Hatch: IRS can’t offer tax credits in federal insurance exchange

The IRS is extending the healthcare law’s insurance subsidies to millions of people who shouldn’t get them, Sen. Orrin Hatch (R-Utah) charged Thursday.

The healthcare law establishes exchanges where individuals and small businesses can shop for insurance, and most people who use an exchange will receive tax credits to help make insurance more affordable. The law directs states to set up their own exchanges and authorizes a federally run “fallback” in any state that doesn’t.

Hatch said Thursday that, under the text of the healthcare law, tax credits should only be available in state-run exchanges. But a recent IRS regulation would provide credits to anyone in either a state exchange or the federal fallback. Hatch said the IRS is going further than the statute allows and exercising power it doesn’t have.

“I would suggest that the failure to draft this language differently was the result of the highly partisan nature by which [the healthcare law] was pushed through Congress,” he wrote in a letter to Treasury Secretary Timothy Geithner and IRS Commissioner Douglas Shulman.

Several conservative states have vowed not to implement an exchange, and even many states that do wish to set up their own exchanges probably will not be ready by the healthcare law’s 2014 deadline. But if the people using a federally run exchange aren’t entitled to tax credits, the healthcare law’s effort to make coverage more affordable could come up short.