The ruling does not apply to the 14 states and Washington, D.C., that maintain their own exchanges. (Click through below for a state-by-state look at exchange decisions.)
According to health experts, nearly five million U.S. residents who purchased health plans through the federal insurance exchange could lose the subsidies they used to purchase that coverage. That number represents 87% of all those who enrolled in coverage through the federal exchange, according to the Washington Post. Losing the subsidies would mean that millions of U.S. residents could become uninsured, since health plans sold through the exchange might be unaffordable without the assistance.
Update: A second ruling was issued on Tuesday morning in King v. Levy, with the Fourth Circuit Court of Appeals concluding that the IRS's decision was legal in Virginia.
Responding to the news about Halbig, the Obama administration immediately stressed: Plan purchases through the marketplaces will continue as normal, and there will be "no practical impact" on tax credits, a spokesperson said.
But at minimum, a case that some legal watchers initially dismissed as DOA suddenly is in position to deal a major blow to the Affordable Care Act.
Background on the case
Here's what will happen next.
The White House is seeking an en banc ruling. The administration is now petitioning the 11 active judges on the DC Circuit Court to rehear the case. The composition of the court favors the Obama administration: Seven of those judges were appointed by Democrats, whereas four were appointed by Republicans.
The court will decide whether the petition is worthy: En banc hearings are rare—but the "exceptional importance" of the case will likely ensure that the court takes the case. The decision to rehear Halbig also would vacate the court's initial ruling.
Pending that outcome, the case might be appealed to the Supreme Court. The subsequent ruling in King v. Levy sets up a split at the appellate level, increasing the likelihood that the Court will take the case.
If the Halbig ruling stands—and state leaders don't take action—premium payments could rise by about 76% in states that rely on federally facilitated exchanges. Florida residents, for example, could see their insurance premiums go up by about 95%.
"This sets up the classic insurance 'death spiral,'" Adrianna McIntyre writes at Vox. "By putting coverage out of financial reach for so many people, it would undermine the entire purpose of the Affordable Care Act."
The decision raises another striking questions for patients: Would Americans who took advantage of insurance subsidies have to pay them back? It also could present more pressure on providers in these states, who were hoping that the ACA would lower their uncompensated care costs.
In states affected by the Halbig ruling, leaders could find workarounds to maintain the subsidies, such as contracting their exchange operations out to the federal government.
Piper Su, the Advisory Board's health policy advisor, warns that the case still needs to wend its way through the legal system.
"It's early to speculate," Su says. "But our early read is that the impact would be felt only in a handful of states where the governor may choose not to take mitigating steps."
"The crystal ball remains cloudy and there are a number of steps left in the litigation before it reaches its conclusion."
Have ACA questions? We've got answers
On August 5, our experts will host the latest in their series of popular "Pulse Check on Obamacare" webconferences.
Join us to break down the Halbig ruling, get the latest on ACA enrollment, and understand the other challenges—and opportunities—that still lie ahead for the health law.