The 2-1 decision by the DC Court of Appeals striking down federal premium subsidies, in at least the 27 states that opted for the feds to run their Obamacare insurance exchanges, has the potential to strike a devastating blow to the new health law.

The law says that individuals can get subsidies to buy health insurance in the states that set up insurance exchanges. That appears to exclude the states that do not set up exchanges — at least the 27 states that completely opted out of Obamacare. Another nine states set up partnership exchanges with the feds and the impact on those states is not clear.

The response by supporters of the law, and the IRS regulation that has enabled subsidies to be paid in the states not setting up exchanges, hinges on the argument that the language is at worst ambiguous and the Congress never intended to withhold the subsidies in the federal exchange states.

But in the DC Court ruling one of the majority judges said, “The fact is that the legislative record provides little indication one way or the other of the Congressional intent, but the statutory text does. Section 36B plainly makes subsidies only available only on Exchanges established by states.”

My own observation, having closely watched the original Obamacare Congressional debate, is that this issue never came up because about everybody believed about all of the states would establish their own exchange. I think it is fair to say about everyone also believed a few states would not establish their own exchanges. Smaller states, for example, might opt out because they just didn’t have the scale needed to make the program work. I don’t recall a single member of Congress, Republican or Democrat, who believed that if this happened those states would lose their subsidies.

At worst, this is clearly a drafting error that in the old days would have been quickly fixed in a technical corrections bill. But these aren’t the old days.

This will now work its way through the courts. No one risks losing their subsidies until this issue is finally decided. That will not happen until well after the next open-enrollment on November 15th.

So, for now it is business as usual for Obamacare. But this will send a chill through about 4 million people in these states that are among the 87% who received a subsidy on the federally-run exchanges and are getting an average of 76% of their premium subsidized.

A few observations:

1. It is hard to see how a Roberts’ Supreme Court would finally deal Obamacare so serious a blow given that the Court upheld one of the core elements of the law with the Chief Justice going through the legal contortions he did by calling the individual mandate penalty a tax. In fact, just after the DC ruling the 4th Circuit Court of Appeals in Richmond ruled in favor of the administration on this issue in a 3-0 decision.
2. If the DC Court of Appeals ruling is upheld it has the potential to be devastating for Obamacare. With so many people receiving so much in subsidy, the potential is there for the healthiest of these to drop their coverage while the sickest do whatever they need to do to keep their policies creating a major anti-selection problem for the insurers. Premiums on these federal exchanges would undoubtedly skyrocket.
3. This would put Republicans in the federal exchange states in a heck of a political bind. It seems to me these governors and legislators could opt to immediately contract with the feds to operate their exchanges in order to preserve the subsidies (If a state can contract with Accenture to build and run an exchange, why couldn’t it contract with HHS to do the same?). If the states were to do this immediately, no one would have to lose their subsidies.

So what would these Republican governors and legislators do?

In effect, the political consequences for all of these people losing their subsidies and their coverage would immediately shift to the Republicans who control these state governments.

Proponents of Halbig argue that the fault for people losing their coverage would be on the Obama administration because they have operated Obamacare in an illegal manner by paying subsidies that are not allowed under the statute.

The courts could well end up supporting that argument.

And, millions of people would have their insurance yanked out from under them in what people will see as part of the ongoing partisan political wars being waged by people out of touch with life in the rest of the country.

The fundamental problem the Halbig proponents have here is that common sense, whatever a court rules, tells people that denying subsidies in half the states was never the intent of the Congress — that this is all about political point scoring and stopping a law Republicans hate.

Obamacare has lots of problems. But many would argue those problems should be solved in the Congress, not in the courts. If the proponents of Halbig want to effect real change they need to win some elections.

Poll after poll says a big majority of voters want Obamacare fixed not repealed.

Obamacare’s most partisan and ideologically opposed enemies scored a big victory today.

On the surface, Republicans will be attributing this decision to the way the Democrats and the Obama administration wrote this flawed law and the way they have implemented it. But below the surface lots of sensible Republicans must be sweating bullets.

Robert Laszewski is president, Health Policy and Strategy Associates and blogs at Health Care Policy and Marketplace Review.