Last Week’s Synopsis
To briefly rehash last week’s newsletter, the plain text of the Affordable Care Act restricts the distribution of federal subsidies to states that choose to implement their own health insurance exchanges under section 1311. Again, these "exchanges" are the online health insurance marketplaces where individuals can purchase regulated health plans. In a state exchange, subsidies will assist consumers purchasing health plans who live in households with incomes between 100-400% of the Federal Poverty Level (FPL).
If a state declines to create its own exchange, the federal government must create one for that state. This is known as the "federal fallback," or federal exchange under section 1321 of the federal health law. The language of the text nowhere considers the distribution of federal subsidies within a federal exchange. In fact, Congress authorizes no funds for a federal fallback. Zero. Zilch.
This means that 34 states that have opted for a federal fallback (including North Carolina) will receive no federal subsidies, freeing individuals from the employer and individual mandates. This is because these federal subsidies go hand in hand with employer and individual penalties. For example, under the employer mandate, if an employee cannot afford his employer’s health plan and qualifies for a premium assistance subsidy, the employer is faced with a penalty in the form of a tax.
In the case of a state operating a federal exchange, however, there are no subsidies to be dished out to individuals. Therefore, there can be no employer penalties.
Power Hungry IRS Chomps Away
The IRS fails to heed this valid argument and instead oversteps its authorized power. Frankly, this is not surprising. It seems to be a popular trend within this agency as of late.
In May 2012, the power-hungry IRS amended regulations accompanying the already enacted health care legislation so that subsidies would be allocated in exchanges established under sections 1311 and 1321.
What the IRS has done is both illegal and unconstitutional. Only Congress can pass on responsibility for legislative interpretation to another entity if a statute expresses ambiguity. And before delegating such power, only Congress must first deem legislation ambiguous or unclear. However, Congress remained silent regarding the issue of subsidies flowing only into state exchanges. Therefore, the IRS has no right to change the regulations, for the legislation was never deemed ambiguous or unclear by Congress in the first place. Agencies have no inherent powers, only delegated ones.
Furthermore, Article 1, section 8 of the U.S. Constitution vests all legislative power in Congress, while Article 1, section 9 states that "No money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law."
The IRS and other PPACA proponents have rebutted a similar statement such as this:
"Surely Congress could not have intended for this to happen. Restricting tax credits to state exchanges will not execute the vision of providing comprehensive health coverage for all American citizens. This is a mistake."
Actually, there is evidence that Congress did intend for this to happen.
Congressional Intent
Firstly, Congress cannot force a state to establish its own exchange, since this would be considered "constitutional commandeering." As previously mentioned, Congress did not authorize any funding for setting up federal exchanges. Rather, restricting the flow of subsidies to state exchanges intentionally acts as a financial incentive for states to comply with Obamacare. This incentive compares to state-by-state Medicaid expansion, where the federal government will supposedly fully fund this entitlement program for the next three years while increasing the enrollment and eligibility levels. States that do not opt for expansion or exchanges forfeit those subsidies.
Secondly, under the Affordable Care Act, section 1311 refers to state exchanges while section 1321 refers to federal fallback exchanges. Section 1401 presents the premium assistance subsidies that will assist individuals living between 100-400% of the federal poverty level (FPL) to purchase health coverage. Section 1401 is expressly written with reference to section 1311 and section 1311 only.
Lastly, and perhaps most importantly, the PPACA would never have been signed into law without major concessions, one being limiting subsidies to state exchanges.
Consider the law’s legislative history. The special election in January 2010 in which Sen. Scott Brown (R) filled the seat of the late Sen. Edward Kennedy (D) — Mass, threw a wrench in the plans for House approval of the final Senate bill. For House and Senate Democrats to avoid a Republican filibuster, final negotiations resorted to a budget reconciliation process. During that process, the House could impose limited amendments to the Senate’s final bill. House Democrats had to tread lightly, for the Senate would ultimately give final approval to such amendments.
To add a little more icing on the cake, even Max Baucus (D) — Mont., the law’s primary architect, affirmed the reallocation of subsidies within state exchanges was conditional.
Currently, this issue has provoked lawsuits against the IRS and HHS Secretary Kathleen Sebelius. Oral arguments in Halbig vs. Sebelius are happening right now in the federal district court.
