On August 11, 2013, a federal judge ruled that the State of Oklahoma has standing to proceed with a lawsuit challenging an Internal Revenue Service rule issued in May 2012 regarding premium subsidies in the form of tax credits and penalties delivered through the Affordable Care Act’s insurance exchange provisions. Oklahoma’s Attorney General Scott Pruitt amended pleadings filed in 20111In the original lawsuit filed by the State of Oklahoma, it asserted that the individual mandate was in conflict with Article 2, Section 37 of ...continue to include challenges to that IRS rule.
Oklahoma’s filing asserts that the IRS rule is illegal because it delivers tax credits and penalties without statutory authority, specifically, that the health care law does not provide for tax credits or penalties in the language pertaining to federal insurance exchanges.
I’m not alone in my belief that the Oklahoma lawsuit has merit and that a legal victory on the issue could force Congress to readdress the entire issue of “health care reform” from scratch. Already-scanty news reports on the subject of “ObamaCare” seem curiously devoid of information, about either the existence of Oklahoma’s court case or the August 11 federal court ruling. Considering the growing number of Americans opposed to the health care law and that the case involves the IRS – an object of regular scandal reports since May of this year – the lack of reporting should at least raise eyebrows. And not just about the media. If elected officials who’ve repeatedly proclaimed their opposition to the law would make the IRS rule an issue, then it would be reported. So, to ask the obvious: Why aren’t those “ObamaCare fighters” shouting this news from the rooftops? And, more importantly, why is Oklahoma’s Attorney General the only state official taking action?
The Health Care Law’s Insurance Exchanges
Under the Patient Protection and Affordable Care Act of 2010, (PPACA or ACA), federal exchanges (found in Section 1321) must be set up in any state which chooses not to set up a state-run exchange (found in Section 1311). To date, only 16 states have their own exchanges. The PPACA deadline for exchanges to be operational, regardless of whether they are state or federally run, is October 1, 2013.
Such insurance exchanges are one of the law’s critical elements, without which, things begin to fall apart. It is through an exchange, that individuals – required to obtain health insurance – choose from four standard policies offered by participating insurers. Further, it is within the exchanges that individuals discover their eligibility for premium subsidies via tax credits or the Medicaid program, whether or not a state opts for the optional Medicaid expansion2The Supreme Court ruling in NFIB v Sebelius in June 2012 overturned the PPACA requirement that all states expand their Medicaid program to cover all ...continue. According to a Washington Times report of August 28, 2013, 24 states have opted to expand: How many will ultimately do so is an open question3There are a number of reasons that questions remain regarding how many states will expand their Medicaid programs. The key issue is the federal ...continue.
Exchange Provisions, Like Rest of Health Care Law, Were Overreach and Unrealistic
Just as the Senate health care bill’s drafters, and ultimately Congress, significantly overreached Constitutional limits in attempting to mandate the Medicaid expansion, expectations that states would voluntarily create their own insurance exchanges outmatched reality. A thorough read of the exchange provisions tells the tale. Even the promise of big piles of upfront money associated with studying, constructing, and getting exchanges going, was not enticement enough to overcome long term realities. Once the big piles of upfront federal grants ran out and exchanges were set up, states were left to do one thing: pay for the expenses. Whether or not states set up their own exchanges, they have virtually no control regarding them. The only sensible decision for states, was and is, to sit back and refuse participation, altogether. (Although few have actually truly done that, including Nebraska.)
Why the IRS Rule IS Illegal
The most important reason for states NOT to act is found in the Oklahoma challenge to the IRS rule. A thorough examination of the final version of the PPACA confirms that tax credits and penalties are provided for in state-run exchanges (Section 1311), but there is no parallel language whatsoever in the sections pertaining to federal exchanges (Section 1321).
