In a potentially crippling blow to Obamacare, a federal appeals court panel declared Tuesday that government subsidies worth billions of dollars that helped 4.7 million people buy insurance on HealthCare.gov are illegal.

The 2-1 ruling said such subsidies can be granted only to people who bought insurance in an Obamacare exchange run by an individual state or the District of Columbia—not on the federally run exchange HealthCare.gov. The ruling relied on a close reading of the Affordable Care Act.
"Section 36B plainly makes subsidies available in the Exchanges established by states," wrote Senior Circuit Judge Raymond Randolph in his majority opinion in the case known as Halbig v. Burwell, where he was joined by Judge Thomas Griffith.
"We reach this conclusion, frankly, with reluctance. At least until states that wish to can set up their own Exchanges, 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."
In his dissent, Judge Harry Edwards, who called the case a "not-so-veiled attempt to gut" Obamacare, wrote that the judgment of the majority "portends disastrous consequences."
Indeed, the 72-page decision threatens to unleash a cascade of effects that could seriously compromise Obamacare's goals of compelling people to get health insurance, and helping them afford it.
However, the ruling does, and will not ultimately affect the taxpayer-fund subsidies the federal government issued to 2 million or so people through the 15 exchanges run by individual states and the District of Columbia,
The Obama administration said it will ask the full U.S. Court of Appeals for the District of Columbia Circuit to reverse the panel's decision, which for now does not have the rule of law.
White House spokesman Josh Earnest said the ruling—for now—"does not have any practical impact" on premium subsidies issued to HealthCare.gov enrollees now."
"We are confident" that the ruling will be overturned, Earnest said. "We are confident in the legal position we have . . . the Department of Justice will litigate these claims through the federal court system."
Earnest said "it was obvious" that Congress intended subsidies, or tax credits, to be issued to Obamacare enrollees regardless of what kind of exchange they used to buy insurance.
Michael Cannon, one of the intellectual godfather of the court challenge and a director at the libertarian Cato Institute, said the ruling "was validating" to him.
"This is the first opinion that looked at all of the evidence," said Cannon.
Tuesday's ruling endorsed his controversial interpretation of the Affordable Care Act, whichargues that the HealthCare.gov subsidies are illegal because ACA does not explicitly empower a federal exchange to offer subsidized coverage, as it does in the case of state-created exchanges.
HealthCare.gov serves residents of the 36 states that did not create their own health insurance marketplace, and had enrolled 5.4 million of the 8 million people who signed up for Obamacare plans by the end of open enrollment in mid-April.
About 4.7 million people, or 86 percent of all HealthCare.gov enrollees, qualified for a subsidy to offset the cost of their coverage this year because they had low or moderate incomes.
If upheld, the ruling could lead many, if not most of those subsidized customers to abandon their health plans sold on HealthCare.gov because they no longer would find them affordable without the often-lucrative tax credits. And if that coverage then is not affordable for them as defined by the Obamacare law, those people will no longer be bound by the law's mandate to have health insurance by this year or pay a fine next year.
If there were to be a large exodus of subsidized customers from the HealthCare.gov plans, it would in turn likely lead to much higher premium rates for nonsubsidized people who would remain in those plans.

http://www.cnbc.com/id/101819065