Obamacare on Shaky Ground as Court Battle Looms

Obamacare may be in big trouble, if a recent federal court ruling is any indication.

Late last month, a U.S. district court in Oklahoma affirmed that the Internal Revenue Service can only offer tax credits for health insurance plans on state-run exchanges — not federally-operated ones.

Earlier this year, a three-judge panel of the U.S. Court of Appeals for the D.C. Circuit came to the same conclusion in a similar case, Halbig v. Burwell. The U.S. Court of Appeals for the Fourth Circuit in Richmond, Virginia, disagreed with its colleagues in D.C., siding with the Obama Administration in yet another similar case, King v. Burwell. A federal district court in Indiana has yet to rule on the same question in a case before it.

Given the disagreement among these lower courts, there’s a good chance the controversy will end up before the Supreme Court.

The federal judiciary should stand firm against the Administration’s appeals. Constitutional principles, legal precedent, and the plain text of Obamacare itself demand it.

The current controversy stems from a section of Obamacare known as 36B, which allows the IRS to offer tax credits to people enrolled in “an Exchange established by the State” in order to offset the cost of insurance.

Thirty-six states refused to build their own insurance exchanges. So the federal government set up exchanges in those states. The Obama Administration ordered the IRS to give people shopping in the federal exchange HealthCare.gov the same tax credits that were available in state-run exchanges.

But that’s illegal, according to Halbig and the recent ruling in Oklahoma. The Court of Appeals for the D.C. Circuit determined that 36B means exactly what it says — tax credits can be provided only through exchanges “established by the state,” not federal ones.

The Obama Administration disagrees. It cites a 1984 case, Chevron CVX -0.42% v. NRDC, which allows agencies like the IRS some leeway in interpreting unclear laws passed by Congress. The president’s lawyers argue that Congress intended to make tax credits available on both state and federal exchanges — therefore, the word “State” must be a drafting error.

But there’s ample evidence to the contrary.

Consider statements from MIT Professor Jonathan Gruber, a chief architect of Obamacare and its precursor in Massachusetts, Romneycare. In 2012, he gave a speech at a Virginia non-profit, where he was asked what would happen if states refused to create their own insurance exchanges. Gruber responded, “[I]f you’re a state and you don’t set up an exchange that means your citizens don’t get their tax credits.”

When presented with video evidence of his remarks after this summer’s Halbig decision, Gruber tried to dismiss his earlier comments as a “speak-o” — a verbal typo. But other tapes emerged of him making identical comments. It’s difficult to believe that one of Obamacare’s main designers didn’t understand a major feature of the law he helped create.

Another supporter of Obamacare, Washington and Lee University law professor Timothy Jost, wrote in a 2009 paper that the Constitution prevents Congress from forcing states to create health insurance exchanges. What Congress can do, however, is offer “tax subsidies for insurance only in states that complied with federal requirements.”

Jost’s paper helps explain why Congress would deliberately limit tax credits to just the state-run exchanges. Lawmakers thought that tying the credits to the construction of an exchange would compel states to set up their own marketplaces — and thereby relieve the federal government of the substantial cost and work of doing so.

They were, of course, largely wrong.

Then there’s the Constitution and legal precedent, both which demand that the courts consider the law as it actually passed, not as lawmakers may have intended.

First, the power to tax rests with the legislature. The Obama Administration can’t simply decide to exempt certain people from tax by giving them credits to help them purchase insurance coverage.

Indeed, a 1988 U.S. Supreme Court decision explicitly held that “exemptions from taxation are not to be implied; they must be unambiguously proved.”

In its congressionally chartered book The Constitution of the United States of America: Analysis and Interpretation, the Congressional Research Service wrote that Congress may not “delegate its power to determine whether taxes should be imposed.” But that seems to be almost exactly what supporters of Obamacare would like to happen.

It is not the courts’ responsibility to “fix” a controversial, hastily written law — that’s Congress’s job. And in a case 22 years ago, that’s essentially what the Supreme Court concluded.

In 1992, the high court considered the Coal Industry Retiree Health Benefit Act. The legislation passed only after “a maelstrom of contract negotiations, litigation, strike threats, a Presidential veto of the first version of the bill and threats of a second veto, and high pressure lobbying, not to mention wide disagreements among Members of Congress.” And by the end, as Justice Antonin Scalia put it, the statute was “quite absurd — made no sense.”

The Act allowed entities to buy a coal company’s mining business without absorbing any liability for underfunded coal-miner pensions. But if they wanted to buy any other asset from the coal company, they had to assume the tax obligation for the workers’ pensions.

The law’s supporters wanted the justices to harmonize this incongruity. But the Court reasoned that ignoring the text in favor of a more logical construction could produce a law that wouldn’t have passed Congress. “These are battles that should be fought among the political branches,” the Court wrote.

In other words, the more controversial the law, the more important it is to closely adhere to the text.

Few laws in recent history have been more controversial than Obamacare. The courts should heed these precedents — and common sense — by ruling that Obamacare means exactly what it says.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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