Judge Rejects DoJ Motion to Dismiss Second Suit Against IRS Tax Credit Rule

This morning, U.S. District Court Judge Paul Friedman denied the federal government’s motion to dismiss in Halbig v. Sebelius, a suit challenging the legality of an IRS rule authorizing tax credits for the purchase of health insurance on federally run exchanges.  This suit is one of four challenging the IRS rule.  With today’s ruling, the federal government is batting 0-2 in its efforts to dismiss these challenges. A federal district court judge in Oklahoma likewise denied a motion to dismiss in August.

The IRS rule contravenes the plain text of the PPACA, as the statute only authorizes tax credits (and subsidies) for the purchase of insurance in an exchange “established by a state” under Section 1311 of the law.  Federal exchanges are neither “established by a state” nor authorized by Section 1311. Further, as I detailed in an extensive article with Michael Cannon, there is no legislative history or other evidence to support the federal government’s interpretation of the law.  Supporters of the IRS rule claim that Congress could not have intended that Americans in dozens of states would be unable to obtain tax credits to help them purchase insurance. They’re right. Congress intended for every state to create its own exchange, as PPACA supporters said time and again, but states refused. Now that their assumption has been proven wrong, this does not provide an excuse to rewrite the plain statutory text.

The nature of the “mistake” is similar to what we see in other areas of the law. For instance, Congress did not intend for people below poverty line to be without subsidized insurance. Yet that is clearly the result in states that refuse to expand Medicaid because the tax credits and subsidies are only available to people at or above the poverty line. This income floor for subsidy eligibility — like the state exchange requirement — is written into the law. In both cases, the error made by PPACA supporters was in assuming states would play along. In both cases, they were wrong, so the law does not operate precisely as they would like. And in both cases, this error in judgment does not authorize federal agencies to rewrite the plain statutory text.

UPDATE:  Also today, Judge Friedman denied the plaintiffs motion for a preliminary injunction and announced that there would be expedited briefing in the case and that he would issue a ruling on the merits no later than February 15.