This past August, a conservative non-profit group, the American Legislative Exchange Council, or Alec, approved and published a model bill which would remove the IRS’ ability to penalize businesses for not offering health insurance in states which have not set up their own health exchanges.

If enacted at the state level, the Health Care Freedom Act (HCFA), as Alec calls it, would revoke the license any of health insurance provider that accepts federal subsidies through one of Obamacare’s health insurance exchanges. Supporters of the model bill argue that it neither conflicts with federal law, nullifies federal law, nor is trumped by federal law. Instead, it would prevent the federal government from encroaching on states’ prerogatives.

Since HCFA only pertains to a state’s right to grant licenses, a right which states have typically enjoyed jurisdiction under their police powers, the federal government cannot mandate that a state grant a license to any specific entity. Indeed, the Affordable Care Act requires health insurance providers to 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).

The bill effectively neuters the IRS’s ability to penalize businesses of 50 employees or more when the business does not offer health insurance for its employees. Specifically, when an employer does not provide its employees with a government approved health insurance policy, some employees become eligible for subsidized health coverage through an insurance exchange. The IRS then issues the subsidy to the insurance company for that worker which then triggers the penalty against the employer.

If health insurance providers accept federal subsidies in a state where HCFA is enacted, the insurance provider loses its license and can no longer operate in the state. If the insurance provider forgoes federal subsidies, then the IRS cannot penalize a business for not offering health coverage since the penalties are attached to the discharge of subsidies.

Currently, the Ohio and Missouri state houses are considering legislation almost verbatim to HCFA. Ohio state representatives Ron Young and Andy Thompson, and Missouri state senator John Lamping introduced the legislation (HB 91 and SB 473, respectively) into their legislatures for consideration. As of this writing, both bills have been stuck in committee since last Spring.

Needless to say, however, the implications for this are momentous. If states remove the teeth in the federal legislation which compel businesses and individuals to buy health insurance, then states can pull the plug on the already life-supported Obamacare. It would be one of the most significant achievements to date for states’ rights and subsidiarity in modern American politics.

For further reading,

Matthew Shoemaker

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