The New Obamacare Problems

Further legal opposition to Obamacare has been bubbling up all over the place. The attack with the greatest likelihood of success seems to be one that threatens to deny both the subsidies to middle and lower income folks for insurance costs as well as employer penalties for failing to provide insurance in those states that choose not to set up insurance exchanges. As you may know, the Obamacare structure for expanding insurance coverage is the creation of "exchanges" in each state which will function only to sell federally approved insurance policies. Anyone without insurance will be able to buy it through the exchange. The plan was that anyone who earns less than four times the poverty limit (which means something like 70% of the country) will get a federal subsidy that will be funded in part by the payment of penalties by employers who fail to provide insurance to their employees.

The problem now faced by the Obamacare proponents is that the language of the statute limits the ability of the federal government to provide the subsidies to folks who buy insurance from exchanges created by a state. Further, the feds can collect the penalty/tax from employers only in states where exchanges have been created by the state. Normally, that would not be a problem, since each state would have an exchange. So far, however, 17 states have decided not to create an exchange. Nine more are still considering whether or not to create such an exchange. The law calls on the federal government to create an exchange when the state fails to do so, but the clear language of the statute allows for a subsidy only for those who buy insurance from exchanges created by the state rather than the federal government. This provision seems intended to encourage states to create the exchanges in order to let their citizens get the federal subsidies.

With about half of the American people living in states that have refused to create exchanges, the benefits of Obamacare and its goal of increasing insurance coverage would be greatly damaged if the feds only paid subsidies to those who buy insurance through the state created exchanges. As a result, the IRS issued a ruling that states that subsidies can be paid to those who buy insurance through exchanges created by states or the federal government. Similarly, the penalties on businesses can be collected in all states that have exchanges no matter the creator according to the IRS. The problem with the IRS ruling, however, is that it directly contradicts the clear language of the statute.

Due to some arcane legal rules, no one can challenge the IRS ruling in court until 2014 when it first gets put into practice. In just over one year, however, we can expect to see an onslaught of suits challenging both the subsidies and the penalties in all the states without exchanges. These will be simplistic suits. The issue is whether or not the clear language of the law prevails or if the court will determine that the intent of the statute was to allow the subsidies and penalties everywhere. Legal rules of statutory interpretation require that the language of a statute prevails over interpretations which would conflict with that language. Determining intent is fine if there is a lack of clarity in the statute, but not when the words are unmistakable in their meaning. We know that the Obamacare statute cannot be amended to deal with this problem; the GOP in the House would never vote for such a bill.

The truth is that Obamacare may well fall due to this problem. Indeed, only the retirement and replacement of some of the current Supreme Court justices with more who are prepared to vote based upon politics rather than legal principles will likely save the Obamacare structure.