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Seven potential effects of the D.C. Circuit Court's Obamacare ruling

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Earlier Tuesday, the U.S. District Court of Appeals ruled that health insurance subsidies in 36 states were illegal because the text of Obamacare limited subsidies to those states that set up their own exchanges. Prior posts provided some background on the case and the legal reasoning behind the decision. Here's a rundown of seven potential legal, political, legislative and policy effects of the ruling.

1. It has no impact

Two out of three judges in an appeals court panel may have ruled against the Obama administration in Halbig v. Burwell, but that doesn't mean that the case will have an immediate tangible impact. First, the Obama administration will request a review of the case by the rest of the D.C. Circuit, which was recently packed with President Obama's appointees, thanks to Senate Majority Leader Harry Reid's deployment of the nuclear option. And depending on what happens there, the U.S. Supreme Court still has to agree to hear the case, and then make its own decision.

Tuesday's decision hinged on an interpretation of the plain meaning of the statute's reference to “an Exchange established by a State.” But in his 2012 U.S. Supreme Court decision on Obamacare, Chief Justice John Roberts proved willing to rewrite the law in order to save it by declaring the individual mandate a tax even though it wasn't described as a tax in the law, didn't appear in the revenue section of the law and wasn't designed primarily to raise revenue. Would the same Roberts really be willing to strip subsidies away from millions of Americans in 36 states? While these issues are being sorted out, the D.C. Circuit ruling is unlikely to be enforced, meaning that in the immediate term, nobody is likely to lose subsidies.

2. Uncertainty keeps repeal flame alive

Though the ultimate outcome of the case won’t be known for a while, the resulting uncertainty could energize the movement to repeal Obamacare. Ever since the major provisions of the law went into effect on Jan. 1, there’s been a debate within the Republican Party as to whether pursuing its full repeal was still a realistic option given that millions of Americans were receiving benefits. Had Halbig lost in front of this appeals panel, it would have effectively taken the air out of the sails for Obamacare opponents, strengthening the voice of the anti-repeal contingent among Republicans. But now, the potential ramifications of Halbig will keep hope alive for those pushing for full repeal, keeping the pressure on Republican politicians.

The remaining possibilities consider potential ramifications should the Supreme Court ultimately side with the D.C. Circuit panel.

3. Americans lose subsidies

Millions of Americans in 36 states who obtained insurance through the federal exchange (most associated with the Healthcare.gov website) would lose those subsidies, thus making it more expensive for them to purchase coverage, meaning that many would wind up uninsured. On the flip side, federal taxpayers would save hundreds of billions of dollars, because the government would no longer have to pay out these subsidies.

4. The employer mandate won’t apply in 36 states

The (currently delayed) requirement for larger businesses to purchase insurance for their workers or pay penalties is triggered in cases in which at least one employee obtains government subsidies to purchase insurance. In states where subsidies cannot be distributed, the penalties won't apply. Therefore, a ruling against the government in Halbig could set up a scenario in which businesses want to flock to states with federal exchanges as a way of getting around the employer mandate.

5. The individual mandate would apply to fewer people

One of the ways an individual can be exempted from the requirement to purchase insurance is if there's no affordable insurance option available (defined as costing more than 8 percent of household income). Strip away the subsidies, and more Americans are going to fall into the exempt category. With fewer people subject to the individual mandate, it could also rock insurance markets if it turns out that the newly-exempt population skews toward younger and healthier individuals who would now be leaving the insurance market.

6. Life gets harder for Republican governors

When it comes to Obamacare’s exchanges, Republican governors have been able to have it both ways. By refusing to set up state-based exchanges, they’ve been able to boast to conservatives that they rejected Obamacare. But because the Obama administration has been giving out subsidies in their states anyway, benefits are flowing to their residents. If Halbig were ultimately upheld, however, governors would be in a tight spot. Conservative activists would be pressuring them to hold the line and refuse to set up their own exchanges. But there would be an uproar from liberal groups, newspaper editorial boards, hospitals and insurance lobbyists, and protests from individuals who had been receiving subsidies and would be facing the loss of their insurance.

7. Obamacare gets re-opened by Congress

Given all of the potential issues raised above, it could force Congress to re-open Obamacare to substantial revision. Obviously, this would largely depend on the timing of any theoretical Supreme Court decision and on who is in control of Congress and the White House.

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Philip Klein

Commentary Editor
The Washington Examiner

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