07.23.2014 2

Obamacare exchange subsidies fall in explosive Halbig ruling

No ObamacareBy Robert Romano

“The record indicates that, when the ACA was enacted, no State even considered the possibility that its taxpayers would be denied subsidies if the State opted to allow HHS to establish an Exchange on its behalf. Not one. Indeed no State even suggested that a lack of subsidies factored into its decision whether to create its own Exchange.”

That was part of Senior Circuit Judge Harry Edwards’s dissent in the explosive ruling by the U.S. Court of Appeals for the District of Columbia, Halbig v. Burwell. The decision found that Obamacare exchange subsidies cannot be given in states that decided to not set up their own exchanges under an IRS regulation.

The reason federal exchanges cannot issue the subsidies, Americans for Limited Government President Nathan Mehrens noted in a statement, is because “The law only ever authorized that the subsidies to private insurers — some $800 billion a year — be paid through the state exchanges. By not setting up state exchanges, and with the court’s ruling, the basic premise of Obamacare has been gutted.”

But that is not what Congress meant to do, Judge Edwards said. He called “fanciful” the Halbig plaintiffs’ argument that the law was set up to use the subsidies to incentivize states to set up their own exchanges, saying “Appellants have no credible evidence whatsoever to support their subsidies-as-incentive theory.”

This part of the case comes down to intent, and it may be what the Supreme Court looks at when it ultimately rules on Halbig.

The question is: Did Congress intend to incentivize states to set up their own exchanges with subsidies as an incentive? If so, in this part of his dissent, Edwards is saying that then some states should have said something at the time.

The irony is that they did.

“Judge Edwards’ statement in dissent is incorrect,” Aaron Cooper, communications director for Oklahoma Attorney General Scott Pruitt, told Americans for Limited Government in an email.

“While we can’t speak for other states, when deciding whether or not to set up an exchange, Oklahoma absolutely took into account the effect on the availability of subsidies when deciding whether or not to set up an exchange,” Cooper said.

Checking the record, sure enough, by the time Oklahoma Republican Governor Marry Fallin had rejected the state exchange for her state on Nov. 19, 2012, Attorney General Pruitt had already filed suit in federal court on Sept. 19 of that year explicitly arguing that the federal exchanges could not issue the subsidies. Cooper is right.

Governor Fallin even spoke in favor of Pruitt’s litigation, which clearly affected her decision, promising continued “support for Oklahoma Attorney General Scott Pruitt’s ongoing legal challenge of PPACA. General Pruitt’s lawsuit raises different Constitutional questions than previous legal challenges, and both he and I remain optimistic that Oklahoma’s challenge can succeed.”

Since Governor Fallin believed that implementation of the federal exchanges raised constitutional and legal issues, including those raised under Pruitt’s amended complaint, then “a lack of subsidies” clearly “factored into [Oklahoma’s] decision whether to create its own Exchange.”

We also note that Alabama Republican Governor Robert Bentley raised similar objections when he decided that his state would not be setting up an exchange either. In a Nov. 13, 2012 speech to the Birmingham Business Alliance, he explicitly cited the Oklahoma case and its legal arguments, stating, “We believe the federally facilitated system they will try to set up, we believe that is unconstitutional.”

In fact, governors and state legislators across the country would have been well aware of these arguments through the July 2012 publication by Case Western Reserve University School of Law’s Jonathan H. Adler and the Cato Institute’s Michael F. Cannon, “Taxation without representation: The illegal IRS rule to expand tax credits under the PPACA.” This was the seminal paper that made the case against the legality of the federal exchanges issuing subsidies.

In November 2012, then Indiana Republican Governor-Elect Mike Pence too cited the same exact objection to outgoing Governor Mitch Daniels, urging him not to adopt the state exchange in his lame duck period: “there are legal uncertainties such as whether the employer tax penalty even applies to businesses in the absence of a state-based exchange.”

there are legal uncertainties such as whether the employer tax penalty even applies to businesses in the absence of a state-based exchange. – See more at: http://mikepence.com/exchange#sthash.AIXCT5W7.dpuf
there are legal uncertainties such as whether the employer tax penalty even applies to businesses in the absence of a state-based exchange. – See more at: http://mikepence.com/exchange#sthash.AIXCT5W7.dpuf

But long before they did that, Cannon and Adler had originally written about this glitch in the law on Nov. 16, 2011 for the Wall Street Journal.

Cato’s Michael Cannon even appeared in front of the New Hampshire legislature testifying, “perhaps most important, due to a recently discovered glitch in the statute, the law only authorizes premium subsidies in state-run Exchanges. It does not authorize these subsidies in federal Exchanges.” New Hampshire went on to prohibit that state from implementing an exchange.

For our part, Americans for Limited Government sent letters to 26 governors at the time pointing to the Adler-Cannon study, urging them not to implement the exchanges, precisely because it would enable employers and individuals to file suit against the legality of federal exchanges to implement the subsidies.

The Adler-Cannon paper and Wall Street Journal pieces were widely read, and were published long before the original statutory deadline to implement the state exchanges under law, which was not until November 2012. In fact, that deadline which was later extended until December 14 of that year, which would have provided even more time for the Adler-Cannon paper to factor into state decisions.

Judge Edwards is wrong, the subsidies turned out to be an incentive after all — albeit an unintended one for states not to implement exchanges that wished to undermine Obamacare, believing that no subsidies would be issued in their states as a result.

That may be the opposite of what Congress intended would happen with its subsidies-as-incentives structure of the law. But it doesn’t matter. When the D.C. Circuit Court rules on this issue in full, and the Supreme Court gets a crack at it, it is not up to judges to allow an agency to rewrite a law to suit its implementation, or to rewrite it themselves.

On legislative matters, the executive and judicial branches have zero prerogative.

Robert Romano is the senior editor of Americans for Limited Government.

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