Another ACA Treasury Regulation That Lacks Statutory Authority – Guest Essayist: Grace-Marie Turner
New research about implementation of the Affordable Care Act finds that Obama administration regulations are allowing taxpayer subsidized health insurance for some people earning less than the statutory income floor and also for unlawful immigrants.
A new study by Andy S. Grewal, an associate professor at the University of Iowa College of Law, explains that the ACA provides tax credits to U.S. citizens with incomes between 100 and 400% of the Federal Poverty Level (FPL). However, IRS regulations were written to extend credits to citizens below 100% FPL in some cases.
Also, Section 36B of the ACA grants credits to some non-citizens with low-incomes only if they are themselves lawfully present in the U.S. and cannot obtain Medicaid coverage. IRS regulations, however, contradict the statute and allow subsidies if “the taxpayer or a member of the taxpayer’s family is lawfully present in the United States,” and “the lawfully present taxpayer or family member is not eligible for the Medicaid program.”
The regulations were issued on August 17, 2011, but the discrepancy between the law and the regulations was carefully documented in a post by Grewal on Bloomberg BNA, “Lurking Challenges to the ACA Tax Credit Regulations.”
“A Treasury regulation that extends premium tax credits to individuals whose household incomes fall below the floor established by Section 36B(c)(1)(A) lacks statutory authority,” Grewal concludes. “Another Treasury regulation that extends those credits to some unlawful aliens suffers from a similar infirmity.”
He highlights “the pitfalls associated with Treasury’s failure to recognize limits on its administrative authority.” That is the core issue before the U.S. Supreme Court in King v Burwell where King et al are challenging an IRS rule that allows tax credits to flow through federally-facilitated health insurance exchanges, contrary to the language of the statute which allows the credits only through state exchanges (article originally published May 28, 2015).
Only to people earning between 100 and 400 percent of FPL are eligible for premium tax credits under the ACA, but Treasury extended the definition in its 2011 rule to also allow credits for those whose income falls below 100 percent. Further, “These taxpayers are generally given larger credits than are given to those who actually meet the statutory criteria,” Grewal writes.
And taxpayers who get a larger subsidy than they were due because they mis-estimated their income do not have to repay the money. “The regulation allows a taxpayer to fully keep her tax credits even if, at the close of the taxable year, the taxpayer’s household income did not meet the statutory floor and the taxpayer was not entitled to any credits.”
Grewal says it is clear that the regulations contradict the statute, saying, “the statute leaves no room for interpretation,” and the regulation “contradicts the congressionally prescribed criteria.” This “reflects an impermissible interpretation of the statute,” he writes.
Citizens who submitted comments on the proposed regulations asked Treasury to allow similar flexibility for those earning more than 400 percent of FPL. Treasury’s answer: No, because that would be “contrary to the language of section 36B.”
“In other words,” Grewal writes, “the Treasury thinks that it’s ambiguous whether a taxpayer at the 99 percent level comes within the 100-400 percent statutory range but that a taxpayer at the 401 percent level unambiguously exceeds it.”
Grewal’s conclusion: “Nothing in Section 36B allows the Treasury to rewrite the criteria for qualifying as an applicable taxpayer,” including stretching the income eligibility beyond statutory bounds.
But the illegal regulations don’t end there: “Treasury regulations, however, expand the statute and provide tax credits to individuals not lawfully present” in the United States. “Unlike very low-income citizens, whom Congress thought would obtain Medicaid coverage, some low-income lawful aliens may enjoy premium tax credits under Section 36B.”
However, a special Treasury rule expanded the definition beyond individual to allow subsidies if a “taxpayer or a member of the taxpayer’s family is lawfully present in the United States,” and “the lawfully present taxpayer or family member is not eligible for the Medicaid program.” The italicized language, not found in the governing statute, allows the lawful status of a family member to qualify an unlawful alien as an applicable taxpayer.
Once again, the statute “does not present an interpretive gap for the Treasury to fill,” Grewal writes. “In precise terms, Congress crafted a special rule that treats an alien whose household income falls outside of the statutory range as an applicable taxpayer only if the alien himself enjoys lawful status, and it specifically denied credits to dependents.”
Grewal’s conclusion: “Literally speaking, the regulation allows unlawful aliens to obtain tax credits,” he writes. “Current regulations reflect a desire to implement the ACA as the Treasury thought it should have been drafted, rather than as it was drafted.”
The Galen Institute has been cataloguing the major changes made to the ACA. Prof. Grewal’s newly-uncovered finding represents change #50 but is #3 on our list because the obscure regulation was issued the year after the law’s passage. It is the 31st change made by the administration without statutory authority.
The above was originally published at Forbes.com on May 28, 2015.
Grace-Marie Turner is president of the Galen Institute (galen.org), a non-profit research organization focusing on market-based health policy solutions.
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