Law & the Courts

Congress, Here’s How To Prepare for King v. Burwell

Testimony before the Senate Committee on Small Business and Entrepreneurship

Chairman Vitter, Ranking Member Shaheen, and members of the Committee, thank you for your invitation to discuss King v. Burwell, a case concerning the Patient Protection and Affordable Care Act (ACA) currently before the Supreme Court. King v. Burwell challenges as unauthorized by any Congress both the premium subsidies the Internal Revenue Service is issuing in 38 states with federally established Exchanges, and the tax penalties those subsidies trigger. The Court heard oral arguments on March 4, 2015. Court watchers expect a ruling by the end of June.

If the Court sides with the challengers, its ruling will free more than 57 million employers and individuals in those federal-Exchange states from the ACA’s employer and individual mandates. Those 57 million Americans include Kevin Pace, a jazz musician and Virginia resident whose income fell by $8,000 when his employer cut his hours to avoid the IRS’s illegal taxes. They include small-business owners who would expand and hire more workers, but are prohibited from doing so by threat of illegal taxes. A ruling for the challengers would protect small businesses and their employees from an out-of-control IRS. Such a ruling would cause a smaller number of Americans — an estimated 6.7 million — to lose access to subsidies that no Congress ever authorized.

A ruling for the government, on the other hand, would for the first time allow the IRS to usurp Congress’s exclusive powers to tax and spend. Few things could be more destructive to small businesses, liberty, or our constitutional order.

Congress should investigate how the IRS came to tax, borrow, and spend tens of billions of dollars in violation of the clear limits the ACA places on the IRS’s authority.

Even if the Court makes the right decision and frees 57 million Americans from the IRS’s illegal taxes, the ACA would continue to harm tens if not hundreds of millions of employers and individuals, and an additional 6.7 million Americas would see their health-insurance bills soar as the loss of those illegal subsidies brings them face-to-face with the full cost of the ACA’s very expensive coverage.

By far, the most important way this Committee and other congressional committees can prepare for a King ruling, and ensure Congress provides appropriate assistance to those affected by the ruling, is to investigate how the IRS came to tax, borrow, and spend tens of billions of dollars in violation of the clear limits the ACA places on the IRS’s authority.

Oversight hearings would showcase that those limits are clear and unambiguous. Even the IRS’s defenders sometimes admit as much. Harvard law professor Noah Feldman, a former clerk for U.S. Supreme Court Justice David Souter, confesses the weakness of the IRS’s case:

The uncomfortable truth (for liberals, at least) is that [King v. Burwell] arises from a piece of statutory language that on its face explicitly says that tax subsidies are only available for health insurance purchased on an exchange “established by the state.”

Liberals have tried to explain why, correctly interpreted, this language really means “established by the state or the federal government on the state’s behalf.” But their theories seem forced

Investigative hearings would reveal how the IRS initially included in its implementing regulations the statutory requirement that subsidy recipients purchase coverage “through an Exchange established by the State,” but reversed itself and dropped that requirement after a political appointee at the Treasury Department objected.

Investigative hearings would reveal the IRS officials made no serious effort to research the statute or its legislative history before expanding their agency’s powers, and the reach of the ACA’s taxes and subsidies, beyond the clear limits imposed by Congress.

Oversight hearings would reveal that this decision by IRS officials to expand their agency’s powers unilaterally is not an isolated incident but part of a pattern at the IRS. University of Iowa law professor Andy Grewal found the IRS is also issuing subsidies to two other ineligible groups: certain undocumented aliens and lawful residents below the poverty line who over-estimate their income. Indeed, Grewal found the IRS “effectively provides the largest [subsidies] to persons who do not satisfy the statutory criteria.” Those illegal subsidies likewise trigger illegal taxes against employers.

Oversight hearings would reveal that King v. Burwell is actually not about health care at all, but rather an example of political corruption and abuse of power at the IRS.

Oversight hearings would reveal the IRS’s actions contradict what the government told the Supreme Court. The government told the Court that the phrase “an Exchange established by the State” is a statutory “term of art” that means an Exchange established by either the State or the federal government. But if the government believed that, there would have been no reason for the IRS to drop that “term of art” from its regulations.

Investigative hearings would reveal the IRS has been stonewalling Congress on this issue for nearly four years. As Ranking Member of the Senate Finance Committee, Senator Orrin Hatch (R., Utah) first asked the IRS in December 2011 for documents related to the agency’s creation of these illegal taxes and subsidies. More than three years later, Senator Hatch has risen to the chairmanship of the Finance Committee, yet the IRS still has not honored his request. For the better part of one year, the IRS has been ignoring a subpoena for those documents from the House Committee on Oversight and Government Reform.

Oversight hearings would allow Congress to ask important questions of other administration officials.

Since late 2013, the Department of Health and Human Services (HHS) and the Centers for Medicare and Medicaid Services (CMS) have enrolled millions of Americans in From the beginning, HHS and CMS officials knew the subsidies that prop up could disappear with one court ruling. Yet they never informed enrollees of this inherent risk of the coverage they were selling. Even after the Supreme Court granted cert in King v. Burwell in November 2014, defendant HHS Secretary Sylvia Burwell and CMS administrator Marilyn Tavenner publicly proclaimed, “Nothing has changed.” Each knew it was not true. The risks that those subsidies would disappear had become so significant that insurers demanded protection from an adverse court ruling. Burwell and Tavenner obliged. They granted insurers the right to terminate their relationship with if the subsidies disappeared. Oversight hearings would give Burwell and Tavenner a chance to explain why they told consumers “nothing has changed,” and whether Tavenner believes that was fair to say while testifying before Congress under oath.

With respect to those risks, Secretary Burwell could at any time announce that she would issue hardship exemptions to any enrollee who loses a subsidy, a step that would allow enrollees to switch to lower-cost catastrophic plans. She could, at any time, announce that she would create a “special enrollment period” to allow everyone in states to switch to lower-cost plans. She could, at any time, announce she will hold enrollees harmless through the end of the year by immediately issuing to insurers the subsidies they would otherwise receive on a monthly basis for the remainder of 2015. Oversight hearings would allow Secretary Burwell to explain whether she is considering these steps to protect enrollees, or at least to explain why she refuses to discuss contingency plans that would protect consumers when she has already taken steps to protect insurance companies.

Oversight hearings would reveal that King v. Burwell is actually not about health care at all, but rather an example of political corruption and abuse of power at the IRS that goes beyond what any of us have seen in our lifetimes. Lacking any statutory basis for its actions, the IRS first pledged and ultimately spent taxpayer dollars on a multiyear, multibillion-dollar contribution to the reelection campaigns of members of Congress who enacted, and a president who signed, a law that voters and Congress otherwise would have scrapped as unworkable. Instead, the law remains on the books.

Investigative hearings can thus point Congress toward appropriate responses to a King ruling, and away from proposals that expand the ACA and authorize even more government spending than ACA supporters could have enacted at the height of their power. Oversight would point the way to full repeal of the ACA as the only way to provide relief for enrollees without rewarding the IRS for breaking the law. And hearings might suggest that, given the insurance industry’s complicity in the IRS’s illegal taxing and spending, an appropriate way to hold enrollees harmless through 2015 would be to require participating insurers to keep covering those enrollees at the same premium enrollees were paying before the subsidies were invalidated.

Michael F. Cannon — Mr. Cannon is director of health-policy studies at the Cato Institute and co-author of Healthy Competition: What’s Holding Back Health Care and How to Free It.


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