Three years after its passage, the unpopularity of the president's health law is complicating his administration's attempt to implement it. In the absence of support once predicted by the law's supporters, a majority of state governments are declining to establish their own health insurance exchanges, the primary vehicle through which many of the law's subsidies and taxes will affect the American people.
To combat the sticker shock of Obamacare's numerous requirements on health insurance premiums, the law creates expensive subsidies, which take the form of tax credits, for individuals who purchase a government-approved insurance plan. In order to avoid the appearance of a federal takeover of health care, the law ties the availability of these premium tax credits to an "Exchange established by the State." Importantly, the way the law was written, if tax credits are not available within a state, then the expensive employer mandate tax does not apply to companies within that state.
With so many states refusing to play the role the law's drafters envisioned, the Obama administration has embarked on a legally dubious effort to bypass the plain language of the law. Obama's IRS has issued a rule that delivers the expensive subsidies through federally run exchanges as well. If it stands, this extralegal rule will undermine the decision-making role offered to states by Obamacare, and cause hundreds of billions of dollars of taxes and spending not authorized by the president's health care law.
Although Obamacare requires the federal government to establish an exchange in states that decline to do so, a legal analysis by the nonpartisan Congressional Research Service found, "[t]he plain language of [the law] suggests that premium tax credits are available only where a taxpayer is enrolled in an 'Exchange established by the State.' A strictly textual analysis of the plain meaning of the provision would likely lead to the conclusion that the IRS's authority to issue the premium tax credits is limited only to situations in which the taxpayer is enrolled in a state-established exchange."
Simply put, Obamacare does not authorize tax credits unless states set up their own health insurance exchanges.
The IRS rule would, without legal justification, compel businesses in states without state-based exchanges to comply with the employer mandate or else face stiff tax penalties. This has prompted the state of Oklahoma to sue the federal government. The Sooner State's attorney general argues that the rule retroactively eliminates a policy option explicitly given to the state under the law, and denies the state the benefit of its decision not to establish an exchange.
Treasury officials have defended their extralegal rule by saying it was consistent with assumptions made by the Congressional Budget Office and the Joint Committee on Taxation. However, Treasury officials have not pointed to a single piece of legislative history that supports their interpretation of the law, other than the assumptions made by the CBO and the JCT. And both of those organizations have made clear that they did not conduct a legal analysis or form a legal opinion on this issue. Their analysis was focused exclusively on the law's economic impact.
The language that limits tax credits to state-established exchanges should not now shock Obamacare's supporters. Early in 2009, legal scholar Timothy Jost, one of Obamacare's leading proponents, explicitly suggested linking the tax credits to state-established exchanges as a way to encourage states to set up the exchanges.
The Obama administration may be surprised and disappointed that many states have not found the refundable tax credit to be a sufficient incentive to set up their own exchanges, exposing their citizens to the other taxes and penalties associated with the law. But this does not justify the administration's effort to ignore the plain language of the law that Obama championed and signed.
Rep. Darrell Issa, R-Calif., is chairman of the House Committee on Oversight and Government Reform.