WASHINGTON (AP) -- A federal appeals court has delivered a serious setback to President Barack Obama’s health care law, potentially derailing billions of dollars in subsidies for many low- and middle-income people who bought policies.


In a case before the U.S. Court of Appeals for the District of Columbia Circuit, a group of small business owners argued that the law authorizes subsidies only for people who buy insurance on exchanges established by the states.


A divided court agreed, in a 2-1 decision that could mean premium increases for more than half the 8 million Americans who have purchased taxpayer-subsidized coverage under the law. The ruling affects consumers who bought coverage in the 36 states served by the federal insurance marketplace, or exchange.


The majority opinion concluded that the law, as written, “unambiguously” restricts subsides to consumers in exchanges established by a state. That would invalidate an Internal Revenue Service regulation that tried to sort out confusing wording in the law by concluding that Congress intended for consumers in all 50 states to have subsidized coverage.


The administration is expected to appeal the ruling.