Appeals Court Rejects Key Part of Obamacare

President Barack Obama makes a statement on the Affordable Care Act on Tuesday, April 1, 2014. (Credit: Pool via CNN)

President Barack Obama makes a statement on the Affordable Care Act on Tuesday, April 1, 2014. (Credit: Pool via CNN)

The battle over Obamacare took a dramatic turn Tuesday with a federal appeals court rejecting subsidies paid by the government to millions of new enrollees.

In a 2-1 ruling, a three-judge panel found the federal money that helped people afford health insurance only could go to those who signed up through exchanges run by states.

That’s what the law specified, the ruling said, meaning those who signed up through the federal government aren’t eligible for the subsidies that helped them afford coverage.

Only 16 states and the District of Columbia set up their own exchanges, meaning that the 4.7 million who signed up for subsidized health coverage overall under Obamacare through HealthCare.gov could be affected.

President Barack Obama’s administration will appeal the decision to the full D.C. Circuit Court of Appeals, the Justice Department announced, and the case will likely reach the Supreme Court.

For now, the law remains unchanged and the subsidized policies are unaffected until the legal case plays out, White House spokesman Josh Earnest told reporters.

He cited three other cases on the same issue also argued in federal courts, noting two had been dismissed and that Tuesday’s ruling was the first appellate decision against the government’s position.

“For those keeping score, we’re still ahead 2-1 here,” Earnest said.

However, the potential long-term impact is huge.

If the final result backs the appeals decision, the result would wipe out subsidies and undermine a key component of Obamacare’s requirement that all Americans obtain health coverage.

The easiest fix — changing the law to specify that it allows subsidies for coverage purchased through the federal government as well as state exchanges — would mean reopening the debate over the 2010 Affordable Care Act that passed with zero Republican support.

Republicans now control the House and are expected to make gains in the November election, perhaps also gaining a majority in the Senate.

That means Obama and Democrats have no chance of getting Congress to approve needed changes in the law despised by the political right.

GOP Sen. Ted Cruz of Texas, one of the leading crusaders against the health care law, called Tuesday’s ruling “a repudiation of Obamacare and all the lawlessness that has come with it.”

He argued the federal subsidies, such as tax credits to people who didn’t sign up on state exchanges, amounted to assuming funding powers the Constitution granted Congress.

Earnest, however, said the law clearly intended to provide subsidies for all who enrolled under Obamacare, and that the administration was confident in its legal position.