Will “Halbig” Be Obamacare’s Undoing?



July 17, 2014
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What if Obamacare subsidies disappear? This week a critical decision is expected on Halbig vs. Burwell, formerly titled Halbig vs. Sebelius. The case challenges the IRS for providing millions of dollars in Obamacare subsidies to people in 36 states through the federal exchange, Healthcare.gov.  Waiting in the wings is Pruitt vs. Burwell, a case filed by the Oklahoma Attorney General that also challenges the subsidies. One or both cases could end up in the Supreme Court.
Halbig plaintiffs say the law allows subsidies only through a state exchange. And because the mandate and its penalties are hinged on the existence of Obamacare premium subsidies, actually called Advanced Premium Tax Credits (APTC), Halbig claims harm. Without subsidies, there’s no mandate and no penalties. 
The authors of Obamacare thought they were being clever -- twice. First, they established the state health insurance exchanges with language making it appear as a mandate (Section 1311). Then because the U.S. Constitution prohibits the federal government from “commandeering” a state through such a mandate, they created the federal exchange as a fallback position in a separate section of the law (Section 1321).
They hoped states would accept the mandate, never see Section 1321, and forget the Constitutional prohibition on commandeering. They never intended to build a federal exchange (now called Healthcare.gov) and they gave themselves no money to do so. Thus, as they testified, 30-40% of it is not even built.
Second, the authors said federal Obamacare subsidies could only be issued by state-established exchanges. This was a bribe: If governors and state legislators agree to build an exchange with federal dollars and then maintain it with hundreds of millions of state dollars and fees on users, the federal government would agree to give their constituents money to pay the higher cost of Obamacare coverage.
But 36 states saw the trap and refused to build a state exchange. They didn’t want to cede state control over health care -- state exchanges are state exchanges in name only. HHS controls everything about them -- and they didn’t want to be on the hook for the tens to hundreds of millions of dollars it would take to run the website.
So Obama’s IRS took matters into their own hands. They declared an interpretation of the law that was not the plain language of the law. Their final rule made subsidies available from any exchange including “a State Exchange, regional Exchange, subsidiary Exchange, and Federally-facilitated Exchange.” As the May 23, 2012 final IRS rule notes:
“Commentators disagreed on whether the language in section 36B(b)(2)(A) limits the availability of the premium tax credit only to taxpayers who enroll in qualified health plans on State Exchanges.
“The statutory language of section 36B and other provisions of the Affordable Care Act support the interpretation that credits are available to taxpayers who obtain coverage through a State Exchange, regional Exchange, subsidiary Exchange, and the Federally-facilitated Exchange. Moreover, the relevant legislative history does not demonstrate that Congress intended to limit the premium tax credit to State Exchanges.”  [emphasis added]
Law is not about arbitrary interpretations of language or history. Law is black words on a white page. The court should rule for Halbig plaintiffs using the plain language of the law. They could even acknowledge the Faustian bargain Congress and the administration hoped states would make when Congress limited subsidies to State Exchanges.
Look for sparks to fly no matter how the court rules. The Obama administration has been caught in a clever scheme. This lawsuit could shut down the scheme -- and the law.
Working to make Obamacare a tiny footnote in American history,
Twila Brase
President and Co-founder