“The president has been spending money illegally.” That’s how healthcare policy analyst Michael Cannon summed up the big news of the day in a CatoLive appearance.

This morning, the U.S. Court of Appeals for the DC Circuit handed down a major ruling against Obamacare. The Halbig decision could effectively end the program if the Supreme Court agrees. Another contrary ruling on the same day makes it almost a certainty that the Court will have to decide.

The ruling applies to the 36 states which decided not to set up insurance exchanges or have failed to do so. The IRS, the court found, has no authority to fine individual taxpayers or businesses for failing to get Obamacare-compliant insurance plans, nor to give them subsidies to help them afford the premiums.

Without the subsidies, some premiums could increase by as much as 78 percent, making the bill’s name, the “Affordable Care Act,” some kind of a sick Orwellian joke.

The man perhaps most responsible for that ruling was Cannon, resident healthcare gadfly at the libertarian Cato Institute (full disclosure: I used to work there).

As many of his colleagues were drinking their sorrows away over Obamacare’s passage, he noticed a provision of the Act that looked like it could be a problem for the administration.

The statute said that subsidies could only be offered through Obamacare state exchanges, not the federal one, and that penalties could only be leveled against those in states that had Obamacare state exchanges in place.

Cannon argued and wrote at length in the law journal LawMatrix (along with Case Western Reserve law professor Jonathan Adler) that the IRS’s attempt to expand credits and penalize people for not signing up for Obamacare in states without exchanges was illegal and unconstitutional.

Now that a three judge panel for the second most respected court in the land has agreed with that assessment, Cannon is doing a bit of a victory lap.

“What they’re really doing is throwing a lot of spaghetti against the wall and seeing if any of it sticks,” he said of the administration’s arguments for going far beyond the text of the Affordable Care Act.

“They were taxing borrowing and spending billions of dollars that they had no authority to tax borrow and spend.”

Cannon said that the bill could not be “fixed” by the administration, because the clear intent of the bill was to have much of Obamacare administered through states. Democrats in Congress and the White House gambled that most states could be convinced to set up insurance exchanges, and lost.

So what happens now? Cannon asked, rhetorically, if the remaining 36 “will say ‘We’re going to make this all nice and legal so the president doesn’t have to break the law anymore’?”

He speculated that the number of states that set up new exchanges could be “as many as zero,” because along with subsidies also come penalties for taxpayers.

State legislators who vote to set up exchanges will have big targets marked on their backs by anti-tax groups and plenty of others who see Obamacare falling apart.

Cannon hasn’t won yet. But with his smart policy wonkery, he has made sure that Obamacare will get another day in court. And that has many liberals worried, given many of the Court’s recent rulings.

(<cough>Hobby Lobby!</cough>)

Chief Justice John Roberts saved Obamacare once, when it was near a high water mark of popularity. There’s no guarantee he’ll be so deferential the next time around.

Jeremy Lott About the author:
Jeremy Lott helped found and manage four publications for the Real Clear Politics family of websites. He is the author of three books and an e-book, as well as the recognized ghostwriter of former Maryland governor Marvin Mandel’s memoirs. Follow him on Twitter @jeremylottdiary
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