Ponnuru: Flaws will unravel Obama’s health plan

The reason for this role reversal is that the drafters of the law outsmarted themselves and handed their opponents a weapon. Now they would like to pretend the law doesn’t say what it does.

Obama’s plan makes tax credits available to people who get health insurance from exchanges set up by state governments. If states don’t establish those exchanges, the federal government will do so for them. The federal exchanges, however, don’t come with tax credits: The law authorizes credits only for people who get insurance from state-established exchanges. And that creates some problems the administration didn’t foresee, and now hopes to wish away.

Supporters of the legislation wanted to encourage states to set up the exchanges. So they offered the states a deal: If they did so, they would get to write their own rules, and their citizens would be able to get the tax credit. The states would also gain extra flexibility on Medicaid spending. The law’s supporters also expected the health care law to become more popular over time.

That hasn’t happened. Many states are determined in their opposition, and few of them have set up exchanges. If they don’t do so, the tax credits don’t go into effect and the federally established exchanges won’t work: People won’t be able to afford the insurance available on them without the subsidy.

The administration’s response to the impending failure of its signature legislation – a failure resulting entirely from its flawed design – has been to ignore the inconvenient portion of the law. In May, the Internal Revenue Service decided it would issue tax credits to people who get insurance from exchanges established by the federal government. It has thus exposed firms and individuals to taxes and penalties without any legal authorization. Obviously, that sets the stage for lawsuits.

The plaintiffs will have a strong case. Jonathan Adler and Michael Cannon – two libertarians, the first a law professor at Case Western Reserve University and the second a health care analyst at the Cato Institute – have done more than anyone to bring attention to this issue. They point out that every health bill advanced by Senate Democrats clearly made tax credits conditional on states’ establishment of exchanges. They have also uncovered that during the debate over the bill, Sen. Max Baucus, a Democrat from Montana, explicitly said the same thing.