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.