Opponents of health care reform have opened up a new front in their relentless campaign, receiving extensive media attention for their claim that only state-created exchanges can legally offer tax credits for health insurance. This contested reading of the health care reform law would leave consumers in states with federal exchanges -- the default marketplace for states that decline to set up their own exchanges -- without access to affordable health insurance.

Exchanges have become the latest bogeyman in the right-wing media, but a just-released report by the Center on Budget and Policy Priorities explains why a legal challenge to them is unsupported by both the clear language of the Affordable Care Act and relevant case law.

As described in a June 25 USA Today op-ed, opponents of exchanges are claiming that their reading of the health care reform law reveals that "[c]redits are [legally] available only in states that create an exchange themselves. The federal government might create exchanges in states that decline, but it cannot offer credits through its own exchanges." Right-wing activist groups have jumped on this argument and are already clamoring for lawsuits to be filed over the administration's interpretation of the law to the contrary. A July 9 article in Congressional Quarterly Today (subscription required) reported the director of policy at the Koch-backed Americans for Prosperity as adamant that litigation would "absolutely" ensue.

The idea of suing to block exchange implementation and hamstring affordability programs designed to help low- and moderate-income persons afford coverage in the private insurance market appears to have originated with two frequent National Review Online contributors, Jonathan Adler, Professor of Law at Case Western Reserve University, and Michael Cannon, Director of Health Policy at the Cato Institute. Long-time opponents of the Affordable Care Act and authors of the USA Today op-ed, the two first presented this questionable theory to the mainstream press through a November 16, 2011, op-ed in The Wall Street Journal. Cannon, in particular, seems to have made exchanges his personal target, barnstorming the country along with other Koch-backed organizations.

Experts on health care law and policy are highly critical of the proposed anti-exchange lawsuits. However, although the challenge might be a long shot due to its debatable reading of the statute and disregard of congressional intent, even far-fetched legal challenges have legs in today's increasingly conservative courts. Remember broccoli? Amplified by the increasing synergy between right-wing academics and media, the "broccoli" and "inactivity/activity" argument in the health care reform cases rocketed from the fringe to the mouths and pens of Supreme Court Justices.

Judith Solomon, vice president for health policy at the Center on Budget and Policy Priorities, wrote the report yesterday that rebuts Adler and Cannon's claims:

Opponents of health reform apparently intend to file a legal challenge to the law on behalf of one or more employers who are penalized for not providing coverage in a state with a federal exchange, based on the claim that the federal exchange was not authorized to provide the subsidies.  A court considering such a claim would almost certainly defer to the Treasury Department interpretation that subsidies are fully available through federally operated exchanges.

[...]

In providing for a federal exchange, Congress clearly intended that it substitute for a state exchange.  One of the primary functions of an exchange is to determine eligibility for, and the amount of, advance premium tax credits so that people can afford to buy coverage.  The language of section 1321 of the ACA establishing the federal exchange is clear on that point, as is the reference in section 36B of the Internal Revenue Code to credits being provided through a federally operated exchange.  But even if the statute were ambiguous, a court examining whether the Treasury regulations are valid would certainly defer to the agency's interpretation of the statute because it is both permissible and reasonable. [Center on Budget and Policy Priorities, 7/16/12]