The Obamacare tax credits that brought nearly $400 million to Indiana this year to help Hoosiers buy health insurance could go away after a federal appeals court ruling that they were illegal.
The U.S. Appeals Court in Washington, D.C., declared Tuesday that the law that created Obamacare did not authorize the federal government to give financial assistance to anyone buying coverage on the insurance marketplace run by federal authorities.
Indiana is one of 36 states participating in that federal marketplace, also called the exchange. Fourteen states set up their own marketplaces.
The decision, if it withstands an appeal, would deprive the roughly 100,000 Hoosiers who signed up for Obamacare insurance policies of the tax credits they received to buy a health plan.
Those credits averaged $4,032 per person in Indiana, reducing the cost of the health plans they chose by an average of 79 percent, according to data from the U.S. Department of Health and Human Services.
White House spokesman Josh Earnest said the decision would have "no practical impact" on tax credits as the case works its way through further appeals.
Some insurance experts had predicted, before Tuesday’s ruling, that the number of Hoosiers receiving subsidies could triple or more by 2016. That could bring more than $1.2 billion or more to the insurers selling Obamacare policies here.
“As more people understand how the tax credits work, I think more people are going to take advantage of them,” Indianapolis health insurance broker Tony Nefouse said earlier this month.
But the way Congress wrote the Patient Protection and Affordable Care Act makes clear that the subsidy is available only to consumers who bought plans on state-run exchanges, the appeals court ruled.
The law “unambiguously forecloses the interpretation embodied in the IRS rule and instead limits the availability of premium tax credits to state-established exchanges,” U.S. Circuit Judge Thomas Griffith wrote for the majority of a three-judge panel.
The state of Indiana filed a lawsuit in October making a similar claim. That suit sought to invalidate the tax subsidies so that the state and municipal governments, as well as large private employers, could not be penalized for not offering health insurance to their workers.
Obamacare includes fines on employers if they have more than 50 workers and one of their employees buys coverage on an exchange using a tax credit. If no tax credits are available, then the employer fines would never be triggered.
The judges reached their conclusion “with reluctance,” Griffith, an appointee of Republican President George W. Bush wrote. He was joined A. Raymond Randolph, who was nominated by President George H. W. Bush, also a Republican.
“Our ruling will likely have significant consequences both for millions of individuals receiving tax credits through federal exchanges and for health insurance markets more broadly. But high as those stakes are, the principle of legislative supremacy that guides us is higher still,” Griffith wrote.
U.S. Circuit Judge Harry Edwards, an appointee of Democratic President Jimmy Carter dissented, calling the decision a “not-so-veiled attempt to gut” Obamacare.
Only 14 states and the District of Columbia have opted to set up their own marketplaces, making delivery of tax credits via the federal exchange crucial to meeting the goal of broadening coverage in the U.S.
“A very large share of people need the subsidies,” said Robert Blendon, a professor of health policy at the Harvard School of Public Health in Boston. If the decision isn’t overturned, “it basically would significantly cripple the law,” Blendon said in an interview before the ruling.
The goal of Obamacare was to expand insurance coverage to more Americans so that doctors and hospitals would not have to shift the costs of providing care from the uninsured to those who do have insurance.
The law, passed in March 2010, aimed to do this in two ways: by giving states more money to expand eligibility for Medicaid programs and by awarding tax credits to individuals who purchase individual insurance via online exchanges.
Of the more than 8 million Americans who picked an insurance plan on the exchanges from October through April 19, 5.4 million selected one from the federal marketplace, according to a report by the Health and Human Services department.
According to the report, 85 percent of those picking a plan qualified for subsidies to reduce their premiums. In Indiana, 89 percent selecting plans on the exchange qualified for subsidies.
The government’s next step could be an appeal to the entire court. Seven of the court’s 11 judges were nominated by Democratic presidents, including four by Obama.