IRS Mess Doesn't Bode Well for Health Care Law

Article excerpt

Let us stipulate that now might not be the best time -- with IRS officials exposed for abusing power, caught in self-serving deceptions, invoking their constitutional right against self-incrimination -- to dramatically expand the authority and size of their agency. But this is what Obamacare requires. Thousands of new IRS agents will implement 40-odd provisions of the Patient Protection and Affordable Care Act -- the exact number a matter of dispute since the law itself is so confusing. The largest tax law and social policy change in a generation will be imposed on a skeptical public by a government agency whose credibility is in ruins.

But the IRS is not merely implementing Obamacare. It engaged in a regulatory power grab to ensure that it could implement Obamacare.

As written, the Affordable Care Act provides tax credits and subsidies for the purchase of health insurance through exchanges that are run by "a governmental agency or nonprofit entity that is established by a state." Since the federal government is constitutionally forbidden from ordering states to create exchanges, the law provides incentives to ensure their cooperation. This was part of the reform's political appeal: Federal subsidies mediated through state institutions.

But 33 states have so far refused to create health exchanges. The law allows the Department of Health and Human Services to set up federal health exchanges in the holdout states. But the statute makes no mention of the IRS providing credits and subsidies through federal exchanges. Without subsidies, employers and some individuals in those states would be exempt from mandates. Obamacare would be unworkable in over half the country.

The IRS resolved this conundrum by denying its existence. In a May 2012 regulatory ruling, it asserted its own right to provide credits outside the state exchanges as the reasonable interpretation of an ambiguous law. …