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Court ruling on Halbig may 'free' millions from Obamacare

People sit with an insurance agent from Sunshine Life and Health Advisors as they try to purchase health insurance under the Affordable Care Act at the Mall of the Americas in March 2014 in Miami.
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People sit with an insurance agent from Sunshine Life and Health Advisors as they try to purchase health insurance under the Affordable Care Act at the Mall of the Americas in March 2014 in Miami.

The intellectual godfather of a serious court challenge to Obamacare says that if the effort continues to be successful tens of millions of people would be "free" from the law's individual and employer mandates.

Leading critic of the act, Michael Cannon, revealed that eye-popping number Monday, ahead of Tuesday's potentially crippling blow to the health-care reform law.

In Tuesday's 2-1 ruling, a judicial panel said subsidies to buy health insurance coverage can only be granted to people who purchased insurance on an Obamacare exchange run by an individual state or the District of Columbia—not on the federally run exchange.

Read MoreAppeals court: Most Obamacare subsidies illegal

Tuesday's ruling does not have an immediate effect on the law. The Obama administration is likely to appeal the decision by the U.S. Court of Appeals panel to the full appellate court.

According to Cannon, if the decision is upheld, more than 250,000 firms in those states, which have about 57 million workers, would not be subject to the employer mandate being phased in starting next year. That rule, which hinges on the availability of subsidies on Obamacare exchanges, will compel employers with 50 or more full-time workers to offer affordable health insurance or pay a fine.

And a total of about 8.3 million individuals will be removed from the rule that they have health insurance or pay a fine equal to as much as 1 percent of their taxable income, Cannon said. He added that the number could be a conservative estimate.

Read MoreCourts could cause big Obamacare $$$ hike

The number includes people who were previously uninsured before the exchanges opened last fall and whose options for insurance on the exchanges would not be considered affordable under the law without subsidy assistance.

"Such a ruling would free nearly 1 million Floridians and more than 1.5 million Texans from the individual-mandate tax," Cannon wrote on his Forbes.com blog, Darwin's Fool. "In 2016, it would free families of four earning as little as $24,000 per year from an illegal tax of $2,085."

Cannon did not add together his estimates for how many people would be removed from the employer and individual mandates because there is some overlap between the two groups. But he contrasted the tens of millions of people who would no longer be subject to fines or tax penalties from the mandates with the 4.7 million people who currently receive subsidies for their HealthCare.gov-purchased plans in the 36 states.

"The winners under such a ruling would outnumber the losers by more than 10-to-1," he wrote in the blog.

Read MoreThe BIG threat to Obamacare you've never heard of

Even as he released those numbers, Cannon acknowledged to CNBC.com the long odds facing the court challenge attacking the legality of billions of dollars in subsidies.

Michael F. Cannon
Source: The CATO Institute
Michael F. Cannon

"My standard response is, the cases against the [subsidies] are iron-clad, which means the odds for our success are a solid 20 percent," the director of health policy studies at the libertarian Cato Institute joked ahead of Tuesday's ruling.

Cannon and Case Western Reserve University law professor Jonathan Adler are the primary authors of the claim that the Affordable Care Act only allows federal tax credits to be issued to people who buy insurance plans on an exchange established by a state—not on one run by the federal government. People received those subsidies if they had low or moderate incomes.

Read MoreObamacare's big winners: Young, Latino and poor

Just 14 states and the District of Columbia set up their own exchanges, and the legality of the subsidies on those markets was not challenged.

The case that was decided Tuesday, Halbig v. Burwell, was the first one of its kind to be decided at the appellate level, and its outcome may play a decisive role in determining whether the issue is ever heard by the U.S. Supreme Court.

All told there are four lawsuits challenging the legality of the HealthCare.gov subsidies that were authorized by an IRS rule have been filed in different federal courts.

Critics of Cannon's argument say that it misreads the overall intent of Obamacare—to offer affordable health insurance to people around the U.S., regardless of whether they buy insurance on a state-run exchange or the federal exchange.

