Oklahoma is shepherding a lawsuit that could wreak havoc on Obamacare. With help from Michael Cannon (of the Cato Institute), the suit claims that the law’s tax credits and subsidies – fundamental to the law’s success and survival are available only in states that chose to create an exchange. The IRS, which will administer the tax rebates and subsidies, has ruled that those subsidies will be available to everyone everywhere.
Cannon believes that this tweak in the law was deliberate. He says Congress intentionally limited subsidies to state-created exchanges as an incentive for states to build their own exchange. It was the carrot and stick approach. You build the exchange, you get the subsidies. If we build it, no subsidies. Congress (mis)calculated that this financial incentive would entice nearly all states to succumb to Congress’s wishes. They were wrong.
Thirty four states have refused to build their own exchange. This means that a large swath of the American citizenry is susceptible to an adverse ruling. Using population data from Wikipedia, I estimated that approximately 184 million people (58% of population) in those 34 states would not have access to the tax rebates and subsidies available to the 134 million citizens in the remaining states.
What would be the fallout if citizens in Colorado can apply for and obtain tax credits and subsidies to offset the cost of insurance while citizens in neighboring New Mexico cannot? Those against the law would most likely celebrate any ruling that nibbles away at the law itself. However, supporters and those looking to get subsidized insurance would undoubtedly protest as they are now denied access to those tax rebates and subsidies, if only for living in a Red state. I know of no federal benefit or entitlement that is geographically limited.
I’m neither arguing for or against the position. Personally, I despise Obamacare on many fronts. My purpose for this post was to think through the implications of an adverse ruling. Denying lucrative subsides to half the population simply won’t fly. I believe this would present an untenable situation, which is why I believe no judge will rule to strike down the nationwide tax rebates despite the strong indications this is what should happen. The outcome would be profoundly divisive and unimaginably chaotic.