The argument being made by those challenging the IRS rule extending tax credits to federal exchanges is that the statute limits the availability of tax credits to state exchanges, and the IRS doesn't have the authority to contradict a statute by regulation.
The argument goes something like this (I'm summarizing
this article):
1.) Section 1311 of the PPACA provides rules for states setting up an American Health Benefit Exchange. While the section provides that states "shall" set up those exchanges, the federal government
can't command states to participate in federal programs.
2.) Recognizing that it couldn't actually command states to establish exchanges, Congress, in section 1321, requires the federal Dept. of Health and Human Services to establish exchanges in states that fail (or refuse) to do so in compliance with 1311.
3.) Section 1401 amends the Internal Revenue Code to provide a tax credit for certain taxpayers. The credit is equal to "the sum of the premium assistance amounts . . . with respect to all coverage months of the taxpayer" during the year. A "coverage month," in turn, is defined as any month if, "as of the first day of such month the taxpayer . . . is covered by a qualified health plan . . . that was enrolled in through an Exchange established by the State under section 1311" (and if the taxpayer pays the premium for coverage for such month). If an exchange wasn't established by the state under section 1311, then there can be no "coverage month," and if there is no "coverage month," then there can be no credit.
4.) Section 1513 amends the Internal Revenue Code to provide penalties to "applicable large employers" who fail to provide health insurance--this is the "employer mandate." However, the penalty is only triggered if "at least one full-time employee of the applicable large employer has . . . enrolled . . . in a qualified health plan with respect to which an applicable premium tax credit or cost-sharing reduction is allowed or paid with respect to the employee." "Applicable premium tax credit" refers to the credit created under section 1401; "cost-sharing reduction" refers to a cost-sharing reduction under section 1402. 1402 specifically states that "no cost-sharing reduction shall be allowed with respect to coverage for any month unless the month is a coverage month[.]" Hence, if an exchange wasn't established by the state under section 1311, then there can be no "coverage month," and if there is no "coverage month," then (a) there can be no credit (as mentioned above); (b) there can be no cost-sharing reduction; and (c) there is no employer mandate for employers in that state.
5.) Section 1501 imposes the "individual mandate," but exempts certain taxpayers who can't afford insurance. In determining whether a person can afford insurance, the law takes into account any credit allowed under section 1401. For at least some taxpayers--the article I'm summarizing estimates about 12 million--the availability of the credit would push them out of this exemption, and so impose a penalty. But, if there is no credit available, then those 12 million would not be subject to the penalty.
6.) Despite the plain language of the law, the IRS rule purports to extend the tax credits to individuals in states where the federal government has established an exchange. In effect, the IRS has (a) granted tax credits that Congress has not authorized and (b) raised taxes that Congress has not imposed. Regardless of whether you think credits should be available on federal exchanges, who can argue with the proposition that the IRS should not craft regulations that contradict acts of Congress?
This argument, when properly understood, is pretty persuasive. That's not to say that it will win, but it's well worth your time considering the actual argument being made rather than just a newspaper report summarizing it.