Despite the complete lack of statutory authority, the IRS issued a final rule in May 2012, which rewrites the law to provide the tax credits and the penalties through federal exchanges:
“a taxpayer is eligible for the credit for a taxable year if . . . the taxpayer or a member of the taxpayer’s family (1) is enrolled in one or more qualified health plans through an Exchange established under section 1311 or 1321 of the Affordable Care Act . . . .“
The two words in red, above, point out language that the IRS illegally inserted into its rule. In a journal article first made available in draft form to the public in late 2012 and published in the Spring 2013 issue of Health Matrix: Journal of Law-Medicine, Case Western Reserve University School of Law Professor Jonathan Adler and Cato Institute’s Director of Health Policy Studies, Michael Cannon, explained why the IRS rule is illegal. From the introduction:
“This rule lacks statutory authority. The text, structure, and history of the Act show that tax credits and subsidies are not available in federally run exchanges. The IRS rule is contrary to congressional intent and cannot be justified on other legal grounds. Because tax credit eligibility can trigger penalties on employers and individuals, affected parties are likely to have standing to challenge the IRS rule in court.”
Congress’ Actions Were Deliberate, However Poorly Calculated. Only Congress, Not the IRS Can Change the Law
In the process of thoroughly proving that the IRS rewrote the law (a power it doesn’t lawfully possess), Adler and Cannon additionally prove that the absolute absence of language in PPACA for federally-run exchange tax credits and penalties, was deliberate, and an apparent effort to incentivize states to create their own exchanges4In addition to citing from Congressional hearing and other records to make their case that the differences between Sections 1311 and 1321 were ...continue. Just as the “stimulus” bill of 2009 punished states which refused those funds, it’s not a leap to surmise that withholding benefits from recalcitrant states was considered one “stick” within PPACA.
The obvious problem here is, that unlike “stimulus”, which nearly every state grabbed for at lightning speed – including Nebraska – 34 states have been recalcitrant on exchanges to various degrees, so, the IRS
rule making lawmaking, could obviously be an attempt to clean up what could become the undoing of the entire health care scheme. If credits and penalties can’t be delivered in 34 out of 50 states, that seems very much like the Titanic hitting the iceberg.
What also seems like that 1912 disaster is the utter lack of awareness that the iceberg has been hit. A Forbes’ article introductory paragraph:
Republicans are getting ready for another round of efforts to defund ObamaCare. But the better chance…may rest with the great state of Oklahoma. Ironically, almost no one is paying attention, including ObamaCare opponents.
That better chance, of course, is the lawsuit by the State of Oklahoma, which can now proceed, following U.S. District Judge Ronald A. White’s ruling on August 11. While the judge did throw out two of OK’s challenges to the law5AG Pruitt’s complaint amendment of 9/19/2012, in addition to its challenges to the IRS rule, changed the specific nature of the original ...continue, White allowed three to proceed, ruling against the federal government’s challenge to Oklahoma’s standing.
Some attorneys, aware of assertions by Adler, Cannon, and others, have attempted to argue that States would lack standing in a challenge to the IRS rule, however, Judge White’s ruling rejected this argument due to the fact that Oklahoma is itself a large employer. Remember, under the IRS rule, employers in states with federal exchanges are subject to penalties, whereas, under the actual language of PPACA, they are not.
What none of the articles about the Oklahoma challenge reports, is that another suit challenging the IRS rule was filed on May 2, 2013 by the Competitive Enterprise Institute, on behalf of a group of small businesses and individuals in six states.
With that, I’ll simply conclude with questions worth pondering and a couple of thoughts of my own regarding them. I encourage readers to use the comment form, below, if they’d like to discuss the answers.
- If Oklahoma has standing to sue, why aren’t the other states, who didn’t set up a state exchange also challenging the IRS rule?
- Yes, Nebraskans, that does include Nebraska.
