(Bloomberg) -- President Barack Obama’s health-care overhaul suffered a potentially crippling blow as a U.S. appeals court ruled the government can’t give financial assistance to anyone buying coverage on the insurance marketplace run by federal authorities.
The decision, if it withstands appeals, may deprive more than half the people who signed up for Obamacare the tax credits they need to buy a health plan.
The way Congress wrote the Patient Protection and Affordable Care Act makes clear that the subsidy is available only to consumers who bought plans on state-run exchanges, the U.S. Court of Appeals in Washington ruled today.
The law “unambiguously forecloses the interpretation embodied in the IRS rule and instead limits the availability of premium tax credits to state-established exchanges,” U.S. Circuit Judge Thomas Griffith wrote for the majority of a three-judge panel.
The judges reached their conclusion “with reluctance,” Griffith, a appointee of Republican President George W. Bush wrote. He was joined A. Raymond Randolph, who was nominated by President George H. W. Bush, also a Republican.
“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. But high as those stakes are, the principle of legislative supremacy that guides us is higher still,” Griffith wrote.
U.S. Circuit Judge Harry Edwards, an appointee of Democratic President Jimmy Carter dissented, calling the decision a “not-so-veiled attempt to gut” Obamacare.
Only 14 states and the District of Columbia have opted to set up their own marketplaces, making delivery of tax credits via the federal exchange crucial to meeting health-care plan’s goal of broadening coverage in the U.S.
“A very large share of people need the subsidies,” said Robert Blendon, a professor of health policy at the Harvard School of Public Health in Boston. If the decision isn’t overturned, “it basically would significantly cripple the law,” Blendon said in an interview before the ruling.
The plan’s success hinges on enlarging the pool of the insured, including those of modest means who need financial aid, to subsidize insurance costs for those who are ill.
Of the more than 8 million people who picked an insurance plan on the exchanges from October through April 19, 5.4 million selected one from the federal marketplace, according to a report by the U.S. Department of Health and Human Services.
According to the report, 85 percent of those picking a plan qualified for subsidies that reduce their premiums.
The government’s next step could be an appeal to the entire court. Seven of the court’s 11 judges were nominated by Democratic presidents, including four by Obama.
The case is Halbig v. Sebelius, 14-5018, U.S. Court of Appeals for the District of Columbia (Washington).
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