Commentary

Rewriting Its Own Bad Obamacare Law

President Barack Obama won big when Congress passed his health care bill. But the administration made a serious mistake and now is trying to rewrite the law. Without going to Congress, as required by the Constitution.

The central feature of the misnamed Patient Protection and Affordable Care Act is the requirement that Americans buy health insurance, which Supreme Court Chief Justice John Roberts decided really wasn’t a mandate in a bizarre opinion upholding the law. As important as that requirement are the exchanges through which people are supposed to purchase insurance.

PPACA includes tax credits and subsidies so people can afford insurance made more expensive by a gaggle of new federal requirements. Congress didn’t just decide that people have to buy insurance. People must purchase insurance as determined by Washington. Or, more accurately, the Health and Human Services bureaucracy, which is empowered to decide every Americans’ coverage.

However, Congress and the president tied federal tax credits and subsidies only to policies purchased through state-established exchanges. Apparently the administration did not imagine that anyone would defy Uncle Sam. However, so far only 14 states and the District of Columbia have created exchanges. At least half of the states are likely to refuse to construct insurance exchanges. Which means Washington will have to do it for them. Indeed, HHS Secretary Kathleen Sebelius admitted that the federal government may have to run as many as 30 exchanges. But PPACA did not provide tax credits or subsidies for federally established exchanges.

Which creates another problem for the administration. In a recent paper for Case Western Reserve University School of Law, Case Western law professor Jonathan Adler and Cato Institute scholar Michael Cannon point out: “The tax credits and subsidies for the purchase of qualifying health insurance plans in state-run exchanges serve as more than just an inducement to states. For example, these entitlements also operate as the trigger for enforcement of the Act’s ‘employer mandate.’ As a consequence, that mandate is effectively unenforceable in states that decline to create an exchange. Because such a large number of states may decline to create exchanges of their own, it may be difficult to implement the law as some had intended.”

Oops!

In a system based on the rule of law, the Obama administration would go back to Congress and ask it to “fix” the law. But the administration knows that the GOP-dominated House would laugh in response. Even the Senate, with increased Republican membership, would refuse. So the president decided to dispense with the legislative branch and make law on his own.

The Internal Revenue Service issued a rule in May extending the provisions relating to state exchanges to federal ones. It’s a nice trick but contrary to PPACA. Note Adler and Cannon: “The plain text of the Act only authorizes premium-assistance tax credits and cost sharing subsidies for those who purchase plans on state-run exchanges.”

In fact, the administration does not claim otherwise. The Department of Health and Human Services stated that the IRS rule was “supported by the statute.” The Treasury Department explained that the regulation was “consistent with the intent of the law and our ability to interpret and implement it.” However, nothing in the U.S. Constitution authorizes bureaucrats to act as lawmakers as they “interpret and implement” legislation passed by Congress.

The IRS has its defenders, such as Timothy Jost of Washington & Lee University. In fact, he seems to resent Adler and Cannon defending the rule of law. He asks why “extending the benefits of our health care system to millions of uninsured Americans troubles” opponents of Obamacare.

In fact, politicizing the health care system, turning control of people’s insurance coverage over to Washington, is bad policy. When Uncle Sam rations care those with the least political influence are likely to do badly. Health care reform is necessary, but nationalizing the system was not the right approach.

Anyway, good intentions cannot justify ignoring the rule of law. The Constitution means little if the executive can write legislation at its pleasure. Congress, not the president, makes law. If legislators didn’t vote tax credits and subsidies for federal exchanges, the president can’t add them.

Jost admits, as he must, that the law does not authorize credits and subsidies for federal exchanges, but says no matter. He contends that the omission was just a “drafting error.”

However, the Supreme Court has ruled that it will fix legislation only where there is “overwhelming evidence from the structure, language, and subject matter of the law” that Congress meant otherwise. That is not the case here.

Congress has a responsibility to do its job right and to fix its own mistakes. The courts do not have carte blanche to step in. Adjusting a typo is one thing. Adding a substantive provision that reduces revenue and increases expenditures is another. Indeed, if no state created an exchange, the IRS regulation would cost nearly $700 billion over the coming decade.

In this case the enactment process militates against a judicial rewrite. After the election of Scott Brown in January 2010, the Democrats lost their filibuster-proof majority in the Senate. That required the Democrats to accept an unfinished product as the final version, subject only to the modest changes available through the reconciliation process (which requires a simple Senate majority). Adler and Cannon point out: “Given the choice between a Senate bill with many provisions they did not like, or no bill at all, they opted to accept the former.” And in using the reconciliation process Congress did not add benefits for federally created exchanges.

