Challenge to ObamaCare Tax Credit

Health Law Opponents Challenge Tax Credit


Opponents of the health-care overhaul are seizing on how tax credits to buy insurance are distributed as a new front in their fight against the law.

Conservative critics have zeroed in on wording in the law that says state-run programs would be the vehicle for subsidizing the cost of mandatory health insurance for lower-income Americans starting in 2014.

People who earn up to 400% of the federal poverty level—$44,680 for a single person this year—would be eligible to apply for tax credits to help offset the cost of insurance purchased through online marketplaces, known as exchanges.

The Congressional Budget Office estimated that the subsidies would average about $4,780 per person in 2014. In all, 18 million people could have their insurance costs subsidized, at a cost of $681 billion through 2021, CBO analysts have said.

The point of dispute stems from the likelihood that many states won’t set up exchanges and instead will let the federal government run them. Critics say wording in the health-care law means that federally run exchanges aren’t authorized to offer people insurance tax credits.

To fix the problem, the Internal Revenue Service in May issued a regulation that would allow the credits to go to people regardless of whether they purchased insurance through an exchange run by a state or the federal government. The agency said the rule was “consistent with the language, purpose, and structure” of the law.

Opponents of the law say the IRS overstepped its authority by making the fix, and they are trying to use the discrepancy to challenge one of the core foundations of the law.

Two scholars—Michael Cannon of the libertarian Cato Institute think-tank and Jonathan Adler, a law professor at Case Western Reserve University—wrote in a paper published Monday that the IRS rule leaves the agency open to legal action.

“The IRS’s rule has no basis in law,” they wrote. “This supposed fix is actually an effort to rewrite the law and provide for something Congress never enacted.”

Republican lawmakers, including Reps. Phil Roe and Scott DesJarlais of Tennessee and Sen. Orrin Hatch of Utah, have written to the IRS arguing that the federal government doesn’t have the power to fix glitches in the way the law was written.

Messrs. Roe and DesJarlais have introduced legislation to block the agency from going ahead with its new rule.

Opponents of the law also say that employers could challenge the IRS rule because they would face penalties if they didn’t provide insurance for their workers and their workers received tax credits to help them purchase it for themselves.

A future administration could change the IRS rule, said Tom Barker, a top lawyer for the Department of Health and Human Services during the George W. Bush administration and an adviser to Republican presidential candidate Mitt Romney.

Only 13 states have committed to establishing their own exchanges. The others are still deciding what to do, and some that are hostile to the health-care law have said they don’t plan to move forward because they expect Republicans to overturn it after the November elections.

Treasury Department officials have said the IRS regulations are in keeping with other provisions in the health-care law that refer to tax credits being administered through state- or federal-run exchanges. They also point to analysis of the law by the CBO that assumed people across the country would be eligible for the tax credits.

“Opponents who want to deny billions in tax credits to middle-class families are ignoring provisions of the law that clearly indicate that these tax credits are available to consumers in all 50 states,” Treasury spokeswoman Sabrina Siddiqui said.

Supporters of the overhaul said Republicans could come under attack for denying some people access to tax deductions.

Tim Jost, a law professor at Washington and Lee University in Lexington, Va., said that state officials who attempted to challenge the law would effectively be saying, “I want federal taxes increased in my state because I want to deny my citizens credits under the federal law that they are otherwise entitled to.”

Write to Louise Radnofsky at

A version of this article appeared July 17, 2012, on page A7 in the U.S. edition of The Wall Street Journal, with the headline: Health Law Opponents Challenge Tax Credit.

Click here to see the article in the Wall Street Journal

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