The debate over President Obama’s health-care law has taken another twist. Now conservatives and libertarians are defending it, while the administration tries to toss part of the legislation out.
The reason: The drafters of the law outsmarted themselves and handed their opponents a weapon. Now they’d like to pretend the law doesn’t say what it does.
Obama’s plan makes tax credits available to people who get health insurance from exchanges set up by state governments. If states don’t establish those exchanges, the federal government will do so for them. But federal exchanges don’t come with tax credits: The law OKs credits only for people who get insurance from state-established exchanges.
And that creates some problems the administration didn’t foresee, and now hopes to wish away.
Legislative debate over the law didn’t go into great detail about these provisions. We can surmise what happened, though. To encourage states to set up the exchanges, the bill’s authors offered the states a deal: If they did so, they’d get to write their own rules and their citizens would be able to get the tax credit.
The law’s supporters also expected the health-care law to become more popular over time. That hasn’t happened. Many states are determined in their opposition, and few of them have set up exchanges.
If they don’t, the tax credits don’t go into effect and the federally established exchanges won’t work: People won’t be able to afford the insurance available on them without the subsidy.
States have another incentive to refrain from setting up exchanges: It protects companies and individuals in the state from tax increases.
The law introduces penalties up to $3,000 per employee for firms that don’t provide insurance — but only if an employee is getting coverage with the help of a tax credit. No state exchanges means no tax credits and thus no employer penalties.
The law also penalizes people for not buying insurance. In some cases, being eligible for a tax credit and still not buying insurance subjects you to the penalty. So, again, no state exchange means no tax credit and thus fewer people hit by the penalty.
The administration’s response to the impending failure of its signature legislation — a failure resulting entirely from its flawed design — has been to ignore the inconvenient part of the law.
In May, the IRS decided it would issue tax credits to people who get insurance from exchanges set up by the feds. It has thus exposed firms and individuals to taxes and penalties without any legal authorization.
Obviously, that situation sets the stage for lawsuits. The plaintiffs will have a strong case. Prof. Jonathan Adler of Case Western and Michael Cannon of the Cato Institute point out that every health bill advanced by Senate Democrats clearly made tax credits conditional on states’ establishment of exchanges. Plus, in debate over the bill, Sen. Max Baucus (D-Mont.) explicitly said the same thing.
The law’s supporters may be tempted to dismiss the challenge to the IRS. That would repeat a mistake: They were contemptuous of the constitutional case against the law, too.
Timothy Jost, a Washington and Lee University law professor, even wrote that the attorneys who brought the suits should face professional sanctions for filing frivolous cases. In the end, the Supreme Court sided with the plaintiffs on their constitutional claims, in one case by a 7-2 margin, upholding the law only by removing parts of it.
There will be many more court battles over the health-care law, because it involves so many legally dubious expansions of bureaucratic power. There are also lawsuits against the administration’s ruling that almost all employers must provide coverage for contraception and sterilization, a decision that conflicts with the Religious Freedom Restoration Act.
The law’s supporters see such legal attacks as proof of the opposition’s fanaticism. Defending the IRS’s action, Jost asks, “What is it about extending the benefits of our health-care system to millions of uninsured Americans that so troubles opponents?” One answer: It’s troubling that this expansion of benefits is being done in such a lawless way.
The health-care plan the Obama administration got enacted isn’t going to work. That doesn’t mean they get to rewrite the law unilaterally as they go. It means they should have passed a different law.
Ramesh Ponnuru is a senior editor at National Review.©2012, Bloomberg News