2-0-largeby Michael Cannon, CATO Institute

Ohio Reps. Ron Young (R-Leroy Twp.) and Andy Thompson (R-Marietta), and Missouri Sen. John Lamping (R-St. Louis County), have introduced legislation—we call it the Health Care Freedom Act 2.0—that would suspend the licenses of insurance carriers who accept federal subsidies through one of the Patient Protection and Affordable Care Act’s (PPACA) health insurance Exchanges. At first glance, that might seem to conflict with or otherwise be preempted by the PPACA. Neither is the case. Instead, the HCFA 2.0 would require the IRS to implement the PPACA as Congress intended.

Here’s why. Under the PPACA, if an employer doesn’t purchase a government-prescribed level of health benefits, some of its workers may become eligible to purchase subsidized coverage through a health insurance “exchange.” When the IRS issues the subsidy to an insurance company on behalf of one of those workers, that payment triggers penalties against the employer. Firms with 100 employees could face penalties as high as $140,000.

Congress authorized those subsides, and therefore those penalties, only in states that establish a health insurance Exchange. If a state defers that task to the federal government, as 33 states including Missouri and Ohio have done, the PPACA clearly provides that there can be no subsidies and therefore no penalties against employers. The IRS has nevertheless announced it will implement those subsidies and penalties in the 33 states that have refused to establish Exchanges. Applying those measures in non-establishing states violates the clear language of the PPACA and congressional intent. See Jonathan H. Adler and Michael F. Cannon, “Taxation Without Representation: The Illegal IRS Rule to Expand Tax Credits Under the PPACA,” Health Matrix: Journal of Law-Medicine 23 (2013): 119-195.

Whether legal or illegal, those penalties also violate the freedoms protected by the Health Care Freedom Amendment to Ohio’s Constitution, and Missouri’s original Health Care Freedom Act, which voters in each state ratified by overwhelming majorities. The Ohio (HB 91) and Missouri (SB 473) bills would protect employers and workers from those penalties, and thereby uphold the freedoms enshrined in Missouri statute and Ohio’s Constitution, by suspending the licenses of insurance carriers that accept those subsidies.

The question arises whether the PPACA would preempt such a law. It does not. The HCFA 2.0 neither conflicts with federal law, nor attempts to nullify federal law, nor is preempted by federal law.

The HCFA 2.0 concerns a field of law—insurance licensure—that has traditionally been a province of the states under their police powers. In preemption cases, courts “start with the assumption that the historic police powers of the States were not to be superseded by the Federal Act unless that was the clear and manifest purpose of Congress.” Wyeth v. Levine, 129 S. Ct. 1187, 1194-95 (2009). Courts then must determine whether the state law in question is nevertheless trumped by express or implied federal preemption.

Express Preemption

The PPACA does not expressly preempt state powers to determine the conditions for licensure. On the contrary, it expressly reaffirms those powers. Section 1321(d) provides that the Act preempts only those state laws “that … prevent the application of the provisions of this title.”  42 USC § 18041(d). At the same time, the PPACA requires that in order to sell through an Exchange, health insurance issuers must be “licensed and in good standing to offer health insurance coverage in each State in which such issuer offers health insurance coverage under this title.” 42 USC § 18021(a)(1)(C)(1). This requirement shows the PPACA does not preempt states’ powers to determine the conditions for licensure. Quite the contrary: the Act’s nod to state licensure shows that the states’ exercise of those powers doesnot “prevent the application of the provisions of this title.”

Implied Preemption

Nor does the PPACA imply preemption of the HCFA 2.0’s use of those powers. The Supreme Court recently observed that “[i]mplied preemption analysis does not justify a ‘free-wheeling judicial inquiry into whether a state statute is in tension with federal objectives.’” Instead, the Court’s “precedents ‘establish that a high threshold must be met if a state law is to be pre-empted for conflicting with the purposes of a federal Act.’” Chamber of Commerce of the United States v. Whiting, 131 S. Ct. 1968, 1985 (2011).

First, that high threshold cannot be met here, because the HCFA 2.0 effectuates, rather than conflicts with, Congress’s purpose. The PPACA clearly provides, and Congress clearly intended, that the above-mentioned subsidies and employer taxes would take effect only in states that establish an Exchange. The HCFA 2.0 would prevent the IRS from applying, in Missouri and Ohio, subsidies and taxes that Congress did not want the IRS to apply in states like Missouri and Ohio. The bill is thus consistent with Congress’ purpose, and therefore not preempted by the PPACA.

Second, the PPACA in no way whatsoever mandates that these subsidies must exist in every state. The Act specifically guarantees, “No individual, company, business, nonprofit entity, or health insurance issuer offering group or individual health insurance coverage shall be required to participate in any Federal health insurance program created under this Act … or in any Federal health insurance program expanded by this Act … and there shall be no penalty or fine imposed upon any such issuer for choosing not to participate in such programs.” 42 U.S.C. § 18115. Individuals, employers, and health insurance issuers are free to refuse these and other subsidies, just as states retain the power to block them if they violate the public policy of the state. The Supreme Court has held that states may adopt safeguards for individual liberty that exceed federal protections.  PruneYard Shopping Center v. Robins, 447 U.S. 74, 83 (1980). Ohio’s Health Care Freedom Amendment and Missouri’s existing Health Care Freedom Act are two such safeguards.

Third, like physician-assisted suicide in Oregon, which the Supreme Court ruled could not be preempted by federal law, the power of states to determine the conditions of licensure for insurance carriers cannot be displaced by implied preemption without “effect[ing] a radical shift of authority from the States to the Federal Government to define general standards of medical practice in every locality.”  Gonzales v. Oregon, 546 U.S. 243, 275 (2006).

As noted above, the HCFA 2.0 is not preempted by the PPACA precisely because it would require the IRS to apply the PPACA as written. The most interesting aspect of the debate over this legislation is that ObamaCare supporters do not want the PPACA to be implemented as written. What does that tell us?

Editor’s note: This post was co-authored with Christina Sandefur, a staff attorney at the Goldwater Institute’s Scharf-Norton Center for Constitutional Litigation, and is cross-posted at the Goldwater Institute’s blog.

Ohio, Missouri Introduce the Health Care Freedom Act 2.0 (Cato Institute) / CC BY-NC-SA 3.0

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