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"It's a legal challenge to the IRS's attempt to re-write Obamacare," Cannon told the Times. "The statute says that if a state does not create its own exchange then major provisions of the law don't apply."
Cutting off tax credits and subsidies to help people buy insurance on the exchange would be a major whack at the law, but there's more. The penalties on employers that don't offer sufficient insurance to their employees (the "employer mandate") are triggered by those very same credits and subsidies once their employees go shopping on the exchange. The requirement that people buy health insurance (the "individual mandate") exempts people if the cost of coverage, minus credits and subsidies, exceeds 8 percent of household income. Without credits and subsidies, many more would be exempted, weakening the mandate. In other words, in Cannon's reading of the law, in states that don't run their own exchanges, the exchange will fall apart.
On its face, the argument seems odd — why would Congress establish federally run exchanges as a backup to states but then strip them of everything they'd need to actually run an exchange?
"There are a couple of subsections of a particular section of the statue that if read in complete isolation from the entire rest of the statute and in complete ignorance of the history of the statute, you could read to say that," health-law expert Timothy Jost, a Washington and Lee law professor, told the Times. "It's unfortunate that he has had so much impact on states that are just trying to find some way to gum this up." Jost believes that lawsuits pursuing Cannon's arguments now will run into problems with legal standing to raise the case, but even if a party has standing, he expects "that the court will take a look at the entire statute ... and will throw this case out."
Cannon and Jost are engaged in an ongoing public debate about these questions. Who's right? That will be up to lawyers and judges to haggle over in the coming months and years, but Cannon's ideas aren't going away. In September, Oklahoma Attorney General Scott Pruitt filed a lawsuit along the same lines in federal court.
Arkansas Sen. Cecile Bledsoe (R-Rogers) explicitly referenced Cannon and his claims last month as legislators considered whether to revisit the exchange issue after the feds gave states an extension on their decision. Citing Cannon as a source, she was hopeful that employers wouldn't be subject to the law's penalties if the state said no to running its own exchange, an idea echoed by Sen. Michael Lamoureux (R-Russellville), the incoming Senate president, all of which baffled Arkansas Health Exchange director Cynthia Crone.
"That's just not true," Crone said. She said that she has since thoroughly researched the issue, checking with the Treasury Department, the IRS and numerous other relevant federal agencies and has received "full authority that there is equal implementation" of the law regardless of who runs the exchange.
Bledsoe was upset that Crone did not know about the libertarian legal theory at the time. "Here's the thing," she said, "we're on a fact-finding mission on all of this and I think you need to look at all the different think tanks. And I'm just reading, I'm not involved like the Insurance Department should be. Why did they not know some of these things? That was a problem, I thought."
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