Fighting IRS’s Unlawful and Misguided Expansion of Obamacare Subsidies

Three dozen leading policy and legal experts, including me, submitted a comment letter yesterday to the Internal Revenue Service and the Department of Treasury, opposing their proposed rule to illegally extend Affordable Care Act (ACA) subsidies through an administrative “fix” to the so-called “family glitch.” These experts include former high-level government officials, such as a former Chairman of the House Budget Committee, a former governor, and numerous former top White House and federal agency officials. This letter makes the incontrovertible case that the agencies’ proposed rule is an impermissible interpretation of the ACA statute, dangerous precedent, and misguided policy.

From the summary of the comment letter: 

Treasury and IRS (the agencies) in 2013 promulgated final regulations regarding the affordability of employment-based health coverage for family members of employees that are fully consistent with the law. They now propose to amend this regulation, having “tentatively determined” that it “is not required by the relevant statutes.”

The agencies’ tentative determination is mistaken, and their proposed rulemaking contravenes the statute’s clear and unambiguous language.

Section 36B of the Internal Revenue Code (IRC), which creates premium tax credits (PTCs), contains one and only one affordability test, and it applies to employer-sponsored health insurance (ESI) for workers and their dependents alike. …

The agencies improperly seek to legislate a separate affordability test for dependents that is not found in statute. …

The new and impermissible reading of the statute is inconsistent with the agency’s past rule and raises the specter that a new administration in the White House can pressure the IRS to alter its enforcement of the tax code in a manner that advances its political interests. Moreover, the agencies ignore that Congress has for more than 12 years refused to amend section 36B in the way the agencies now seek to unlawfully amend through regulation. Congressional inaction does not empower the agencies to act. On the contrary, it further confirms that the proposed rule is unlawful. The agencies should withdraw it. Finalizing this proposed rule would mean that the IRS can be bullied by the White House to ignore the law and perpetuate policies for political considerations.

The letter discusses the danger of permitting the White House to politicize the IRS:

If the IRS shows itself susceptible to such pressure, it will face more of it from this and future administrations, undermining its reputation for impartiality and eroding confidence in its reputation of equitably enforcing tax law. Every rule it issues, however well-established in statute, will be prone to meddling by political appointees, who will urge career civil servants to reopen well-grounded and longstanding rules and reshape tax law to suit transitory political sensibilities.

Changing a longstanding rule that is solidly grounded in the statute to advance a White House political agenda holds ominous implications for the future of the agency. Protecting the IRS’s independence from political interference is among the many compelling reasons why the agencies should withdraw the rule.

The proposed rule is also misguided policy. If this rule were to be finalized, many families would:

  • face an increase in the cost of job-based dependent coverage,
  • move to less comprehensive coverage, and
  • be on separate policies with different benefit structures and deductibles to navigate.

If finalized, the rule would additionally harm states, which would bear greater public program costs. Taxpayers would also suffer, with billions of additional debt accrued each year to finance subsidies, mostly to insure people with exchange plans who would otherwise be insured on an employer plan.
 
I also submitted a separate comment letter drawing on my experience coordinating economic policy at the White House’s National Economic Council. From my letter:

While there is a sometimes a gray area between creative legal interpretation and the rule of law, the proposed rule does not straddle or approach this area. Rather, it starts and ends in lawless usurpation in derogation of the oath every Executive branch employee swears. …

The facts surrounding the IRS’s proposed rule on the affordability of employer coverage are troubling and create an impression that the IRS is willing to become a political wing of the White House by changing its enforcement of the tax code according to politicians’ interests without regard to the actual law. …

If this illegal proposed rule were to be finalized based on the precedent set in this situation, future enforcement of the tax code would gyrate back and forth based on the administration in power without regard to enacted law. The only way for IRS to avoid this dangerous outcome is by withdrawing this rule.

I’m also critical of the IRS and Treasury’s failure to provide a real cost-benefit analysis in the rule. “The agencies’ claim that they were not capable of modeling this proposed rule strains credulity” since Treasury used its health insurance microsimulation model to provide detailed point estimates of the 2019 rule expanding health reimbursement arrangements. I suggest two possible explanations for the agencies’ failure to conduct and provide a quantitative cost-benefit analysis:

  1. “The IRS and Treasury rushed through this process to meet a political timeline, perhaps to coincide with the ACA’s twelfth anniversary that President Obama returned to the White House to celebrate.
  2. “Such a cost-benefit analysis would be harmful to the rule because it would further demonstrate how much the magnitude of spending would be needed to only slightly reduce the number of uninsured.”

In fact, based on publicly available estimates from the Congressional Budget Office and the White House of the proposal, the cost to provide health insurance coverage for just one additional person would be a staggering $225,000 over ten years. 

My prior works (a Wall Street Journal op-ed and a research paper) were frequently cited in a letter to Secretary Yellen and Commissioner Rettig from Ranking Member of the House Committee on the Judiciary Jim Jordan Ranking Member of the House Committee on Oversight and Reform James Comer. Their letter blasted the proposed rule as “inconsistent with both the statutory text and a rule that the IRS finalized nearly a decade ago.” Jordan and Comer warn of the significant litigation risk of such an unlawful rule: “The IRS’s attempt to rewrite the regulation also contravenes the Administrative Procedure Act (APA). Under the APA, courts must ‘hold unlawful and set aside agency action’ that violates a statute.” To aid its investigation of the IRS’s unlawful proposed rule and understand the process behind the IRS’s reversal, the Committees requested a variety of information. Their requests complement the recent oversight efforts by the House Ways and Means Committee and Senate Finance Committee, as well as efforts by several U.S. senators, on this matter.

For legal and policy reasons, as well as to protect the IRS as an institution, the IRS must withdraw the proposed rule. 

All the best,

Brian Blase
President
Paragon Health Institute

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