The IRS Warned the Obama Administration That Its Decision to Pay Obamacare Subsidies to Insurers Was Illegal

Tax agency risk officer was shown dubious legal justification in secret 2014 meeting.



A recently published deposition from a top tax official provides more evidence that the Obama administration not only acted illegally when deciding to pay Obamacare subsidies to insurers—but that they did so knowing full well that the move was not justified.

First, some backstory: Two weeks ago, a federal appeals court ruled that the Obama administration had illegally paid insurers billions in subsidies under Obamacare. The law's cost-sharing subsidies (which provided an added benefit for people between 100 and 250 percent of the poverty line, are separate from the subsidies that offset the price of insurance premiums) were authorized under the law, but not appropriated by Congress.

Indeed, in 2014, the Obama administration submitted an appropriations request to Congress, but Congress declined the request. The White House went ahead and started paying insurers anyway. The payments amount to about $7 billion this year, and will tally about $130 billion over the next decade. (Payments will continue while the case is appealed.) 

The White House contends that its decision to pay insurers was appropriate, and that these sorts of disagreements are typical, especially with a law as poorly drafted as Obamacare. Republicans in the House, who sued the administration over the funding, argues that the administration knew the move was illegal—that it violated the constitutional separation of powers under which the executive branch can only spend money specifically appropriated by Congress—and went ahead with it anyway.

There's now some very strong evidence that the House's argument is right—and that the IRS warned the administration that they had no authority to make the payments.

In a sworn deposition earlier this month, David Fisher, the Chief Risk Officer to the Internal Revenue Service (IRS), told the House Ways & Means Committee that in a January 2014 meeting with administration officials, he raised some "concern about these payments."

Specifically, he couldn't find any clear and direct support for the administration's decision to make the payments.

In the deposition, Fisher explained that he told administration officials that "there was no clear reference in the section regarding the cost-sharing reduction payments to the Internal Revenue Code in the Affordable Care Act" and that the "cost-sharing reduction payments are not linked to the Internal Revenue Code, as far as I could tell, directly anywhere." 

That lack of a clear link, Fisher said, was unprecedented, and thus would be difficult to defend in the event of an audit. As Josh Blackman noted in an extensive report on the deposition last week, Fisher was, for all practical purposes, warning the administration that there was no valid appropriation. He was warning, in short, that it was illegal.

The administration, however, disagreed. And in that January 2014 meeting, administration officials showed him a memo explaining why. Yet as Carl Hulse of The New York Times notes in a column on Fisher's testimony, the administration's presentation of its rationale was rather unusual.

Fisher and several other IRS officials who had reservations about paying the subsidies, including his superior, were brought to a room in the Old Executive Office Building, where they were shown an OMB memo explaining the administration's position. But they were not allowed to make copies of the memo to take with them. They were not even allowed to take notes on the memo. Fisher says that the IRS staffers present were given no reason why they couldn't keep the memo. Instead, "it was simply stated."

As Fisher, a 10-year veteran of multiple government agencies and administrations, said, this was not at all common. He couldn't recall a single other similar occurrence.

The whole meeting, in other words, came across as strange and secretive, as if the administration might have something to hide.

Perhaps what they were worried about was that they had no real argument. Instead, as Fisher said in his deposition, what the administration had was a "list of small justifications of individual things trying to identify why the administration believed that it was Congress' intent to have the payments for both the Advance Premium Tax Credit and the cost-sharing reduction payment being made in the same manner."

"There was no sort of single, main argument," Fisher said, just a "collection of . . . elements that in total, would draw the conclusion that these payments out of the permanent appropriation would be appropriate."

Notice the final word: Not constitutional. Not even legal. Just "appropriate."

The administration's argument in this case is essentially that even though Congress rejected its request for an appropriation, and even though the health law does not provide them with any clear and discrete appropriate for its cost-sharing subsidies, they can nevertheless cobble together a hazy justification under which it is somehow "appropriate" to do so.

The administration's argument for its actions, in other words, is all but an admission that what it is doing is not legal or justifiable—and that when it comes to Obamacare, it simply doesn't care.