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Seven Myths about King v. Burwell

November 10, 2014 in Economics

By Michael F. Cannon

Michael F. Cannon

The Supreme Court has granted cert. in King v. Burwell, one of four cases challenging the IRS’s ongoing expansion of the Patient Protection and Affordable Care Act’s main taxing and spending provisions beyond the clear and unambiguous limits imposed by Congress. Here I will attempt to dispel common myths surrounding these “Obamacare” cases.

Myth #1: King v. Burwell is a challenge to the ACA.

It is legally and factually incorrect to describe these cases as “challenges to the ACA.” This is particularly important because the actual legal posture of these cases is far more troubling.

The plaintiffs in King are not asking the Supreme Court to block any part of the ACA. They are asking the Court to uphold the Act by blocking the IRS’s unilateral attempt to strike down the Act’s clear language. Here’s how.

Section 1311 directs states to establish exchanges, and Section 1321 directs the federal government to establish exchanges “within” any state that fails to do so.

Section 1401 authorizes subsidies (nominally, “tax credits”) for exchange enrollees whose household income falls between 100 and 400% of the federal poverty level, who are not eligible for qualified employer coverage or other government programs, and who enroll in coverage “through an Exchange established by the State.” Each of these eligibility restrictions is as clear as the next.

It is legally and factually incorrect to describe this case as ‘a challenge to the ACA.’”

The statute makes no provision for subsidies in federally established exchanges.

The mere availability of exchange subsidies triggers penalties under the ACA’s employer and individual mandates. Under the statute, then, if a state does not establish an exchange: (1) those subsidies are not available; (2) a state’s employers are exempt from the employer mandate; and (3) the lion’s share of its residents are exempt from the individual mandate.

This appears to have been the IRS’s initial interpretation of the statute, at least until something went terribly wrong.

Early drafts of the IRS’s implementing regulations reflected the statutory requirement that exchange subsidies are available only through “an Exchange established by the State.” Following sweeping Republican gains in state governments in 2010 and discussions with the White House and Treasury Department, however, the IRS changed its draft regulations in March 2011.

In August 2011, the IRS issued a proposed rule announcing it would provide tax credits (and implement the resulting penalties) in states with federal exchanges too. Treasury and IRS officials later admitted to congressional investigators they …read more

Source: OP-EDS

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