A July 18 report by the Cato Institute’s Michael Cannon has revealed a critical flaw in the Obamacare law that could ultimately prove to be its undoing. Namely, if states refuse to set up an insurance exchange under the law, the federal government lacks authorization to dispense some $800 billion in subsidies through a federally operated exchange.On the one hand, clearly the Democrats who passed the ACA never even thought of the possibility that the States would simply refuse to play along. Congressional intent -- at least Democratic Congressional intent, since no Republicans voted for the ACA -- was that these exchanges should exist, and be government-funded. It's easy to imagine that, if they had realized the States might not play along, the Democratic Congress who passed the ACA would have included authority for the Federal government to do it instead.
This is important because, coupled with states’ option to implement the Medicaid expansion or not, it appears the key player in defunding Obamacare going forward will be the states. The Supreme Court ruling on Obamacare found that the law’s mandatory Medicaid expansion was unconstitutional, effectively giving states an opt-out provision that many now plan to take.
In short, if states refuse to expand Medicaid, and there is no funding for the insurance exchanges, Obamacare will effectively be defunded.
To deal with this flaw, the Internal Revenue Service (IRS) on May 24 simply issued a regulation effectively rewriting the law that would allow the federal government to fund the exchanges.
The problem is, the law doesn't say that the Federal government can do it. There's no authority in the statute, and the Congress that approved the ACA doesn't exist any more. It was explicitly rejected by the People in 2010's landslide elections. The current Congress wouldn't approve this change to the law.
So... is the IRS doing the right thing, following the original Congress' apparent intent by revising the law on the fly in a way that older Congress would have approved? Or is it violating the separation of powers by not deferring the legislative question to the current Congress, or to the next one?