- The Washington Times - Friday, November 9, 2012

Given Tuesday’s results, it’s unlikely Obamacare can be stopped at the federal level. Polls show a majority wants to see the health care takeover law repealed, but the path to accomplish this goal just became a lot more complicated. Oklahoma’s Attorney General Scott Pruitt may have the best shot at throwing a wrench into the scheme with his lawsuit seeking to gut provisions related to state-run health insurance exchanges.

Obamacare is massive and unwieldy, depending on a number of critical mechanisms to function properly. Undermining one of them could be enough to bring the entire program down. For instance, the health care law prohibits insurance companies from charging people based on their health risk. With this “community rating” rule in effect, it would make no sense for someone healthy to buy insurance until he becomes sick. The “individual mandate” kicks in to keep that from happening by imposing a fine (now a “tax”) on anyone who fails to buy insurance. Obamacare also imposes an employer mandate that requires businesses to offer “essential” and “affordable” health benefits to all full-time employees and their dependents. Failure to do so triggers substantial fines. The net result of all this regulation is to drive up health insurance costs for young, healthy (and often poorer) households.

Obamacare attempts to mitigate the increased costs by offering tax credits and subsidies to households below 400 percent of the poverty level, but only if the insurance is purchased through a health insurance exchange. Either states can set up their own exchanges, or the federal government will set up one if the state declines to do so. As Case Western University law professor Jonathan Adler and Cato scholar Michael Cannon argue, the structure of President Obama’s legislation and its history strongly argue in favor of the interpretation that these subsidies and tax credits were a carrot meant to encourage states to establish their own exchanges. Under this reading, the goodies cannot and should not be available through federal exchanges.

The Internal Revenue Service adopted a rule reinterpreting the law to say what the administration really wanted it to say, which is “a taxpayer is eligible for the credit for a taxable year if the taxpayer or a member of the taxpayer’s family (1) is enrolled in one or more qualified health plans through an Exchange established under section 1311 or 1321 of the Affordable Care Act.” Section 1311 refers to state run exchanges; section 1321 refers to federal exchanges.

Oklahoma’s lawsuit is calling the taxman’s bluff. If subsidies are restricted to state exchanges only, a state can protect job creators from being subject to large and variable penalties simply by not establishing an exchange. This matters because if someone is eligible for a subsidy, it means employers are facing major penalties — as much as $2,000 per day per employee. If there are no state exchanges, there are no subsidies and therefore no way to assess the penalties on employers.

The good news is about 30 states are looking to buck the system by rejecting the exchanges, which means Uncle Sam will have to set up his own. A win for the Sooner State could demonstrate there’s a way to protect poorer residents and job creators from the onerous expenses imposed by Obamacare.

The Washington Times

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