Yesterday, a divided three judge panel of the United States Court of Appeals for the DC Circuit struck down the IRS regulation allowing federal premium subsidies for individuals buying health insurance at Exchanges/Marketplaces run by the federal government. If the decision is upheld, it would strike a major blow to federal health care reform by cutting off subsidies designed to make it possible for millions of Americans to afford health insurance.

In a two to one ruling, the panel in Halbig v. Burwell said that the IRS interpretation of the Affordable Care Act (ACA) was too broad, and that federal subsidies may only be provided to those purchasing health plans on insurance exchanges run by the states themselves. If upheld, the ruling would affect ACA subsidies in 36 states where the federal government operates the Exchanges. Download a copy of the ruling (PDF).

The potential implications of today’s decision are dramatic, but the decision is far from final. The case will likely be reviewed by an 11 judge panel of the full DC Circuit, which could reverse the panel’s decision. Other federal courts that have already addressed this issue, including a panel at the Fourth Circuit, have upheld the regulation allowing federal subsidies on both state- and federal-run Exchanges. It is possible that the Supreme Court might agree to hear the case, a decision made more likely if several federal courts of appeal do not agree on the validity of the regulation. Until a final decision is reached by the federal courts, it is likely that the federal subsidies will continue.