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The Right Prescription
The IRS Illegally Expands Obamacare Tax Credits
The tax man discovers a new power not found in the actual health care law.
Recently I wrote that the states could kill Obamacare by refusing to implement its insurance exchanges. This strategy would be effective because the survival of PPACA depends on the ability of Beltway bureaucrats to dole out its tax credits and subsidies, but the law stipulates that all such assistance must be dispensed via state-run exchanges. Likewise, PPACA’s employer mandates can only be triggered by premium assistance that originates from state exchanges. Even if the federal government creates an exchange in a state that has declined to do so, it would not be authorized to issue tax credits or fine noncompliant businesses. Thus, if the majority of the states refuse to create exchanges, it will doom Obamacare.
There is, however, one weakness inherent in this strategy. It assumes that the Obama administration will obey the law. The plan will be difficult to implement if the President and his accomplices simply ignore the text of PPACA and illegally funnel tax credits and subsidies through federally-created exchanges. The past three years have certainly provided plenty of evidence that these people would not reject this course of action merely because it violates the law. It should, therefore, come as no surprise that it is precisely what they have decided to do. The IRS recently finalized a regulation that makes clear the administration’s intention to provide premium assistance through federal as well as state-based exchanges.
In “Taxation Without Representation: The Illegal IRS Rule to Expand Tax Credits Under the PPACA,” Jonathan Adler and Michael Cannon describe what the Obama administration is up to: “The plain text of the Act only authorizes premium-assistance tax credits and cost-sharing subsidies for those who purchase plans on state-run exchanges, and the IRS rule’s attempt to offer them to other individuals cannot be legally justified…” Adler and Cannon go on to outline the scope of this latest example of skullduggery by Obama’s apparatchiks: “[T]he IRS is attempting to create two entitlements not authorized by Congress, and in the process, to tax employers whom Congress did not authorize the agency to tax.”
Not everyone agrees with this interpretation of the IRS rule, of course. Timothy Jost, a law professor at Washington & Lee University, writes that PPACA does indeed permit federally-created exchanges to issue subsidies. He claims that Obamacare’s opponents are making a big production over what amounts to a typo: “Whatever else the Affordable Care Act may accomplish, it has provided endless entertainment for law professors. The latest ACA kerfuffle involves the discovery… of an ACA drafting error that would seem to deprive millions of uninsured Americans of tax credits to purchase health insurance and invalidate regulations recently proposed by HHS and the Treasury Department.”
Ironically, Adler and Cannon also believed this restriction to be an error when they first discovered it: “We were both surprised to discover this flaw in the law, and characterized it as a ‘glitch.’” They changed their minds, however, after digging into the statute: “[O]ur further research demonstrates this feature of the law was intentional and purposeful, and that the IRS’s rule has no basis in law.” And they specifically looked into Jost’s claim: “The feature that the IRS rule seeks to ‘correct’ fails both parts of the scrivener’s-error test. Omitting an entire clause or paragraph authorizing two new entitlements is not an error of transcription.” Still, like Melville’s famously obstinate scrivener, Jost prefers not to accept this argument.
He admits the text suggests “that premium tax credit eligibility under the ACA depends on the applicant being enrolled in a qualified health plan ‘through an Exchange established by the State under section 1311.’” Yet he goes on to say it doesn’t really matter because everyone familiar with the purpose of Obamacare will know that Congress intended the federal exchanges to dole out subsidies and tax credits: “That this is a drafting error is obvious to anyone who understands the ACA.… There is no coherent policy reason why Congress would have refused premium tax credits to the citizens of states that ended up with a federal exchange.” Jost’s argument, in other words, boils down to the following: Why would they do that?
Well, it was probably just another of the many miscalculations the Democrats and the White House made when they passed the law. It should be recalled that these people actually believed Obamacare was going to become very popular once everyone understood how many goodies they had stuffed into the thing. They were shocked when 26 states revolted against the coercive Medicaid mandate, and they were no doubt equally taken aback when an even greater number temporized on the exchanges. They clearly expected the states to see both features as cash cows. Faced with this unexpected pushback, the Obama administration is now obviously attempting to rewrite the law under the guise of an IRS rule.
