The IRS violated the law and state sovereignty

By Grace-Marie Turner

The Internal Revenue Service usurped its authority and overturned longstanding norms of federalism in ruling that health insurance subsidies could be available through federally-created exchanges, the Galen Institute and state legislators argued in an Amicus brief submitted Monday in the pending King v. Burwell lawsuit.

The U.S. Supreme Court will hear arguments in the case on March 4, and a decision is likely by June.

Citing a significant number of previous decisions, the brief argues that Congress is expected to “speak clearly if it wishes to assign to an agency decisions of vast ‘economic and political significance.’”  Instead, the IRS illegally made “major policy decisions properly made by Congress” in ruling in May of 2012 that health insurance subsidies could be available to those who enroll through federally-created exchanges.

The Affordable Care Act explicitly says that subsidies are available only “through an Exchange established by the State.”  Thirty-six states defaulted to the federally-created exchanges in 2014, making their residents ineligible for health insurance subsidies if the Supreme Court rules that the law means what it says.

Twenty-one state legislators joined the brief “based on their interest in opposing efforts by the federal government’s Executive Branch to impose policies in violation of the Affordable Care Act’s unambiguous text, under the overarching limits imposed by the Constitution.” All were in office when their states were deciding whether to create state health insurance exchanges. Their states have federally-operated exchanges.

An estimated five million Americans in these and other states would lose their subsidies if the Supreme Court rules the IRS acted illegally and the subsidies therefore are invalid.  At least 85% of those enrolled in federal exchanges are receiving subsidies for their health insurance, lowering their monthly premiums by an average of 76%.

The administration had expected most, if not all, states to create their own exchanges, but only 14 did so. The IRS later changed the law to extend federal tax credits to exchanges established by the federal government. This effectively allowed hundreds of billions of dollars to be spent on subsidies over the next ten years that are not legally authorized by Congress.

The Galen Institute/State Legislators’ brief, prepared by former White House General Counsel Boyden Gray, Adam White, and colleagues at Boyden Gray & Associates, focuses primarily on the issues of federalism. It argues that “the notion that the Federal Government may establish and operate a state agency ‘on behalf of the state’ is itself foreign to the concept of dual sovereignty.”

In arguing that the subsidies are legal, the Obama administration “fails to consider the provision’s place within our constitutional structure,” the brief argues.  The language of the statute is self-contradictory and ambiguous and “cannot justify the agency’s encroachment” upon State sovereignty.

Regulation of health insurance has traditionally been a responsibility of the states, and the Affordable Care Act contained a number of provisions that reinforced that authority, including a choice of whether or not to establish an exchange.  If they did, their citizens would receive subsidies, but their insurance markets would be subject to much greater federal control.  The trade-off is that if they did not, citizens and businesses in the state would be protected from a number of the ACA’s mandates and financial penalties.

“The IRS Rule eliminated the statutory choice by imposing those tax burdens in all States – even those that declined to establish their own Exchanges.  The result is a more expansive exertion of federal regulatory control over health insurance than the statue authorized.”

The brief cites previous case law that says “if Congress intends to alter the ‘usual constitutional balance between the States and the Federal Government,’ it must make its intention to do so ‘unmistakably clear in the language of the statute.’”

Congress did not do that, making a strong argument that the Supreme Court should decide that the IRS Rule is illegal.

Separately, the Galen Institute is working with colleagues on a policy recommendation for Congress to create a safety net for those who would lose their health insurance if SCOTUS agrees that the subsidies in federal exchanges are illegal. Stay tuned for details.

Grace-Marie Turner is president of the Galen Institute, a nonprofit research organization focusing on free-market ideas for health reform. 

 Posted on Forbes, December 30, 2014

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