- How opposed can the alleged “ObamaCare opponents” truly be? (see Forbe’s quote above)
My perspective regarding this point…
- I’m not a Congressman, state legislator…any kind of elected official. I’m not employed by any entity to do research and I don’t have a paid staff at my disposal. Of course I can’t discount significant assistance from Linda and Norlyn, helpful information from members, or the input from counterparts in other states – but, that doesn’t add up to a Congressional, legislative, gubernatorial, think tank, or research institute’s budget or office staff.
- Somehow, with the resources I do have, I am familiar with the issue of the missing language. I first became aware of the subject through an article brought to my attention by Linda, which has a date of November 2011. That initial report can now be analyzed as preliminary awareness. However, just as Adler and Cannon’s understanding has improved since 2011, so has mine. The real point is, I was motivated enough to recognize the importance of the issue and to follow-up…why have the self-described “ObamaCare opponents / fighters” who ARE elected officials, or who do work for an entity who pays them a full-time salary, and who DO have paid staff, not done the same?
- WHERE is Nebraska’s Attorney General now, who ran for U.S. Senate constantly crying “I led the charge against ObamaCare!”
- And WHAT about our Governor? Does he know about this?
- And our State Senators? Do any of them know?
Featured image is a compilation of a commonly used gavel image and and IRS logo
Other images are simply snapshots from materials cited
Notes & References [ + ]
|1.||↑||In the original lawsuit filed by the State of Oklahoma, it asserted that the individual mandate was in conflict with Article 2, Section 37 of it’s Constitution and that the individual mandate was an unconstitutional exercise of Congress’ Commerce Clause and Necessary and Proper Clause powers.|
|2.||↑||The Supreme Court ruling in NFIB v Sebelius in June 2012 overturned the PPACA requirement that all states expand their Medicaid program to cover all adults ages 19 – 64 up to 138% of the federal poverty level or lose all of their Medicaid funds. For some notes regarding the Supreme Court’s ruling in the case, see this GiN Glossary entry [glossy term=”NFIB v. Sebelius – Notes” inline=”false”]. For additional information regarding Medicaid expansion, see the article series written by Linda earlier this year, a full list for which is at the bottom of the article, “Nebraska Medicaid Expansion: LB577 in Limbo” Also, for our most recent update on the subject, see “Not Really Adjourned: NE Legislature, Medicaid Expansion, ObamaCare”.|
|3.||↑||There are a number of reasons that questions remain regarding how many states will expand their Medicaid programs. The key issue is the federal funding, which in the case of the Medicaid expansion, comes with a higher rate of reimbursement than existing Medicaid. For an explanation which includes many links and citations, I recommend a read of my article, “The Myth of Nebraska’s Sovereignty Resolution”|
|4.||↑||In addition to citing from Congressional hearing and other records to make their case that the differences between Sections 1311 and 1321 were deliberate, Adler and Cannon postulate that the lack of parallel credit and penalty provisions in federal exchanges was likely considered an incentive (a “carrot”), because, not creating a state exchange would mean, few, if any grant funds, but, also, no tax credit monies flowing to citizens within that state and fewer premiums to participating insurers. Lack of such funds would come with a list of pressures, especially if it was in a minority.|
|5.||↑||AG Pruitt’s complaint amendment of 9/19/2012, in addition to its challenges to the IRS rule, changed the specific nature of the original challenge to the individual mandate, to account for the Supreme Court ruling in NFIB v Sebelius, requesting acknowledgement that the OK constitutional protections against mandated insurance purchases remains a valid protection for OK citizens. Judge White dismissed this claim based on lack of standing; he also dismissed a claim that the IRS rule is unconstitutional as applied to State of Oklahoma employees, based on prior Supreme Court rulings, pursuit of judgements on three key points, one, that the IRS rule violates the Administrative Procedures Act, two, that the term “Exchange” in the IRS rule be limited to state-run exchanges only and for injunction prohibiting federal government action that conflicts with the established term, and three, if the federal government were to argue that an exchange created by HHS is, essentially a “state exchange”, such an act would violate the 10th Amendment.|