Major Defeat For Obamacare

Federal appeals court invalidates tax credit for insurance purchased on federal Obamacare exchanges.

To catch you up, at issue was whether the federal government could provide tax credits to people who purchased insurance on the exchanges set up by the federal government. Remember that as originally conceived Obamacare allowed each state to create its own exchange. This was a concession to conservatives and to states, a way to build consensus for the legislation. But as opposition to Obamacare became a Republican rallying cry and a litmus test for conservative credentials, many red states opted not to create their own exchanges. In fact a majority of states opted to rely on the federal exchanges instead.

There was no question that the tax credits were in effect for exchanges created by the states, and at first there seemed little question that the IRS could provide them on the federal exchanges, too. But by the time the case reached oral arguments before the appeals court, the judges expressed openness to the legal argument conservative challengers of the law were making.

And today the court ruled that the tax credits are not valid in the majority of states where Obamacare is run through the federal exchange. Some 34 states are effected. It’s potentially crippling. The tax credits were intended to subsidize the purchase of insurance for everyone on all the exchanges up to 400 percent of the poverty level, a huge swath of the insurance buying public. Literally millions of people have purchased insurance since last October with the understanding that they would qualify for the tax credits.

It’s expected that the Obama Administration has some contingency plan in place for this ruling, but what exactly that is and whether it will withstand challenge remains to be seen. Also worth noting that this isn’t necessarily the end of the road legally in the current case. The entire DC Circuit could take of the case; today’s decision was by a three-judge panel. The Supreme Court could also ultimately weigh in.

It’s another of the ironies of the Obamacare saga that some of the things done to accommodate and compromise with conservative opponents ended up becoming Obamacare’s Achilles’ heels and making it vulnerable to legal challenge.