In what may be the lethal blow to Obamacare, a three-judge panel at the U.S. federal appeals court has ruled that the Affordable Care Act cannot dole out subsidies in federal insurance exchanges for 36 states, and customers in those states must pay full out-of-pocket expenses for their healthcare.

A group of small business owners brought the case before the U.S. Court of Appeals for the District of Columbia Circuit, arguing that the law authorizes subsidies only for people who buy insurance through markets established by the states, and not by the federal government.

"It is implausible to believe that Congress gave the IRS discretion to authorize $150 billion per year in federal spending, particularly when Congress had directly spoken to this issue," the challengers to the IRS subsidy said in a court filing. "Major economic decisions like these -- indeed, any decisions granting tax credits -- must be made unambiguously by Congress itself."

The law clearly says that is is the responsibility of the individual states to set up exchanges, but 34 of the 50 states opted not to do so, and the federal government stepped in to do so. Since the language in the Affordable Care Act is specific to those states, the court ruled that the federal government may not pay subsidies for insurance plans in those states.

According to the ruling, the Affordable Care Act doesn't allow the IRS to dole out the subsidies in federal insurance exchanges, and that customers must pay for the full insurance premium.

The ruling is the result of a wording glitch in the ACA. The law is written to specify that subsidies should be paid to those who purchase through an "exchange established by the state." This restricts premium tax credits to state-run exchanges.

"We reach this conclusion, frankly, with reluctance," District of Columbia Appeals Court judge Thomas Griffith writes in the 2-1 ruling.

The ruling affects the heart of the 2010 Affordable Care Act, as these subsidies were essential to making healthcare affordable for individuals and families with low to moderate income.

However, with most states unable or unwilling to set up their own exchanges, in many instances from opposition by Republican governors to the Affordable Care Act, the federal government opted to step in and facilitate access to healthcare in those states.

According to the Seattle Times, "The small business owners filing the lawsuit say the tax credits enacted by Congress were intended to encourage states to set up their own health benefit exchanges, and that the penalty for not doing so was withdrawal of tax credits for lower-income residents."

With the subsidies, the federal government pays up to 100 percent of the premiums for certain insurance plans for people with low incomes. And now, with the court ruling such subsidies illegal, billions of dollars worth of financial help will be removed for the healthcare enrollees in those states.

This ruling comes one day after a report on the ACA identified that the act had made access to healthcare easier for a large number of minorities.

Dr. J. Nadine Gracia, the deputy assistant secretary for Minority Health and the director of the Office of Minority Health at the U.S. Department of Health and Human Services, said improvements have been realized in coverage for minorities.

“The Affordable Care Act is one of the most significant laws to help reduce disparities in health and access to care. During the first historic open enrollment period, minority men, many who may have previously been locked out of the health insurance market because of a pre-existing condition or simply because of its unaffordability, were able to obtain health care coverage and will now have the security that health insurance provides,” Gracia said.

“Thanks to the ACA, millions of minorities are seeing the benefits and are now able to access preventive services at no additional cost. Furthermore, the ACA is addressing disparities among minority communities by increasing the number of community health centers and the services they offer which serve as safety nets for the most vulnerable and underserved, where nearly two out of three patients served in community health centers are racial and ethnic minorities,” she said.

The judges on the case were Thomas Griffith, an appointee of President George W. Bush; A. Raymond Randolph, an appointee of Bush's father; and Harry Edwards, an appointee of President Jimmy Carter, who dissented.

The government is expected to appeal.