TaxProf Blog

Editor: Paul L. Caron
Pepperdine University School of Law

A Member of the Law Professor Blogs Network

Thursday, December 13, 2012

Adler: The Illegal IRS Rule on Health Insurance Exchanges

Following up on my previous post (links below):  The Volokh Conspiracy, The Illegal IRS Rule on Health Insurance Exchanges -- A Reply to Bagenstos, by Jonathan H. Adler (Case Western):

One component of the PPACA (aka Obamacare) provides for the creation of health insurance exchanges in each state in which consumers may purchase health insurance. The PPACA’s supporters anticipated that every state would create its own exchange, and the law provides for tax credits and subsidies for the purchase of qualifying health insurance plans in state-run exchanges. Yet as Michael Cannon and I pointed out the PPACA does not authorize tax credits and subsidies in exchanges run by the federal government. This is a potential problem because at least twenty states are refusing to create their own exchanges and are defaulting to the federal option. In response, the IRS issued a rule to authorize tax credits and subsidies in federal exchanges. The only problem, as Cannon and I explain at length in a forthcoming article in Health Matrix, the IRS rule is illegal. Now the rule is being challenged in court by Oklahoma in a suit legal analyst Stuart Taylor calls “by far the broadest and potentially most damaging of the legal challenges” to PPACA implementation, and more suits are likely.

The IRS defends its rule, but has had difficulty providing much by way of justification beyond vague references to congressional intent. Now comes my friend Samuel Bagenstos, at his Disability Law blog and Balkinization, arguing that Cannon and my arguments are “nonsensical” and “deeply legally flawed.” Bagenstos is a serious scholar, and his arguments are clever, but they do not sustain the case for the IRS rule.

Bagenstos’ central argument is similar one advanced by Tim Jost on the Health Affairs blog (and to which Cannon and I responded here). Essentially he argues that the PPACA makes federal fallback exchanges the legal equivalent of state-run exchanges and therefore any tax credits or subsidies authorized in the latter must be available in the former as well.

Prior TaxProf Blog coverage:

http://taxprof.typepad.com/taxprof_blog/2012/12/adler-the-illegal.html

Scholarship, Tax | Permalink

TrackBack URL for this entry:

http://www.typepad.com/services/trackback/6a00d8341c4eab53ef017ee630c149970d

Listed below are links to weblogs that reference Adler: The Illegal IRS Rule on Health Insurance Exchanges:

Comments

Alder's legal reasoning may be correct, but ObamaCare was not upheld on the basis of legal reasoning. It was upheld on a political calculation, with 5 Justices rewriting the law to fit a tortured rationalization.

Given that history, the Oklahoma case is doomed no matter how solid its legal reasoning may be.

Posted by: AMTbuff | Dec 13, 2012 12:58:09 PM