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)

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.