On January 15, Judge Paul Friedman issued his opinion in Halbig v. Sebelius, upholding an IRS rule purporting to extend tax credits and cost-sharing subsidies for the purchase of qualifying health insurance plans in health insurance exchanges established by the federal government. The decision has already been appealed, and the plaintiffs are seeking expedited review in the U.S. Court of Appeals for the D.C. Circuit.
Halbig is one of four cases challenging the IRS rule, and a decision in at least one of the other cases (King v. Sebelius in the Eastern District of Virginia) is expected shortly. In all four cases, the arguments made against the IRS rule parallel those made in a paper I co-authored with Michael Cannon, so you can imagine I’m not happy with the Halbig decision. Like David, I think it’s hard to argue that a statutory provision authorizing tax credits for the purchase of health insurance in an exchange “established by a state under Section 1311” can be read to authorize tax credits in exchanges that are neither established by a state nor established under Section 1311. I’ll have more on that in a later post. In the meantime, here’s my amicus brief with Michael Cannon in Halbig and some congressional testimony on the subject.
These cases present some interesting statutory interpretation and administrative law issues. I know at least one administrative law professor who put this scenario on his final exam. These cases could also have a significant impact on PPACA implementation. Newseek labeled Halbig “the case the could topple Obamacare.” That headline may have involved a bit of hyperbole, but only a bit. The reason is that, contrary to the expectations of most PPACA supporters, a majority of states refused to set up their own health insurance exchanges. Thus, if the challenges succeed and the IRS rule is struck down, there will be no federal tax credits or cost-sharing subsidies for the purchase of qualifying health insurance plans in a majority of states. Further, given the way the law is written, there will be no penalties on those employers that fail to offer qualifying health insurance to their employees either, as it is eligibility for subsidies that triggers these penalties.
Given the attention these suits have received — and given that I’ve been credited (blamed?) for bringing this argument to light — I thought it would be worth saying a bit more about where legal arguments came from. According to some accounts, the case against the IRS rule was a last-ditch argument cobbled together after the Supreme Court’s decision upholding the PPACA in NFIB v. Sebelius. Not quite. In actuality, the central claim on which these suits are based was first made well before NFIB was argued (let alone decided), and well before anyone recognized how limiting the availability of tax credits to states with their own exchanges would affect implementation of the law.
Attorney Tom Christina noted the express language of the PPACA limited tax credits to exchanges established by states under Section 1311 of the Act in a December 2010 presentation at AEI. I later discussed the relevant statutory language and its potential implications at a February 2011 symposium at sponsored by the Kansas Journal of Law & Public Policy at the Kansas University Law School. That presentation led to this paper. At the time, most of us saw the relevant language as yet another manifestation of “cooperative federalism,” as it appeared the federal government was using the lure of tax credits to induce state cooperation (as some had proposed when the PPACA was being drafted).
It was only later that some, such as my co-author Michael Cannon, realized how these provisions interacted with other portions of the statutes, and how they could affect PPACA implementation if, as it came to pass, a majority of states refused to play along. And it was only after the IRS proposed its rule purporting to authorize tax credits in federal exchanges that Michael and I began making the case that the IRS was acting beyond the scope of its delegated authority. As has also become clear, the IRS only belatedly considered whether it actually had the authority to issue such a rule in light of the statutory text. Given the tension between the statutory text and the IRS rule, litigation was inevitable if (as we also argued) there were plaintiffs who could demonstrate standing to sue.
The IRS offered no meaningful defense when it promulgated its rule — just a cursory and rather conclusory paragraph — but several prominent academics and legal commentators offered defenses on the IRS’s behalf, including Tim Jost, Abbe Gluck, Sam Bagenstos, and Simon Lazarus. (For responses to some of these arguments, see here, here, and here.) The government adopted some of these arguments in Halbig and it appears at least one federal judge has found them convincing enough. Yet as I noted above, this is but the first decision to address this issue, and it’s a decision with some flaws that I will address in my next post.