Can anything be done about this? According to Adler and Cannon, the IRS rule is blatantly illegal and will cause real harm, particularly to businesses: “Because the granting of tax credits can trigger the imposition of fines on employers, the IRS rule is likely to be challenged in court.” If the states continue to set up exchanges at the current glacial pace, the federal government itself will need to create 20 to 30, and this will provide a lot of employers with standing to file lawsuits. It’s unlikely, however, that anyone will take legal action until after the upcoming election. So, once again, we’re back to the voters. They can save everyone a lot of trouble by doing the sensible thing on November 6.
About the Author
David Catron is a health care revenue cycle expert who has spent more than twenty years working for and consulting with hospitals and medical practices. He has an MBA from the University of Georgia and blogs at Health Care BS.
Letter to the Editor View all comments (16) | Leave a comment
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TLP| 7.23.12 @ 7:51AM
If you watch Family Guy, then you know who The Kool-Aid Guy is. And, in the episode where Stewie kills Lois, Peter goes on Trial, and every time everyone say "Oh No" the Kool-Aide Guy crashes through the wall, till the Judge finally says -"If ya'all're gonna keep sayin that? The Kool-Aid guy's just gonna keep on doing that".
He will not Enforce the Laws of the Land, that he DOESN'T FEEL LIKE ENFORCING, unless you happen to be WHITE.
Then, you're FCKED.
He's had an Illegal Drilling Moratorium in place, for Three Years.
His people have Forged Documents, and Run Guns to Drug Cartels, in Mexico.
He has made Numerous Unconstitutional Appointments, an Unconstitutional claim of Executive Privilege, and an Illegal Exemption to the Welfare Reform Bill, to go along with his Unilatteral Changes in Bankruptcy Law, to favour HIS PEOPLE, over the Bond Holders, and their Legal Contracts.
Has he been called out on ANY OF THESE?
Has the Unbiased Media made a peep, about any of this sh*t?
Has anyone in the GOP Leadership, stood up and said - ENOUGH!
Has anyone said that "We will not move foreward on ANYTHING, until these Illegalities are Corrected"?
No.
And, that's why he keeps doing, what he's doing.
I see no difference between Him, and the Venazuelan Dictator.
None, whatsoever.
ElGordo| 7.23.12 @ 10:28AM
MEDICARE AND BABY BOOMER ALERT -- $ 500 BILLION REMOVED FROM MEDICARE
.
For those of you on Medicare and the Baby Boomers who soon will be, be forewarned that Obama is removing $500 Billion Dollars from Medicare to subsidize ObamaCare. ... This will increase the time of waiting to see a doctor, reduce treatments available and increase the possibility of Death Panels.... Remember Obama's suggestion, "Just take an aspirin".
.
OBAMA and Every Democrat Senator voted to reduce Medicare by $500 Billion Dollars
.
To reverse this , ObamaCare must be repealed and Mitt Romney with 51 Republican Senators will repeal it.
darcy| 7.23.12 @ 2:42PM
Medicare should be abolished. It's part of the Great Society effort to break down personal responsibility and directly affects family cohesiveness by pushing onto the government duties that traditionally were part of a family's taking care of its own.
There is little "practical" incentive for parents to do the hard work of raising well-adjusted, compassionate, self-reliant, and hard-working children who will take care of them in their declining years. Everyone can now just live for today -- without doing the difficult work of becoming actual adults -- because the grand enabler, Big Brother, Nanny Government will take care of you.
Repeal Obamacare: it's every bit and even more destructive to our character, our freedoms, and our families.
The state which comes to us in the guise of "helping" should be given a thunderous kick in the pants and sent packing.
JP| 7.23.12 @ 7:52AM
This administration has quickly become the most unlawful administration in history. Government by edict is the norm. And Congress and the courts are complicit.
c. j. acworth| 7.23.12 @ 7:55AM
The only good thing in this is that what has been done by beaurocratic or executive fiat can be undone by President Romney on day one of his administration. I hope he doesn't get writers cramp signing all the repeals.
