Will "Halbig" Be Obamacare’s Undoing?

What if Obamacare subsidies disappear? This week a critical decision is expected on Halbig vs. Burwell, formerly titled Halbig vs. Sebelius. The case challenges the IRS for providing millions of dollars in Obamacare subsidies to people in 36 states through the federal exchange, Healthcare.gov. Waiting in the wings is Pruitt vs. Burwell, a case filed by the Oklahoma Attorney General that also challenges the subsidies. One or both cases could end up in the Supreme Court.

Halbig plaintiffs say the law allows subsidies only through a state exchange. And because the mandate and its penalties are hinged on the existence of Obamacare premium subsidies, actually called Advanced Premium Tax Credits (APTC), Halbig claims harm done. Without subsidies, there's no mandate and no penalties. (see press release below)

The authors of Obamacare thought they were being clever -- twice. First, they established the state health insurance exchanges with language making it appear as a mandate (Section 1311). Then because the U.S. Constitution prohibits the federal government from "commandeering" a state through such a mandate, they created the federal exchange as a fallback position in a separate section of the law (Section 1321).

They hoped states would accept the mandate, never see Section 1321, and forget the Constitutional prohibition on commandeering. They never intended to build a federal exchange (now called Healthcare.gov) and they gave themselves no money to do so. Thus, as they testified, 30-40% of it is not even built.

This is the portion of the statute (PPACA) in question:

SEC. 1401(a) In General.--Subpart C of part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 (relating to refundable credits) is amended by inserting after section 36A the following new section:

SEC. 36B (a) In General.--In the case of an applicable taxpayer, there shall be allowed 
             as a credit against the tax imposed by this subtitle for any taxable year 
             an amount equal to the premium assistance credit amount of the taxpayer for
             the taxable year.

         (b) Premium Assistance Credit Amount.--For purposes of this section--
        
             (1) In general.-- <> The term `premium assistance 
                 credit amount' means, with respect to any taxable year, the sum 
                 of the premium assistance amounts determined under paragraph (2)
                 with respect to all coverage months of the taxpayer occurring 
                 during the taxable year.
 
             (2) Premium assistance amount.--The premium assistance amount determined
                 under this subsection with respect to any coverage month is the amount
                 equal to the lesser of--

                    ``(A) the monthly premiums for such month for 1 or more 
                          qualified health plans offered in the individual   
                          market within a State which cover the taxpayer, the 
                          taxpayer's spouse, or any dependent (as defined in 
                          section 152) of the taxpayer and which were enrolled in 
                          through an Exchange established by the State under 1311 
                          of the Patient Protection and Affordable Care Act, or

                    ``(B) the excess (if any) of--
                           ``(i) the adjusted monthly premium for such 
                                 month for the applicable second lowest cost silver 
                                 plan with respect to the taxpayer, over
                          ``(ii) an amount equal to 1/12 of the product 
                                 of the applicable percentage and the taxpayer's 
                                 household income for the taxable year.

Analysis & Commentary

36B(b)(2) specifies the premium assistance amount is equal to the lesser of "A" or "B" [that is: the lesser of SEC. 36B(b)(2)(A) or SEC. 36B(b)(2)(B)].

How to you suppose that the premium assistance credit amount due the taxpayer is the lesser of their premium under (A) [explicitly specified as a state exchange under 1311], or (B) [which is claimed includes federal plans]? Is the taxpayer in both a state and federal exchange and whichever is the lesser premium applies?

If the claim that 36B(b)(2)(B) includes federal exchanges is correct, then 36B(b)(2)(A) must also include federal exchanges, something it explicitly does not do. Therefore 36B(b)(2)(B) must necessarily also refer to Exchanges established by the State under 1311, otherwise 36B(b)(2) would be meaningless because a taxpayer can not be enrolled in both a state and federal exchange and whichever is the lesser amount applies.

The PPACA explicitly allows tax credits for state-run exchanges and excludes such credits for federally run exchanges.

The IRS makes the absurd claim that “Exchange established by the State under 1311” includes “Exchange established by the Federal government under 1321"

Courts can not read out of the statute clauses or introduce absurdities where non exist just to satisfy what an agency, the IRS, claims is Congress's intent. The statute as written expresses Congress' intent.

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