Exceeding its Mandate

House committees investigate whether the IRS illegally expanded tax subsides to strengthen Obamacare

January 31, 2013

Two House committees are investigating whether the IRS illegally implemented an important provision of Obamacare.

House Ways and Means Committee chairman Dave Camp (R., Mich.) and Oversight Committee chairman Darrell Issa (R., Calif.) sent a letter on Tuesday to the acting secretary of the Treasury Department and the acting commissioner of the IRS requesting documents and interviews with specific officials.

The two committees are investigating how the IRS decided to implement a specific tax credit created in the Obamacare legislation. The bill allows the federal government to provide a tax credit to certain individuals who purchase health insurance in healthcare exchanges created by the states.

However, the Department of the Treasury and the IRS have implemented a final rule that applies this tax credit to individuals who buy health insurance in exchanges created by the federal government, not the states.

A majority of the states have opted out of creating exchanges themselves, requiring the federal government to step in and create exchanges for the states.

"The plain language of §36B suggests that premium tax credits are available only where a taxpayer is enrolled in an ‘exchange established by the state,’" a Congressional Research Service report says. The report also notes that the courts may uphold the regulation applying the credit to the federally created exchanges based on a past Supreme Court ruling.

The letter is the fourth sent by the committees to the department regarding the regulatory rules governing the tax credit.

"We write today to ask that you produce the unredacted versions of all the documents reviewed thus far by our staffs within one week," the letter reads. "Failure to comply with this request by Feb. 5, 2013, will force the committees to consider the use of compulsory process."

The chairmen also request the department allow four officials to be available for "transcribed interviews."

The chairmen write that while the department provided some documents last year, it redacted key portions of the documents and has refused to provide these parts to the committees for review of its importance.

The Department of the Treasury did not return a request for comment.

The tax credit undergirds a central provision of Obamacare: The employer mandate to purchase health insurance for employees.

"This is the new subsidy system for people who are eligible under Obamacare," explained Ed Haislmaier, a senior research fellow for health policy at the Heritage Foundation.

The health insurance exchanges are "essentially how they figure out who has coverage and, by extension, who doesn’t have coverage," Haislmaier said.

If somebody does not have health insurance, he or she can turn to the state-based exchanges to buy insurance. The exchange system screens applicants, and those who qualify receive a tax subsidy that cheapens the cost of health insurance.

Requirements include an income between 100 and 400 percent of the poverty rate, no access to either Medicare or Medicaid, and no access to employer-provided health insurance, Haislmair said.

This process allows the federal government to determine whether employers are providing insurance, he said. There is no requirement that employers report whether or not they are actually providing the mandated insurance.

"This process is how they find out who they’re enforcing the individual mandate on and who they’re enforcing the employer mandate on," Haislmair said. But if the tax credit is not available, he said, then that "short-circuits" the entire process.

Oklahoma attorney general Scott Pruitt is suing the federal government over its decision to grant subsidies to individuals buying insurance in federally created exchanges.

The amended complaint filed in the United States District Court for the Eastern District of Oklahoma argues the subsidy is necessary for the mandate, which means that if the federal government cannot grant the subsidy, then it cannot enforce the mandate.

"Oklahoma has not established or elected to establish an exchange, and does not expect to do so," the complaint states. "As a result, under the plain terms of the act, employers in Oklahoma should not be subject to the employer mandate because of a determination that an Oklahoma resident employed by the employer in Oklahoma is entitled to advance payment of a premium tax credit because of enrolling for coverage through an exchange established by HHS to operate in Oklahoma."

Haislmaier said the IRS’s rule may stand, and the courts might not rule on it because of a technicality concerning the timing of the Oklahoma lawsuit. But if the rule is struck down, the cost of insurance could rise, he said.

"The whole thing’s a complete mess," Haislmaier said.