The Volokh Conspiracy
Mostly law professors | Sometimes contrarian | Often libertarian | Always independent
The Internal Revenue Service (IRS) is charged with administering many key provisions of the Patient Protection and Affordable Care Act (PPACA). One might expect the IRS to follow the law when doing so. In drafting regulations to implement the PPACA's tax credit provisions, however, the IRS seems to have a habit of ignoring the statutory text where the IRS does not like the result.
University of Iowa law professor Andy Grewal has found multiple instances of the IRS expanding tax credit eligibility beyond that provided for by the text of the PPACA and, in the process, increasing potential employer exposure to penalties under the Act. I discussed two of professor Grewal's finds in a prior post. (See also this forthcoming article.)
In a new post on the Yale Journal on Regulation blog, "Notice & Comment," professor Grewal identifies another IRS departure from the statutory text.
Congress recognized that some taxpayers would enroll in minimum essential coverage through their employer, whether or not that coverage was affordable or provided minimum value. In these circumstances, Congress decided that premium tax credits should not be allowed. Why should the federal government subsidize a second set of health insurance coverage?
Section 36(c)(2)(C)(iii) consequently indicates that the employer affordability and value limitations "shall not apply if the employee . . . is covered under the eligible employer-sponsored plan." In proposed regulations, the IRS followed the statutory command and denied credits for a given month when a taxpayer was covered under an employer plan that offered minimum essential coverage. . . .
The IRS, however, eventually expanded the statute. . . .
The final regulations . . . give credits to taxpayers when they are automatically enrolled in employer minimum essential coverage. In so doing, the IRS explicitly acknowledged that "Section 36B(c)(2)(C)(iii) and the proposed regulations provide that an individual who enrolls in an eligible employer-sponsored plan is not eligible for the premium tax credit even if the plan is unaffordable or fails to offer minimum value." See 77 F.R. 30381 (2012) and Treas. Reg. 1.36B-2(c)(3)(vii)(B). In refreshingly candid terms, the IRS thus noted that its regulations contradicted the language of the law. . . .
The IRS's re-write is especially problematic because it leads to further employer penalties under Section 4980H(b). Employers who offer minimum essential coverage generally don't face penalties unless an employee receives a credit under Section 36B. Under the language of Sections 36B and 4980H, employers will avoid penalties when minimum essential coverage is actually provided, because no credit is allowable in these circumstances. But the IRS regulation ignores this limitation and essentially demands a penalty from employers. This seem quite unfair.
Fair or not, this is yet another instance of the IRS deciding to implement the PPACA that some wish Congress had passed, instead of the statute that actually became law. (And, note, I have not even mentioned King v. Burwell yet.) I have no opinion on whether the IRS's approach is better or worse than that adopted by Congress, but it seems rather clear that the choice of policies is not up to the IRS. Congress expressly addressed the question at issue, but the IRS decided to do something else, and that's not how our system is supposed to work.