Read MoreUninsured rate tumbles in Obamacare's aftermath

Last week, two analyses underscored the potential effects of the high court ruling against the legality of the subsidies. The consultancy Avalere Health estimated that people who currently receive subsidies in the affected states would see their premium rates rise an average of 76 percent. And the Robert Wood Johnson Foundation and the Urban Institute said that by 2016, about 7.3 million enrollees would lose about $36 billion in subsidies.

In his Forbes.com blog post Monday, Cannon wrote that "a victory for the Halbig plaintiffs would not increase anyone's premiums."

"What it would do is prevent the IRS from shifting the burden of those premiums from enrollees to taxpayers. Premiums from federal-Exchange enrollees would not rise, but those enrollees would face the full cost of their 'ObamaCare' plans," Cannon wrote.

Firms and employees whom Halbig would free from the employer mandate in Federal-Exchange states

 
Firms > 50
Employees
State employees
Total employees
Alabama 6,070 1,143,499 77,517 1,221,016
Alaska 1,165 170,449 24,918 195,367
Arizona 7,745 1,597,199 58,514 1,655,713
Arkansas 4,004 705,692 57,847 763,539
Deleware 2,497 262,049 23,291 285,340
Florida 16,264 4,969,299 164,607 5,133,906
Georgia 11,397 2,470,358 112,991 2,583,349
Idaho 2,539 310,726 18,373 329,099
Illinois 16,156 3,728,559 103,578 3,832,137
Indiana 8,657 1,810,843 75,516 1,886,359
Iowa 4,886 921,166 40,529 961,695
Kansas 5,043 795,207 43,464 838,671
Louisiana 6,399 1,134,086 72,132 1,206,218
Maine 2,258 317,344 18,437 335,781
Michigan 10,574 2,417,281 110,576 2,527,857
Mississippi 3,785 636,616 52,720 689,336
Missouri 8,272 1,682,209 76,691 1,758,900
Montana 1,743 191,009 16,670 207,679
Nebraska 3,363 576,718 26,690 603,408
New Hampshire 2,694 388,255 14,911 403,166
New Jersey 10,911 2,388,145 132,767 2,520,912
New Mexico 3,225 405,826 39,561 445,387
North Carolina 10,577 2,381,206 131,676 2,512,882
North Dakota 1,691 204,117 15,721 219,838
Ohio 13,437 3,302,101 108,649 3,410,750
Oklahoma 5,280 874,569 57,853 932,422
Pennsylvania 14,914 3,736,101 141,130 3,877,231
South Carolina 5,940 1,098,946 70,684 1,169,630
South Dakota 1,763 212,882 13,062 225,944
Tennessee 8,176 1,739,701 75,441 1,815,142
Texas 24,019 6,715,793 274,987 6,990,180
Utah 4,289 748,401 44,301 792,702
Virginia 10,121 2,218,226 107,379 2,325,605
West Virginia 2,666 401,871 36,387 438,258
Wisconsin 8,061 1,708,445 56,094 1,764,539
Wyoming 1,396 123,377 12,463 135,840
Subtotals 251,977 54,487,671 2,508,127 56,995,798
Source: U.S. Census Bureau

Residents of Federal-Exchange states whom Halbig would free from individual mandate

States
# of residents
Alabama 141,495
Alaska 35,631
Arizona 289,207
Arkansas 129,162
Deleware 25,695
Florida 925,276
Georgia 420,277
Idaho 77,820
Illinois 455,272
Indiana 195,627
Iowa 89,566
Kansas 96,370
Louisiana 210,359
Maine 36,854
Michigan 288,130
Mississippi 127,693
Missouri 208,010
Montana 42,434
Nebraska 65,976
New Hampshire 40,966
New Jersey 328,802
New Mexico 94,363
North Carolina 400,994
North Dakota 18,647
Ohio 386,751
Oklahoma 167,876
Pennsylvania 357,679
South Carolina 220,882
South Dakota 25,695
Tennessee 235,565
Texas 1,553,367
Utah 103,320
Virginia 287,102
West Virginia 61,620
Wisconsin 140,859
Wyoming 26,625
Subtotal 8,311,967
Source: Cato Institute

(UPDATED: The contents of this story were updated to reflect the decision by the U.S. Court of Appeals for the District of Columbia Circuit.)

—CNBC's Dan Mangan.

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