Maxwell| 7.23.12 @ 8:08AM
Correct me if I am wrong, was there a paragraph in the Barry Care bill which stated that there was a 3.8% tax on the sale of your home? If that is true then all of the boomers (of which I am one) will be really happy when they sell their home.
Mike G| 7.23.12 @ 9:28AM
"So, once again, we're back to the voters. They can save everyone a lot of trouble by doing the sensible thing on November 6."
You expect voters to do the sensible thing? Really?? Bwahahahahahahaha!
ElGordo| 7.23.12 @ 10:27AM
MEDICARE AND BABY BOOMER ALERT -- $ 500 BILLION REMOVED FROM MEDICARE
.
For those of you on Medicare and the Baby Boomers who soon will be, be forewarned that Obama is removing $500 Billion Dollars from Medicare to subsidize ObamaCare. ... This will increase the time of waiting to see a doctor, reduce treatments available and increase the possibility of Death Panels.... Remember Obama's suggestion, "Just take an aspirin".
.
OBAMA and Every Democrat Senator voted to reduce Medicare by $500 Billion Dollars
.
To reverse this , ObamaCare must be repealed and Mitt Romney with 51 Republican Senators will repeal it.
Andrew Keirns| 7.23.12 @ 10:45AM
"It's unlikely, however, that anyone will take legal action until after the upcoming election." No employer could until AFTER the IRS came after them to pay the tax, right? So it is more than unlikely ...
Who Knows?| 7.23.12 @ 11:36AM
“We don’t need no stinking badges.”
That could well be the TRUE slogan for Obama.
Forward, into more anarchy!
Also, “exchanges”, “premium support”, and other concepts just strain my brain. What a complicated world we now inhabit, ruled almost entirely by LAWYERS.
Take care of the body, because where else are you going to live---such advice is certainly NOT being followed, much, these days.
Real health care is necessarily the responsibility of the individual, so ALL the brouhaha about health insurance and doctors and hospitals etc is just proof of widespread moral hazard. Since the majority of Americans are ALREADY hopelessly brainwashed into a consumption pattern of physical elements that are further and further from what we used to call “food”, the image that comes to my mind is of a slug, that’s chosen to wallow in a pit of salt. Oozing and twisting in pain, on the way to death.
While it tries to blame others!
Example? I got to eat the first cucumber from my garden, from a plant I sowed from seed. So SWEET, even with the skin. No need to peel that baby!
And, tick tock, one bite at a time, millions of people choose to go for the taste of packaged “food”.
No accidents.
RCV| 7.23.12 @ 4:40PM
What a joke! Those who plot little schemes to undermine a law passed by Congress, signed by the President and upheld by the Supreme Court accuse the administration of working to facilitate that valid law by frustrating their plans. Sorry, guys.
TLP| 7.23.12 @ 6:44PM
Really?
Cause, last I looked, he Illegally Gutted the Welfare Reform Act, that was passed by the Duly Elected Government Officials.
A Law PASSED BY CONGRESS, and SIGNED BY THE PRESIDENT.
Or are you just Oblivious the THE FACTS, when they're inconvenient to your Dogma?
Please.
You're embarrassing yourself.
If that's even possible.
MTB| 7.23.12 @ 5:11PM
"There is, however, one weakness inherent in this strategy. It assumes that the Obama administration will obey the law."
Very good observation. He and his administration haven't obeyed any laws they disagree with so far. In his own words, "We can't wait."
Bill84728| 7.23.12 @ 5:24PM
So go to court over the tax credit's constitutionality, and get an injunction on the administration of the Affordable Care Act until the Supreme Court hears the case.
dbsdey| 7.24.12 @ 8:09AM
Since when has something being illegal stopped Obama and the IRS. If Obama is reelected, this will be rammed through by the IRS not matter how illegal it is. Do you really think that the DOJ will do anything to curb the IRS, when they are more corrupt than any criminal enterprise in America?
kywrite| 7.25.12 @ 12:52PM
Maybe if they had read the bill before they passed it, they would have found "typos" like this.