10.28.2013 0

How federal exchanges could kill Obamacare

ObamacareBy Robert Romano

Even if Healthcare.gov is fixed, the federal exchanges available on it may yet prove to be the law’s Achilles heel.

The U.S. District Court for the District of Columbia is allowing a case to move forward that could gut Obamacare insurance subsidies in 34 states that opted not to implement state-run exchanges.

If the plaintiffs prevail, the American people will be able to thank those governors that fought hard in the past year to opt out of Obamacare. Because of their decision, under the law, the government has to create a federal exchange in lieu of the state-run exchange.

But, the problem is the law never allowed those federal exchanges to issue subsidies for insurance policies. Only state-run exchanges were given that privilege.

According to a recent study by Case Western Reserve University School of Law’s Jonathan Adler and the Cato Institute’s Michael Cannon, “Taxation without representation: The illegal IRS rule to expand tax credits under the PPACA,” a federal exchange that would be implemented “lacks statutory authority” to dispense the insurance subsidies.

In the study, Adler and Cannon made the case that “An Internal Revenue Service (IRS) rule purports to extend these tax credits and subsidies to the purchase of health insurance in federal exchanges created in states without exchanges of their own.”

The problem, according to Adler and Cannon, is that the “text, structure, and history of the Act show that tax credits and subsidies are not available in federally run exchanges. The IRS rule is contrary to congressional intent and cannot be justified on other legal grounds.”

This creates a real problem legally for the Obama Administration in states that a federal exchange is implemented. By not implementing the state exchange, governors such as Rick Perry in Texas or Bobby Jindal in Louisiana gave potential plaintiffs in affected states the standing to sue against the new IRS rule.

A combination of not executing the insurance subsidies and opting out of the Medicaid expansion would effectively defund the law in those states. That is because states under the 2012 Supreme Court ruling by John Roberts upholding parts of the law are not obligated to expand Medicaid eligibility.

In other words, these brave governors created an avenue to fight against the implementation of the law. For everyone who does not wish to be under Obamcare’s thumb, these governors may have created the final judicial firewall that may be wielded against the law.

If courts do rule that federal exchanges in fact do not have the legal authority to disperse the insurance subsidies, the law would effectively be gutted. States that want to take out the law for their citizens would be able to do so.

It’s not over yet.

Robert Romano is the senior editor of Americans for Limited Government.

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