Is Obamacare Unworkable as Written?

January/​February 2015 • Policy Report

Back in 2011 the Internal Revenue Service quietly reversed its interpretation of a crucial aspect of the Patient Protection and Affordable Care Act, commonly known as Obamacare. As written, the law offers subsidies to those who purchase insurance through an exchange “established by the State.” When 36 states refused to establish exchanges, however, the IRS announced that it would issue these subsidies — and the taxes they trigger — through federally run exchanges. This was a clear departure from the language of the law. Michael Cannon, Cato’s director of health policy studies, and Jonathan Adler, a law professor at Case Western Reserve University, were the first to blow the whistle — prompting two states, dozens of public school districts, and a handful of taxpayers to file four separate lawsuits.

At a Cato Institute Conference in October, “Pruitt, Halbig, King, & Indiana: Is Obamacare Once Again Headed to the Supreme Court?” leading experts, including the attorneys general behind Pruittand Indiana, came together to discuss these lawsuits. According to the New York Times, “The cases are part of a continuing, multifaceted legal assault on the Affordable Care Act that began with the Supreme Court challenge to the law and shows no signs of abating.” Greg Zoeller, attorney general of Indiana, began the conference by detailing the intricacies of the challenge in his state.

Along with multiple school districts, Zoeller claims that the employer mandate should not apply to local governments, which raises “substantial constitutional questions” in turn. “This is really a question of whether the federal government now has the authority to regulate state sovereigns under the taxing authority,” he said. “It’s the obligation of states to check Washington.”

Cannon went on to discuss the D.C. Circuit ruling in Halbig and what it means for health care reform in general. “What they did in Halbig is they ruled that the president of the United States is violating the law — and not in a small way,” he said. The court looked at the totality of the evidence and, according to Cannon, reached the only conclusion the law and the evidence permit. “It rejected the seemingly endless string of legal arguments the administration offered in defense of its actions,” he said. Jonathan H. Adler, the Johan Verheij Memorial Professor of Law at Case Western Reserve University, added that the issues in King are much the same as those in Halbig. According to Adler, this is another case of “the federal government using taxes on private parties as a way of trying to get states to sing the government’s tune.” The Supreme Court has scheduled oral arguments in King for March 4.

Scott Pruitt, attorney general of Oklahoma, offered his perspective on Pruitt v. Burwell, in which a federal court ruled that the Obama administration is unlawfully subjecting more than 50 million individuals and employers to illegal penalties. “While the president’s health law is vast and extraordinarily complex, it is in one respect very simple,” Pruitt said. Subsidies should be available, and taxes assessed, only in states that create their own health care exchange. The distinction is “critical,” he said, because at its core the law rests on these subsidies and the attached penalties. “This is a huge problem for the administration, which desperately needs to hand out tax credits and subsidies to the citizenry to quash the swelling backlash against the law,” Pruitt concluded.

The Cato Institute, for its part, has remained at the forefront of this battle since the beginning. “Cannon has spent the past three years testifying in countless statehouses, imploring legislators not to implement Obamacare. Now, he’s gotten the Supreme Court listening,” Voxwrote in a profile of him. “The lawsuit is a genuine existential threat,” they added — ultimately referring to Cannon as “the man who could bring down Obamacare.”

Download the Policy Report Article