A three-judge panel on the D.C. District Court of Appeals ruled the language of the Affordable Care Act prohibits subsidies for insurance in the 36 states that chose not to set up their own exchanges.
The subsidies go to many low- and middle-income people to sharply reduce the cost of plans available on the individual insurance market. But most of the states who refused to set up in state exchanges, most of which have Republican leadership, relied on the federal government to pay those subsidies.
The administration may request an "en banc" hearing, which would put the case before the entire appeals court, and will likely end up before the Supreme Court.
About 5.4 million people enrolled in insurance plans on the federal exchange, and some 87 percent received subsides that reduce the cost of monthly premiums by potentially hundreds of dollars.
The court sided with the lawsuit's plaintiffs, who argued the way the law was written proved Congress intended to limit subsidies only to people in states that set up their own exchanges. The law reads that subsidies would be available to those "enrolled through an Exchange established by the State."
Previous lower court decisions sided with the government, which argued Congress' intent was to make subsidies available in all states and cited other parts of the law where "state" clearly referred to federal exchanges.