UPDATE III (See other updates below) - The Fourth Circuit Court of Appeals just ruled in the opposite direction on this precise issue, increasing the likelihood that we're ultimately headed to SCOTUS.
This is big. Really big:
BREAKING: Huge blow to Obamacare. DC Circuit says law restricted subsidies to state exchanges.— Philip Klein (@philipaklein) July 22, 2014
DC Circuit: "the ACA unambiguously restricts...subsidy to insurance purchased on Exchanges 'established by the State.'"— Philip Klein (@philipaklein) July 22, 2014
A full-blown Obamacare earthquake. The 'second highest court in the land's' judgment may not be final -- the administration will almost certainly appeal for an en banc hearing before the full court, and there's always SCOTUS -- but for now, it is the binding decision. What does it mean? George F. Will wrote a column summarizing the Halbig case and its potential implications earlier this year:
Someone you probably are not familiar with has filed a suit you probably have not heard about concerning a four-word phrase you should know about. The suit could blow to smithereens something everyone has heard altogether too much about, the Patient Protection and Affordable Care Act (hereafter, ACA)...If [the lawsuit] succeeds, the ACA’s disintegration will accelerate...Because under the ACA, insurance companies cannot refuse coverage because of an individual’s preexisting condition. Because many people might therefore wait to purchase insurance after they become sick, the ACA requires a mandate to compel people to buy insurance. And because many people cannot afford the insurance that satisfies the ACA’s criteria, the ACA mandate makes it necessary to provide subsidies for those people. The four words that threaten disaster for the ACA say the subsidies shall be available to persons who purchase health insurance in an exchange “established by the state.” But 34 states have chosen not to establish exchanges.
So the IRS, which is charged with enforcing the ACA, has ridden to the rescue of Barack Obama’s pride and joy. Taking time off from writing regulations to restrict the political speech of Obama’s critics, the IRS has said, with its breezy indifference to legality, that subsidies shall also be dispensed to those who purchase insurance through federal exchanges the government has established in those 34 states...Some of the ACA’s myriad defects do reflect its slapdash enactment, which presaged its chaotic implementation. But the four potentially lethal words were carefully considered and express Congress’s intent. Congress made subsidies available only through state exchanges as a means of coercing states into setting up exchanges.
Democrats in Congress passed a law that explicitly limited Obamacare subsidy eligibility to consumers who purchased plans on state-level exchanges. They did so in order to coerce and bribe states into setting up their own marketplaces under the law. (Another attempt at coercion, mandatory Medicaid expansion, has been struck down 7-2 by the Supreme Court). Given the controversial law's unpopularity, a majority of states declined to establish exchanges, forcing the federal government to create the infamous federal version -- with Healthcare.gov as its centerpiece. Subsequent New York Times reporting indicated that HHS never expected to have to set up any exchange at all, let alone for 36 states. That's because they were laboring under the belief that the law's sticks and carrots would compel every state to implement marketplaces on their own. Many did not, and the plain text of the law clearly states that anyone buying coverage through any system other than a state-based exchange would not be eligible to receive generous taxpayer subsidies, which relieve much of the heavy cost burden for many consumers (even with the subsidies, many enrollees say they're struggling to pay).
Faced with this predicament, the IRS decided that Congress' true intent was for all exchange consumers to have a shot at subsidies if they were financially eligible, so it simply decreed it to be so in the form of a regulation that effectively rewrote a major provision the law. Today, the Court ruled that the law says what it says, and that the IRS overstepped. This decision, at least for now, plunges Obamacare into chaos -- and furious Democrats have no one to blame but themselves. When you ram through a lengthy, hastily slapped-together, unpopular law without reading it, unintended consequences sometimes arise. And this one's a biggie. Then again, as Will notes in his piece, a strong case can be made that this passage of the law was very much crafted intentionally, even if today's fallout was 'never supposed to happen.' Congress debated how to phrase the subsidy eligibility language, and ended up passing the Senate's version -- a move made necessary by the anti-Obamacare election of Scott Brown in Massachusetts. A previous House version's verbiage had been much more encompassing. But it didn't pass. Obamacare did. If it stands, this ruling not only strips subsidy eligibility from many Americans (which could/will touch off a breathtaking adverse selection death spiral), it liberates tens of millions from the unpopular individual mandate tax. Why?
The individual mandate tax only applies in jurisdictions where consumers are eligible for subsidies. Thirty-six states are now off the table on that front, if this decision holds. The Court went out of its way to acknowledge the potentially drastic consequences of its ruling, ultimately concluding that it's not the judiciary's job to clean up messes made by legislators via ex post facto revisions:
Next question: what happens to all those people who complied w/ mandate, took subsidy, bought insurance this year?— Brian Faughnan (@BrianFaughnan) July 22, 2014
UPDATE - Relevant point. Harry Reid's filibuster power grab helped stack this full Circuit Court with Obama nominees who may be inclined to reverse the panel's 2-1 decision. Thus, overreach could salvage a migraine caused by overreach, and an appeal is on the way:
Reid's nuclear option, which put 3 new Obama-appt judges on the DC Circuit, could save Obamacare.— Sahil Kapur (@sahilkapur) July 22, 2014
Oh, look: CRS wrote in April of 2010 that subsidies could only be applied to health plans bought via state exchanges. pic.twitter.com/UUU71Bp1Sm— Sean Davis (@seanmdav) July 22, 2014
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