Our guest blogger is Billy Corriher, associate director of research for Legal Progress.
Now that the Supreme Court has upheld the health insurance mandate in the Affordable Care Act (ACA), two conservative scholars have come up with another legal argument for attacking health care reform. In a paper released Monday, Jonathan Adler and Michael Cannon argue that an IRS regulation implementing the ACA’s tax credits and cost-sharing subsidies is “illegal.”
The IRS rule provides credits and subsidies to those enrolled in new health insurance exchanges operated by the states or the federal government, but the scholars claim the ACA limits tax credits to those enrolled in state exchanges. Adler and Cannon argue that middle-class Americans enrolled in federal exchanges should not receive tax credits to help them afford health insurance.
If their argument was accepted by a court, governors would have the power to drastically undercut the ACA’s reforms. Some Republican governors have thus far refused to set up exchanges for their states. The federal government will step in to create exchanges in these states, but without subsidies and credits, the federal exchanges could be unworkable. The ACA’s preexisting condition rules and limits on setting premiums could lead to a rise in premiums, so the tax credits and subsidies are essential.
As it is, the Republican governors’ intransigence amounts to nothing but grandstanding, but if this new argument prevails, the refusal to create state exchanges could leave citizens in those states without any affordable health insurance option. Some of the harshest critics of the ACA are Republican governors who preside over states with alarmingly high percentages of uninsured persons. As with the ACA’s Medicaid expansion, Republican governors seem to think they might score political points by passing up money from the federal government to help them expand health coverage.
If Republicans thwart the operation of health insurance exchanges, their constituents will pay the price. For example, 25 percent of citizens in Texas are uninsured, but Governor Rick Perry is leading the charge to resist Obamacare. If the argument from Adler and Cannon gains traction, Perry’s recalcitrance could mean that Texans, unlike citizens in states that set up exchanges, would not receive tax credits to help them pay for health insurance.
Adler and Cannon point out that the ACA only mentions state exchanges in the subsidies/credits provision of the bill. They argue this was an intentional choice — an attempt by the laws drafters to offer incentives for states to create their own exchanges — to provide subsidies/credits only for state and not federally managed exchanges. They acknowledge, however, that this argument would face high hurdles in a courtroom. It may be difficult to find a party with standing to bring a suit, and courts afford great deference to an agency’s interpretation of a statute that it implements.
The IRS said its rule is “consistent with the language, purpose, and structure” of the ACA. The Obama administration agrees and notes that another provision of the bill requires both state and federal exchanges to report information on tax credits. When a statute is open to more than one interpretation, the Supreme Court instructs judges to defer to the agency’s interpretation, as long as it is plausible.
The omission of federal exchanges from the ACA’s credits/subsidies provision may have been an oversight. As Professor Abbe Gluck notes, “This is a 2,000-page bill that was put together in extraordinarily messy circumstances.” The drafters of the ACA may have assumed that, given the generous financial incentives to do so, all states would set up their own exchanges. Those who drafted the bill could not have imagined the lengths to which Republicans would go to vilify health care reform. They did not foresee that states would drag their feet on exchanges, even though the ACA offers “unlimited start-up funds.”