Anyway, leaving out tax credits and subsidies for federal exchanges was not just a “drafting error.” Even Jost admits, “It is clear that the federal government favored state exchanges.” The mere fact that tax credits and subsidies for federally run exchanges would be consistent with the legislation does not mean they were intended to be part of the legislation. Jost assumes rather than proves that Congress intended other than it legislated. Jost, like the administration, wants the IRS to amend the law to read as he wishes, not as Congress intended.

Indeed, Adler and Cannon make a strong case that legislators knew what they were doing, that “this feature of the law was intentional and purposeful, and that the IRS’s rule has no basis in law.”

First, the legislation is clear. The text of the bill as passed is unambiguous. The relevant section only applies to state-run exchanges. Antecedent legislation that was subsumed by PPACA also failed to provide tax credits and subsidies for federal exchanges. Moreover, argue Adler and Cannon, “Neither the structure, history, nor other indicia of congressional intent support the IRS position.”

Backers of PPACA decided to rely on state-created exchanges. Obviously, Congress could have taken a different approach. In fact, Senate Finance Committee Chairman Max Baucus, who wrote much of the law, initially favored a federally established exchange. But his first “chairman’s mark” went with a state-based system, with federal exchanges as back-up.

Since the Constitution barred Uncle Sam from formally mandating state action, legislators provided financial incentives to win over recalcitrant states. Note Adler and Cannon, offering benefits only for state-established exchanges “is consistent with the PPACA’s modus operandi of using financial incentives to elicit a desired behavior.” There are penalties for individuals, employers, and states. (Indeed, the Supreme Court ruled that the cost to states that did not expand Medicaid was so onerous as to be unconstitutional.) Obamacare’s supporters appeared convinced that they would get their way.

For instance, the president declared that “by 2014, each state will set up what we’re calling a health insurance exchange.” Secretary Sebelius insisted that states were “very eager” to establish exchanges. President Obama and the congressional authors of PPACA probably did not expect to encounter widespread resistance. After all, the alternative to state action was a federal takeover without politically attractive benefits. The law’s supporters may have been foolish, but it is not up to the IRS to remake the law in response.

To override the obvious would require substantial evidence of contrary intent, but none exists. In fact, Senator Baucus stated that benefits were provided only to state-run exchanges. And that comment, observe Adler and Cannon, “is the only instance we found of a member of Congress discussing whether tax credits would be available in federal exchanges, and it flatly and authoritatively contradicts the IRS position.”

Backers of an administrative rewrite contend that the results of the law, as passed, are, well, absurd — that, in the words of a prior Supreme Court decision, “will produce a result demonstrably at odds with the intentions of its drafters.” However, many laws passed by Congress have absurd results.

PPACA is no different. Adler and Cannon point out that “In at least two other instances, Congress displayed an even higher tolerance for iatrogenic instability.” Legislators imposed community-rating on health insurance for children with no additional requirements, destroying the market for such policies in many states. And the administration gave up on the Community Living Assistance Services and Support Act, designed to cover long-term care, because the law as written was unsustainable.

Anyway, the alleged absurdity results not from how Obamacare was written, but from Congress’s erroneous assumption that states would rush to establish exchanges. The judiciary is not empowered to correct legislators’ judgment errors.

In fact, the administration appears to be suffering from a case of buyer’s remorse. States were supposed to establish exchanges. But they haven’t. Congress did not provide for that possibility by backing federally created exchanges in the same way. So the administration wants to insert the provision via administrative fiat.

PPACA backers also claim general administrative authority to interpret and implement statutes, but agencies can only operate based on legislative authority. If the executive can issue any rule “consistent” with rather than authorized by a law, there are few things that it cannot do — which truly would be an absurd result. Obamacare is massively complex; a wide variety of provisions could conceivably be consistent with the law’s professed objectives. But turning them into law is a job for legislators, not bureaucrats.

Obamacare does many things, most bad. However, it only authorizes tax credits and subsidies for “a governmental agency or nonprofit entity that is established by a State.” That does not include the federal government. The evidence suggests this is what Congress intended.

Maybe legislators were overly confident that their incentives would be sufficient to goad states to act. However, that mistake would not justify an IRS rewrite of the law. Only Congress can authorize tax credits and subsidies. Agencies have substantial discretion but, conclude Adler and Cannon, “they cannot write their own laws, impose taxes, issue tax credits, spend federal revenue, incur new federal debt, or create new legal entitlements without congressional authorization.”

Apparently the Obama administration does not understand this basic constitutional fact. But then, respecting the Constitution is obviously not a priority for the president who once taught constitutional law. It is now up to the courts to protect the rule of law.

Doug Bandow is a senior fellow at the Cato Institute. A former special assistant to President Ronald Reagan, he is the author and editor of several books, including Foreign Follies: America’s New Global Empire (Xulon).