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Policy: Law

Federal appeals court rules Obamacare subsidies illegal for 36 states

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Dealing a major blow to President Obama, a federal appeals court on Tuesday ruled that subsidies to purchase insurance were illegally granted in 36 states in which the federal government runs the exchanges.

At issue in the case, Halbig v. Burwell, are the subsidies that the federal government provides for individuals purchasing insurance through Obamacare. Though the text of the law says the subsidies were to go to individuals obtaining insurance through an “exchange established by the state,” a rule released by the Internal Revenue Service subsequently instructed that subsidies would also apply to exchanges set up on behalf of states by the federal government.

But the U.S. Court of Appeals for the D.C. Circuit concluded that Obamacare "unambiguously restricts the ... subsidy to insurance purchased on Exchanges 'established by the State.' ”

If the decision were to survive, it would mean that hundreds of billions of dollars of taxpayer money would be saved. It would mean that businesses in states that have a federal exchange would no longer be subject to the employer mandate, because the requirement to provide insurance is tied to the fact that uninsured workers could obtain government subsidies. It would also mean that millions of Americans who signed up for insurance through Obamacare in those 36 states would no longer qualify for subsidies.

It was a 2-1 decision, with judges Thomas Griffith and Raymond Randolph representing the majority.

The decision makes another major battle over Obamacare at the U.S. Supreme Court more likely.

UPDATE: The Obama administration has said it will appeal the decision by the three-judge panel to the full D.C. Circuit.

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