The debate over President Barack Obamas health-care law has taken another twist. Now conservatives and libertarians are defending it, while the administration tries to toss part of the legislation out.

The reason for this role reversal is that the drafters of the law outsmarted themselves and handed their opponents a weapon. Now they would like to pretend the law doesnt say what it does.

Obamas plan makes tax credits available to people who get health insurance from exchanges set up by state governments. If states dont establish those exchanges, the federal government will do so for them. The federal exchanges, however, dont come with tax credits: The law authorizes credits only for people who get insurance from state-established exchanges. And that creates some problems the administration didnt foresee, and now hopes to wish away.

Legislative debate over the law didnt go into great detail about these provisions. We can surmise what happened, though. Supporters of the legislation wanted to encourage states to set up the exchanges. So they offered the states a deal: If they did so, they would get to write their own rules, and their citizens would be able to get the tax credit. The states would also gain extra flexibility on Medicaid spending. The laws supporters also expected the health-care law to become more popular over time.

That hasnt happened. Many states are determined in their opposition, and few of them have set up exchanges. If they dont do so, the tax credits dont go into effect and the federally established exchanges wont work: People wont be able to afford the insurance available on them without the subsidy.

States have another incentive to refrain from setting up exchanges under the health-care law: It protects companies and individuals in the state from tax increases. The law introduces penalties of as much as $3,000 per employee for firms that dont provide insurance but only if an employee is getting coverage with the help of a tax credit. No state exchanges means no tax credits and thus no employer penalties. The law also notoriously penalizes many people for not buying insurance. In some cases, being eligible for a tax credit and still not buying insurance subjects you to the penalty. So, again, no state exchange means no tax credit and thus fewer people hit by the penalty.

The administrations response to the impending failure of its signature legislation a failure resulting entirely from its flawed design has been to ignore the inconvenient portion of the law. In May, the Internal Revenue Service decided it would issue tax credits to people who get insurance from exchanges established by the federal government. It has thus exposed firms and individuals to taxes and penalties without any legal authorization. Obviously, that situation sets the stage for lawsuits.

The plaintiffs will have a strong case. Jonathan Adler and Michael Cannon two libertarians, the first a law professor at Case Western Reserve University and the second a health-care analyst at the Cato Institute have done more than anyone to bring attention to this issue. They point out that every health bill advanced by Senate Democrats clearly made tax credits conditional on states establishment of exchanges. They have also uncovered that during the debate over the bill, Sen. Max Baucus, a Democrat from Montana, explicitly said the same thing.

Supporters of the health-care law may be tempted to dismiss the challenge to the IRS. That would be to repeat a mistake. They were contemptuous of the constitutional case against the law, too. Timothy Jost, a Washington and Lee University law professor, even wrote that the attorneys who brought the suits should face professional sanctions for filing frivolous cases. In the end, the Supreme Court sided with the plaintiffs on their constitutional claims, in one case by a 7-2 margin, upholding the law only by removing parts of it.

There will be many more court battles over the health-care law, because it involves so many legally dubious expansions of bureaucratic power. In addition to the IRS move, there are lawsuits against the administrations ruling that almost all employers must provide coverage for contraception and sterilization, a decision that conflicts with the Religious Freedom Restoration Act. The law also creates a board of experts to control health-care costs, a move that is sure to bring legal action on separation-of- powers grounds.

Originally posted here:

OPINION: Flaws that will unravel Obama’s health plan