Obama versus Obamacare
The U.S. Court of Appeals needed to strike down the administration’s latest lawless fix -- and it did.

(Illustration: Roman Genn)


Ramesh Ponnuru

Editor’s Note: This morning, the D.C. Circuit Court of Appeals ruled in Halbig v. Burwell that federal subsidies for Obamacare are illegal in the 36 states covered by the federal exchange. This piece, from the April 21, 2014 issue of National Review, presents the case for why the court ought to have ruled that way.

The Obama administration is urging federal judges to save its health-care program from absurdity. It’s a little late for that.

The Obamacare law enacted in March 2010 authorizes the federal government to provide tax credits for people who buy health insurance on exchanges established by state governments. It repeatedly refers to exchanges “established by the State,” especially when discussing the tax credits. Because opposition to the law has run higher and longer than its supporters ever expected in early 2010, however, most states have not established exchanges.

The law authorizes the federal government to establish exchanges for states that refrain, but has no provision allowing tax credits to be offered to defray the costs of insurance policies offered on those federal exchanges. Without the tax credits, though, the policies will be prohibitively expensive for so many people that the law will not work.

So the Obama administration’s Internal Revenue Service decided that it would offer tax credits even on the federal exchange, which covers 36 states. The success of the program required going beyond the letter of the law — several hundred billion dollars beyond it over the next decade.

That decision, in addition to being legally questionable, created some losers. Various taxes and penalties in the law come into effect only when tax credits are available. Employers will be subject to a penalty for not offering insurance, for example, only if their employees get tax credits on an exchange. What the IRS has done, then, is to declare that it is going to collect taxes that Congress has not authorized in law.

Several lawsuits have challenged the administration on this point. While it has won the early rounds of the cases, the D.C. Circuit Court of Appeals is now considering one of them. It could make it as far as the Supreme Court.

Jonathan Adler and Michael Cannon (the first a law professor at Case Western Reserve University, the second a health-policy analyst at the Cato Institute, both libertarians who have published often in NR) have made the case for the plaintiffs at length in Health Matrix, a journal of law and medicine. They want the courts to rule that the IRS must stop issuing tax credits, and also stop levying taxes and penalties that are tied to them, in the 36 states covered by the federal exchange.

Unlike the challenge to the individual mandate that the Supreme Court decided in 2012, these lawsuits do not question the scope of congressional power. Neither Adler nor Cannon nor any of the other people involved in the lawsuits denies that Congress had the legal power to extend tax credits to people getting insurance from a federal exchange. Congress could, for that matter, have stipulated in the law that for purposes of the law’s treatment of exchanges the federal government would be counted as a state; it did just that with respect to U.S. territories.

Supporters of the lawsuit simply observe that Congress did not exercise its power in these ways. They are not challenging any provision of the Obamacare law. They say they are merely asking that the law be applied faithfully.

Fans of Obamacare — the program, that is, and not the text of the law itself — say that denying tax credits for the federal exchanges would spell its end. The basic argument of those fans is that Congress did not intend, and could not have intended, to let a tiny portion of a law render it unworkable. The New Republic quoted one of the lawyers who have backed the administration’s position in these cases: “Congress did not have a death wish for this legislation.” Democratic congressmen and all kinds of interest groups — the insurance companies, the American Hospital Association, AARP — have all filed briefs arguing similarly. So have various health scholars. They say that if judges follow their standard practice of avoiding interpretations of laws that yield absurd results, the IRS will be allowed to keep offering credits on the federal exchanges.