A New Court Battle for ObamaCare

The killer loophole the Obama administration didn't see coming.

00_GOV_shutterstock_49894069_gavel_659pxIn a bombshell development that could potentially cripple ObamaCare, U.S. District Judge Paul Friedman ruled that the lawsuit aimed at blocking health care subsidies in states not running their own healthcare exchanges could move forward. The judge denied a request by U.S. Department of Justice (DOJ) to dismiss the suit, but also declined to grant a preliminary injunction sought by the plaintiffs in the case. Friedman has promised to rule on the overall merits of case by mid-February.

The plaintiffs in Halbig v. Sebelius contend that the Affordable Healthcare Act offered states a series of "carrots and sticks" to encourage them to set up healthcare exchanges. According to the suit, the biggest carrot was the offer of insurance premium subsidies, in the form of refundable tax credits from the U.S. Treasury, to low- and moderate-income resident in states that set up the exchanges. If a state refused, the stick was a federally-established, federally-run exchange with no subsidies at all.

The suit notes that, despite clear statutory language limiting premium assistance to states that set up their own exchanges, the Internal Revenue Service (IRS) established its own regulation, the Subsidy Expansion Rule, authorizing subsidies in states with federally-run exchanges. In doing so, the IRS ignored the text of the law, as well as "the clear limitations Congress imposed on the availability of federal subsidies."

Thus, despite the fact that only 16 states and the District of Columbia have set up their own exchanges, the IRS expanded the availability of subsidies to the other 34 states that didn't. According to DOJ attorney Joel L. McElvain, they did so because Congress never intended to favor some states over others with regard to ObamaCare. He insisted the Department of Health and Human Services was prepared to “stand in the shoes” of states that decided to let the feds run their exchanges. He further contended the failure to do so would "extinguish" the rights of those seeking affordable healthcare in those states.

One of the plaintiffs' attorneys, Michael A. Carvin, contended the federal government's approach amounted to giving each state “an offer you can’t refuse,” tempting them with generous subsidies to get them to set up state-run exchanges. When they refused to do so, the administration chose to ignore the law.

The plaintiffs take their argument one step further. They note that, according to the law, there are individuals who are exempt from buying health insurance if it is determined its purchase is "unaffordable." Without the subsidies engendered only by state-run exchanges, many more people would be exempt from buying insurance. As a tangential result, they would also be exempt from paying the fine associated with failing to do so.

Moreover, if employees in those same states are ineligible for subsidies, employers who would otherwise be on the hook for "assessable payments" triggered by the employer mandate part of the bill would also be exempt. For these reasons, the lawsuit contends the Obama administration is attempting to illegally administer ObamaCare, subjecting millions of individuals and businesses to fines who shouldn’t have to pay them.

Section 1311 of the healthcare law allows tax credits to certain people in state-run exchanges. Section 1321, which regulates federally run exchanges does not. Furthermore, the actual wording contained in Section 1311 of the law is clear: "An Exchange shall be a governmental agency or nonprofit entity that is established by a State," not through one set up by the federal government.

An IRS already enmeshed in a burgeoning scandal stayed true to form. On May 23, 2012 the agency finalized its own rule, completely bypassing Congress in the process, allowing subsidies to be implemented on both exchanges. The IRS insisted that “the relevant legislative history does not demonstrate that Congress intended to limit the premiums tax credit to State Exchanges. Accordingly, the final regulations maintain the rule in the proposed regulations because it is consistent with the language, purpose, and structure of section 36B and the Affordable Care Act as a whole.”

Note the critical difference in the two arguments being presented to Judge Friedman. The plaintiffs are demanding that the law be enforced as written. The Obama administration is arguing about what the law was intended to mean. They argue that Congress intended the online exchanges to be uniform, and that they weren't expecting states would fail to set up their own exchanges, or opt out of doing so for political reasons.

That the administration and Democrats couldn't imagine passing a massive entitlement without a single Republican vote against the wishes of a majority of the electorate would engender resistance is a testament to the unbridled hubris of the American left. It is a hubris buttressed by the reality that only 16 states of 50 decided to set up their own exchanges.

Ironically, the urgency of the administration's fight may be intensified due to the government shutdown. Subsidies, which are available to Americans with annual incomes up to 400 percent of the federal poverty level, or $94,200 for a family of four, are a critical component of the healthcare bill. Without them, health insurance becomes unaffordable for many Americans.

Prior to the shutdown, the Obama administration was prepared to follow through with another “tweak” to the law they unilaterally pushed through in July, when they announced the ObamaCare's requirement that the exchanges would have to verify the income of each enrollee was no longer operable. Instead, they were prepared to implement an honor system whereby the exchanges could "accept the applicant’s attestation regarding enrollment in eligible employer-sponsored plan . . . without further verification.” As part of the deal to end the shutdown, the requirement was reinstated.

Thus, another effort by the administration to play fast and loose with the law was extinguished. A challenge to yet another administration tweak has ended up in court as well. A Boca Raton orthodontist, characterized by the leftist Palm Beach Post newspaper as a "conservative activist," has filed suit challenging President Obama's unilateral decision to suspend the employer mandate part of ObamaCare until 2015. Larry Kawa, who is being represented by Judicial Watch filing suit on behalf of Kawa Orthodontics, contends that he “expended substantial time and resources, including money spent on legal fees and other costs” preparing his 70-employee practice for a law that was supposed to be implemented beginning Jan. 1, 2014. The plaintiffs contend the delay “exceeded the Obama administration’s statutory authority, is arbitrary, capricious, and contrary to the law, and is otherwise unlawful,” according to Judicial Watch president Tom Fitton. The U.S. Treasury, Treasury Secretary Jack Lew, the IRS and IRS Acting Director Daniel Werfel have been named as defendants.

“I have standing because I have made investments of both time and money, as a law abiding citizen and a local business owner to make sure that my business was in compliance with the law," says Kawa. “And as soon as I did that, this president moved the goal posts.” The suit was filed in the U.S. District Court for the Southern District of Florida.

The findlaw.com website contends the suit is unlikely to succeed because the Obama administration's "rational basis" for delaying the law, as in giving employers more time to comply, will be persuasive enough to prevail in court. If that is the case, one is left to wonder when the chaos surrounding the implementation of the individual mandate--ironically complicated even further by the additional numbers of Americans forced onto the exchanges by the delay in the business mandate--will be subjected to the same reasoning in a court of law.

In short, the cracks engendered by this hastily written, hastily passed mess of a law are beginning to widen. Yet in keeping with their normal modus operandi, the Obama administration will attempt to strong-arm its way through the legal minefields that await. It is up to the courts to put the brakes on its "by any means necessary" implementation of ObamaCare. It is up to Republicans to inform Americans that respect for the rule of law "as written" as opposed to what a particular administration from either party contends was "intended," is the only thing that keeps us from becoming a banana republic.

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