A Possible Blow to Obamacare?

In what is accurately described as the greatest existential threat to Obamacare, an important case will be heard next week.  NO- it is NOT the Hobby Lobby/ Conestoga Wood cases to be heard by the Supreme Court, but another to be heard by the DC Circuit Court of Appeals.  The case is Halbig vs. Sebelius and the fact that the appeals court fast-tracked it indicates its importance and the fact that it may very well make it to the Supreme Court sooner than most believe.

When Congress enacted the ACA, they provided for two exchanges.  The first problem arises in Section 1311 which says that states “shall” establish exchanges for the purchase of health care insurance.  Generally in legal terms, the word “shall” carries with it the connotation that it is mandatory.  There is a major problem with this: the federal government cannot force states to participate in federal programs.  This would violate the “anti-commandeering principle” and turn federalism on its head.  Instead of simply rewording or revisiting Section 1311, they created Section 1321 which requires the federal government to establish an exchange if a state chooses not to do so.  In other words, they knew they were in constitutional trouble if Section 1311 stood alone.

Since the federal government cannot force states to set up exchanges,they can provide financial incentives to do so.  For both political and economic reasons, many states decided NOT to set up exchanges.  The incentive for states to establish exchanges for their residents was the provision of federal subsidies for people purchasing insurance through them.  However, because many states decided that the bad outweighed the good, they decided to forego establishing exchanges.

Furthermore, a  reverse inducement (a penalty by any other name) was also written into the law.  If any business with 50 or more employees fails to provide health insurance that meets federal standards and one employee receives a federal subsidy,then that business faces a fine of $2,000 per employee (with an exemption for the first 30 employees).  So, a company with 150 employees would face a fine of $240,000- more than enough to make or break a small business.  A business could avoid the tax penalty IF there were no state-run exchanges since only purchases on state-run exchanges would be eligible for the subsidy which would then trigger the employer penalty.  The bottom line is that the ACA created two exchanges: state-run with federal subsidies and a federal exchange with no subsidies.  That is the clear wording of the Affordable Care Act.

When more states were deciding NOT to run exchanges, the Obama administration found itself in a pickle.  The federal government had to step in in these recalcitrant states with their own exchange.  Unfortunately, that meant no federal subsidies for those purchases.  Even though the infamous individual mandate was and remains unpopular, its popularity drops even further in the dumps without federal subsidies.  What is an administration to do?

Well, if it is that administration is run by Barack Obama you simply tell your IRS to create a regulation out of thin air providing a subsidy for income-qualified buyers of health insurance on either state-run OR the federal exchange.  Their reasoning?  To read the briefs for the government in this case, to assume otherwise would be absurd.  Surely Congress intended federal subsidies for both types of exchanges despite the explicit wording of the law.  What is absurd is that if we accept the government’s line of reasoning, what incentive would there be for a state to establish an exchange?  There would be NONE and therefore why even write a section about state exchanges?  As a result, any employer within any state which did not establish an exchange would then be subject to the $2,000 per employee fine.  In effect, the enticement becomes a penalty against any business of 50 employees or more in any state that did not establish an exchange, the anti-commandeering principle is essentially null and void and federalism is turned on its head.

Unfortunately, the lower District Court ruling agreed with the government’s line of thinking.  They ruled that Congress intended for the ACA to provide subsidies for purchases on the federal exchange.  However, this is not a question of what Congress intended, but what they actually did.  And the clear wording of the law makes that vividly clear.

Either way the Appeals Court rules, the decision will likely be appealed to the Supreme Court.  If the plaintiffs prevail, then the subsidy that anyone receives for purchasing health care on the federal exchange will be unconstitutional.  Depending on the state they live in, that means that the alleged 5 million Obamacare enrollees will lose their subsidy.  In the vast majority of cases, if they lose their subsidy, they will be unable to afford the premiums and therefore likely lose their Obamacare-purchased health care insurance.  In effect, there would then be incredibly more people uninsured after Obamacare than before Obamacare.  Furthermore, since the tax penalty on employers is tied to the receipt of a subsidy, that penalty could not be enforced either.  Therefore, the government loses not only the leverage they held over employers to provide insurance, but they also lose a source of funding (receipt of the tax penalties) to pay for what subsidies are legitimate under Obamacare.

One would think that given the lengthy debate in Congress over the ACA, all the backdoor deals and arm-twisting that a better law would have been written and a court would not have to delve into what Congress intended.  Perhaps they did intend to extend the subsidies to the federal exchange.  If that is so, then it would be in the law, not determined as the result of an IRS-promulgated regulation way after the fact when the Executive Branch realized their big “Oops.”  The idea that people who have lost their health insurance because their employer dropped them or for any other reason and other people who purchased health insurance on the federal exchange may possibly find their subsidy gone because Congress could not clearly word a law is proof that the Pelosi/Reid led Congress was inept.  The fact that the IRS had to step in is proof that Obama has no respect for the clear wording of laws and that anything passed by Congress is open to Executive interpretation.  This is further proof that this president is perhaps the most extra-constitutional executive in history.