Today’s Other, Even Bigger Challenge to Obamacare: Halbig v. Sebelius

Today wasn’t a great day for Obamacare. The Supreme Court heard oral arguments in the two cases challenging the contraception mandate today, but the U.S. Court of Appeals for the District of Columbia Circuit, essentially the next highest court in the land, heard arguments in another, even more important one: Halbig v. Sebelius. The two intellectual leaders of this challenge are law professor Jonathan Adler and the Cato Institute’s Michael Cannon. Halbig challenges the IRS’s attempt to quietly authorize Affordable Care Act–related taxes that aren’t authorized in the text of the law. Adler explains:

As has been recounted in this space before, the plain text PPACA authorizes tax credits and cost-sharing subsidies for the purchase of qualifying health insurance plans purchased in health insurance exchanges “established by the State under section 1311” of the Act. PPACA supporters believed every state would create its own exchange. They were mistaken, however, and over thirty states have refused. In response, the IRS promulgated a regulation authorizing tax credits and subsidies in all exchanges, whether or not they were “established by the State under 1311.” Halbig is one of four pending challenges to this regulation. 

Cannon had a post last night too, here. By most accounts, today’s arguments went fairly well for the challengers, and the three judges from the D.C. Circuit weren’t terribly impressed by the government’s case.

For several years now, the two scholars have been making the case against the IRS and Treasury Department’s attempts to roll out these dubiously legal tax policies in states that declined to establish their own exchanges. As written, the ACA only directs the IRS to impose specific taxes and pay premium subsidies in state-established exchanges. Yet, as Cannon writes: “Nevertheless, agency officials agreed, again with apparent unanimity, to impose those taxes and dispense those subsidies in states with federal exchanges, the undisputed plain meaning of the PPACA notwithstanding.”

This action isn’t just potentially illegal, it has serious financial consequences. As Cannon explains, “Treasury, IRS, and HHS officials simply rewrote the law to create a new, unauthorized entitlement program whose cost ‘may exceed $500 billion dollars over 10 years.’ (My own estimate puts the 10-year cost closer to $700 billion.)”

Should the White House be worried? Yes. Cannon writes: “Defenders of the IRS have described Halbig as “the most significant existential threat” to ObamaCare.” 

Here’s what Cannon had to say about the oral arguments today:

The IRS is currently imposing taxes and spending billions of taxpayer dollars in 34 states with ObamaCare Exchanges established by the federal government. But ObamaCare says the IRS can tax and spend only through “an Exchange established by the State.”

In a federal courtroom today, appellate Judge Thomas B. Griffith clarified that an Exchange established by the federal government is not “established by the State.” When the government’s lawyer argued that federally established Exchanges meet that requirement, Judge A. Raymond Randolph cut him off: “That is a leap. That is not statutory interpretation.”

Hopefully, the court will invalidate the IRS’s illegal taxes and spending. 

Cannon has written several posts responding to amicus briefs filed by the IRS’s defenders in Halbig v. Sebelius. Here’s an introduction to Halbig and similar lawsuitsHere is the link to the oral arguments, and Adler’s preview of them.

Veronique de Rugy — Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University. Her primary research interests include the U.S. economy, the federal budget, homeland security, taxation, ...