Did A Federal Court Just Gut Obamacare?

Back when the Supreme Court upheld the legality of Obamacare’s individual mandate, folks on the left were fond of taunting conservative critics by saying Obamacare is “the law.”

Anyone else remember this smug tweet from the official White House account?

Well, in an ironic twist of fate, a federal appeals court just issued Obamacare a major setback by adhering to a strict interpretation of the law as written. Because, you know, it’s the law.

The Halbig vs. Sebelius case questions whether or not the federal government can subsidize health insurance plans issued through the federal exchanges. The text of Obamacare states that only state-based insurance exchanges, and not federally-run exchanges, may issue subsidies. The law was written that way because Democrats didn’t expect so many states to opt out of setting up their own exchanges.

But all but 14 states did opt out, leaving the Obama administration in danger of being unable issue crucial subsidies for health insurance plans sold through federal exchanges in most of the states. So the Obama administration chose to ignore that part of the law.

Today a federal appeals court said not so fast. Obamacare is, after all, the law:

The Obama administration is sure to appeal the circuit’s decision in the case, Halbig v. Sebelius, because the subsidies are a huge draw for Obamacare customers. Without that selling point, the reforms would effectively collapse under the weight of premiums that are not longer affordable.

Under the court’s ruling, only the 14 states and the District that have taken on the responsibility for their exchanges would be able to dole out premium tax credits to their resident.

The complaining individuals and entities were from states that opted not to set up their own health exchanges. To buttress their argument, they said the subsidies produced a ripple effect in which they were no longer insulated from the law’s twice-delayed employer mandate, a rule that requires companies with 50 or more full-time employees to offer health coverage or pay fines.

The rule is triggered once an employee takes advantage of government subsidies on an Obamacare health exchange. Without any subsidies, the plaintiffs reasoned, they would not have to worry about the employer mandate.

The Obama administration argued that Congress always intended the Health and Human Services Department to “stand in the shoes” of states that decided not to run their own marketplaces. That’s what it did during the law’s first enrollment period, setting up HealthCare.gov to serve the three dozen states that deferred to the federal government.

For the time being this ruling probably doesn’t change anything in terms of facts on the ground, but the Supreme Court is sure to weigh in.

Update: Now a separate appeals court has sided with the Obama administration.