Exchanges,” or “Exchanges” for short.

This provision authorized e Americans to receive tax credits for insurance purchased on an Exchange established by one of the fifty states or the District of Columbia. (The credits were for household es between 100 and 400 percent of the federal poverty line.) But the Internal Revenue Service interpreted the wording broadly to authorize the subsidy also for insurance purchased on an Exchange established by the federal government.

The court ruled that a federal Exchange is not an “Exchange established by the State,” and section 36B does not authorize the IRS to provide tax credits for insurance purchased on federal Exchanges.

Can you explain that without the legalese?

The federal government tried to say that when they wrote “Exchange established by the State,” they meant established by the individual states or by the federal government. The Court ruled that in the context of the Obamacare law, that reading doesn’t make much sense. The law has to be read as meaning what it says (as written) not as the Obama administration wishes to interpret it after the fact. If the ruling stands, the people receiving subsidies will have to pay for the full cost of their Obamacare premiums rather than having a portion covered by taxpayers.

How much were the subsidies worth?

Approximately $36.1 billion.

How many people does this ruling affect?

Depends on who you ask. According to the Urban Institute, about 7.3 million people would have been eligible for the subsidies in 2016. And according to the Cato Institute, at least 8 million taxpayers will not have to pay the individual mandate penalty tax. Additionally, in the 36 states with federal Exchanges, all employers with more than 50 workers would be free from the employer-mandate penalties.

What happens next?

The Obama administration is requesting that the case be heard before the entire appeals court, rather than the three-judge panel. Ultimately, the Supreme Court will likely decide the case. While the current ruling is a serious setback for the Obamacare law, no clear resolution is likely to occur for several years. In the meantime, the subsidies will continue.

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