The state of Oklahoma is challenging an IRS regulation allowing the federal insurance exchange to give qualified people a subsidy in order to buy health coverage. Oklahoma argues that the law only authorizes premium subsidies for state-based insurance exchanges. The House of Representatives also has launched inquiries and initiated oversight hearings into the IRS rule.
Health experts and legal scholars point out that the IRS rule violates the law’s plain text. In fact, the issue is even more serious. If the IRS offers premium subsidies through the federal exchange, Administration officials will violate a criminal statue called the Antideficiency Act (ADA).
Taxpayer Premium Subsidies and Health Insurance Exchanges
The health care law allows each state to establish a health insurance exchange that meets specific federal requirements. Starting in 2014, uninsured people earning between 100 percent and 400 percent of the federal poverty level will be eligible for federal subsidies to help them pay the health insurance premium in these exchanges.
If a state decides not to create its own exchange, then the Obama Administration steps in and operates the federal exchange in that state. However, as written, the health care law does not allow people who buy health insurance through the federal exchange to receive a government subsidy. Section 1311 of the law instructs state governments to set up an exchange. If a state fails to create its own exchange, then Section 1321 directs the federal government to establish an exchange in that state. The health care law is clear that uninsured people, meeting specific requirements, are only eligible to receive federal subsidies to help pay the insurance premium under Section 1311.
IRS Rule Ignores Letter of the Law
On August 17, 2011, the IRS issued a proposed regulation implementing another key part of the law -- Section 1401 -- that sets unambiguous parameters the Administration must use to calculate and provide premium subsidies to eligible people buying health insurance in the exchange. Section 1401 of the health care law clearly states that a person may receive a premium subsidy if he or she is “enrolled in through an Exchange established by the State under 1311 of the Patient Protection and Affordable Care Act.”
The IRS regulation, however, indicated federal spending would occur not only under the provisions of Section 1311, as set forth in Section 1401, but under another section as well. The proposed rule ignores the law and offers premium subsidies to people under both Section 1311 (state exchange) and Section 1321 (federal exchange).
Despite multiple warnings that the Administration had no legal authority to expand premium assistance to include the federal exchange, the IRS moved forward anyway. On May 23, 2012, the IRS finalized its regulation allowing subsidies to flow in both state and federal exchanges. The final rule says: “the relevant legislative history does not demonstrate that Congress intended to limit the premiums tax credit to State Exchanges. Accordingly, the final regulations maintain the rule in the proposed regulations because it is consistent with the language, purpose, and structure of section 36B and the Affordable Care Act as a whole.”
This move bypassed Congress – effectively allowing the Administration to rewrite a provision of the law. A Congressional Research Service (CRS) legal analysis raised concerns that the IRS did not implement the law as written.
“[A] strictly textual analysis of the plain meaning of the provision would likely lead to the conclusion that the IRS’ authority to issue the premium tax credits is limited only to situations in which the taxpayer is enrolled in a state-established exchange. Therefore, an IRS interpretation that extended tax credits to those enrolled in federally facilitated exchanges would be contrary to clear congressional intent … and likely be deemed invalid.” – CRS
What Is the Antideficiency Act?
Passed in 1870, the ADA prohibits unauthorized government spending. The statute, 31 U.S.C. § 1341, mandates all federal agencies comply with authorized budgets and appropriations requirements outlined in law. It strictly prohibits any government official from spending money or incurring liabilities in excess, or in advance, of congressional appropriations. Experts describe the ADA as the “statutory mechanism by which Congress guards its appropriations power” and the “cornerstone of congressional efforts to bind the Executive branch of government to the limits on expenditure of appropriated funds.”
The ADA is not an arcane law, but in fact an important oversight enforcement tool. Should any agency determine that an ADA violation has occurred, that agency is required to “report immediately to the President and Congress all relevant facts and a statement of actions taken.” Any federal employee or officer found to have willingly violated the ADA must undergo administrative discipline procedures – meaning immediate suspension without pay or removal from office. The employee may also face criminal punishments including fines of up to $5,000, a two year prison sentence, or both.
Obama Administration Would Violate the Antideficiency Act
Although the premium subsidies are classified as tax credits, they are largely scored as “outlays” (i.e. federal spending) by the CBO. The IRS regulation confirms the CBO analysis, clearly stating that subsidy payments are sent directly from the federal government to the issuer of the qualified health plan, not to the person buying the insurance. This is federal spending that will be subject to future sequestration under the Budget Control Act of 2011 (P.L. 112-25).
If the Obama Administration continues down this path, its agency officials will be providing federal subsidies without authorization. The IRS regulation leaves no doubt federal spending will occur under two separate sections of the health care law (1311 and 1321), but the law only allows premium subsidy expenditures under one section (1311). If unauthorized federal spending were to occur by providing premium subsidies for coverage purchased from the federal exchange created under section 1321, then the Treasury Department and enabling officials would be in direct violation of the ADA.
ADA violations can encompass all aspects of federal spending. In 2008, the Government Accountability Office said the Federal Aviation Administration did not have the authority to auction airport arrival and departure slots at three New York area airports – and then retain and use the proceeds. Additionally, GAO warned if the agency pursued a regulation allowing the auction – resulting in fee collection – then the FAA would be in violation of the ADA.
President Obama continues to proclaim – on one issue after another – that if Congress fails to pass his legislative agenda then he will act alone. In this vein, his Administration has issued over 20,000 pages of health care regulations since passage of his health care law three years ago. Clearly, the President finds democracy’s checks and balances inconvenient, as he repeatedly demonstrates a preference to circumvent the law and expand executive power.
“This is something I’ve struggled with throughout my presidency. The problem is that I’m the President of the United States, I’m not the emperor of the United States. My job is to execute laws that are passed.”– President Obama, February 2013
In this latest move, the Obama Administration has stepped beyond its “above the law” rhetoric and begun implementing “against the law” policies.
The Treasury Department believes it is interpreting the “spirit” of the law, but the President’s health care law must be implemented as written. The Administration cannot arbitrarily change the law as they see fit – no matter what their intentions were when the bill was originally drafted. President Obama may want a different health care law than the one he and other Washington Democrats pushed through Congress. But that does not give him the right to circumvent Congress and rewrite legislative text. It certainly does not give Administration officials permission to break the law.