Federal Court Strikes Down Obamacare Subsidies in 36 States

July 22, 2014 - 11:12 AM

obamacare

A draft of the Patient Protection and Affordable Care Act. (AP Photo)

(CNSNews.com) - A federal court on Tuesday struck down health insurance subsidies for people in the 36 states that did not set up their own Obamacare exchanges.

The ruling "is a repudiation of Obamacare and all the lawlessness that has come with it," Sen. Ted Cruz (R-Texas) tweeted shortly after a three-judge panel in Washington, D.C. issued its ruling in Halbig v. Burwell.

While the ruling is a "significant victory for the American people & rule of law...we must not rest," Cruz added.

The case, filed in May 2013, challenged the legality of the Obamacare subsidies for people enrolled in exchanges set up by the federal government.

In its ruling on Tuesday, the federal appeals court panel found that "a federal Exchange is not an 'Exchange established by the State,' and section 36B (of the IRS code) does not authorize the IRS to provide tax credits for insurance purchased on federal Exchanges."

As noted by the Competitive Enterprise Institute, which coordinated the lawsuit: The Affordable Care Act authorizes subsidies for qualifying individuals in states that created their own healthcare exchanges. But in the spring of 2012, without authorization from Congress, the IRS expanded those subsidies to states that refused to set up their own exchanges, instead letting the federal government do it for them.

"Under the Act, businesses in these nonparticipating states should be free of the employer mandate, and the scope of the individual mandate should be reduced as well.  But because of the IRS rule, both mandates will be greatly enlarged in scope, depriving states of the power to protect their residents," CEI said when it announced the lawsuit.

“The IRS rule we are challenging is at war with the Act’s plain language and completely rewrites the deal that Congress made with the states on running these insurance exchanges,” CEI quoted Michael Carvin as saying. Carvin represents the plaintiffs in the lawsuit.

Tuesday's 2-1 ruling invalidates the IRS regulation that allowed subsidies in all 50 states.

If that ruling is upheld, the decision could mean premium increases for more than half of the 8 million Americans in 36 states who purchased taxpayer-subsidized insurance under the law, the Associated Press reported.

“Agencies are bound by the laws enacted by Congress,” Sam Kazman, general counsel of the Competitive Enterprise Institute (CEI), said when the lawsuit was filed.  “Obamacare is already an incredibly massive program. For the IRS to expand it even more, without congressional authorization and in a manner aimed at undercutting state choice, is flagrantly illegal.”

The Obama administration is expected to ask for a ruling from the full appeals court, and the case eventually may end up before the U.S. Supreme Court.