If Oklahoma Wins Lawsuit, ‘The Whole Structure’ of Obamacare ‘Starts to Fall Apart’

December 5, 2012

Oklahoma Attorney General Scott Pruitt has filed a lawsuit challenging the Internal Revenue Service’s unlawful attempt to impose Obamacare’s taxes on exempt employers and individuals. (Jonathan Adler and I plumb this issue in our Health Matrix article, “Taxation Without Representation: The Illegal IRS Rule to Expand Tax Credits Under the PPACA.”)

An article in a recent issue of Business Insurance cites a couple of experts on the potential impact of the lawsuit:

While the ramifications of the suit pending in the U.S. District Court in Muskogee, Okla., are huge, the challenge brought last month has gotten little attention…

What is clear is that the outcome of the lawsuit could be crucial for the future of the health care reform law, observers said.

If premium subsidies are not available in federally established exchanges, “No one would go to those exchanges. The whole structure created by the health care reform law starts to fall apart,” said Gretchen Young, senior vice president-health policy at the ERISA Industry Committee in Washington.

“The health care reform law would become a meaningless law,” added Chantel Sheaks, a principal with Buck Consultants L.L.C. in Washington.

Last month, Kaiser Health News described Oklahoma’s legal challenge as “by far the broadest and potentially most damaging of the legal challenges’ to Obamacare.

Supporters of the law scoff at the arguments …

But, confident of their case, some health law opponents, including Jonathan Adler of Case Western Reserve Law School, Michael Cannon of the libertarian Cato Institute, and National Affairs editor Yuval Levin, are urging Republican-led governments to refuse to set up the online insurance purchasing exchanges, which would, as the argument goes, make their residents ineligible for the tax credits and subsidies. They say that this step also would gut the so-called employer mandate, which the law says will take effect in states where residents are eligible for such assistance …

As even some health law supporters concede, the claim that Congress denied to the federal exchanges the power to distribute tax credits and subsidies seems correct as a literal reading of the most relevant provisions. Those are sections 1311, 1321, and 1401, which provide that people are eligible for tax credits and subsidies only if “enrolled . . . through an Exchange established by the state” [emphasis added].

It’s technically not correct to say that Oklahoma’s complaint is a challenge to Obamacare, however. That complaint does not challenge a single jot or tittle of the statute. Oklahoma is asking a federal court to force the IRS to follow the statute, and to prevent the Obama administration from imposing taxes on Oklahoma residents whom Congress expressly exempted. Oklahoma’s complaint is indeed “the broadest and potentially most damaging of the legal challenges” related to Obamacare. But think about it: if the only way to save Obamacare from such a fate is to give the president extra-constitutional powers to tax and spend money without congressional authorization, just how unstable is this law? And is it really worth saving?

Michael F. Cannon (M.A. in economics, J.M. in law and economics, George Mason University) is director of health policy studies at the Cato Institute.