• Does the administration have the legal authority to delay the employer mandate? And what if it doesn’t?

    The following is a guest post by Nicholas Bagley, University of Michigan Assistant Professor of Law.

    What’s the legal basis for the administration’s decision to delay the employer mandate until 2015? Can the IRS just ignore §1513(d) of the ACA, which says the mandate “shall apply to months beginning after December 31, 2013”? Michael Cannon, among others, thinks not: “the IRS’s unilateral decision to delay the employer mandate is the latest indication that we do not live under a Rule of Law, but under a Rule of Rulers who write and rewrite laws at whim, without legitimate authority, and otherwise compel behavior to suit their ends.”

    Strong words. Too strong, as it turns out. The administration hasn’t released its legal justification yet, so I’m speculating here. But the structure of Treasury’s memorandum may provide a clue to its thinking. The memo frames its discussion around Treasury’s delay of the reporting requirements associated with the employer mandate, which are found in §6055 and §6056 of the Internal Revenue Code. Per those requirements, employers must submit tax returns that report on the health-insurance coverage that they do (or don’t) offer their employees. Those returns must be submitted, per §6055 and §6056, “at such time as the Secretary may prescribe.” Delaying the reporting requirements until 2015 is arguably just a specification of the “time” at which the reports must be submitted. (The ACA does contemplate that the reporting requirements would come into force “after December 31, 2013.” But that general effective date should probably give way to the specific instruction that the Secretary can adjust the timeframe.)

    So far, so good. Treasury then says that it’d be “impractical” to impose penalties for failing to adhere to the employer mandate because it won’t have the necessary information to do so. Now, that’s not a legal argument. The IRS can’t waive a tax penalty that Congress has imposed on employers just because that penalty is hard to administer. But maybe this is what the Administration has in mind: §1513 of the ACA, which imposes the employer penalty, is part and parcel of a comprehensive administrative scheme that depends on the new reporting requirements. Congress understood that the two go hand-in-glove: how can the IRS impose a penalty if the employer isn’t even obligated to file a tax return with the necessary information? In giving the Treasury Secretary the discretion to specify when those returns will be filed, Congress must also have given him the discretion to delay imposition of the tax penalties until those returns are in fact filed.

    That’s a plausible legal argument, especially given the general assumption that Congress intends for agencies to resolve ambiguities in the statutes that they administer. Still, it’s far from airtight. Although the reporting requirements don’t go into effect until the IRS specifies when and in what form the reports should be filed, the ACA nowhere says that the penalty depends on whether employers have submitted reports under §6055 and §6056. Instead, the ACA is blunt that it “hereby impose[s] on the employer an assessable payment” for failing to adhere to the employer mandate. And the effective date of the penalty provision is categorical. The natural inference is that the penalty comes into force on January 1, 2014, whether or not the agency has the reporting machinery in place to administer it. This is probably the most straightforward reading of the statute, even if the competing interpretation is also reasonable.

    If the administration has a better argument up its sleeve, I’d like to see it. For now, though, let’s assume for the sake of argument that the waiver is unlawful. So what? Could someone challenge it in court, as Avik Roy suggests might happen? Almost certainly not. A would-be litigant must have standing to go to court, which means that the supposedly unlawful agency action must have injured, or be expected to injure, the litigant. Employers can’t meet that standard: waiving a tax penalty doesn’t harm them (and no, fancy theories that an employer is harmed because his competitor isn’t taxed enough won’t get off the ground). Nor would upset advocacy organizations or members of Congress have standing.

    So who’s hurt? It’s possible, even likely, that some workers will lose out on employer-sponsored insurance as a result of the waiver. But any individual worker is going to be hard-pressed to convince a court that her employer would have given her health insurance in 2014 but for waiver of the tax penalty. Under current doctrine, that’s much too speculative a potential injury to support standing. Unless I’m missing something, no one has standing to challenge the waiver—whether it’s legal or not.

    • I think the point you make about whether anyone would be willing to challenge the decision is the important one to make. If there are no damages to any individual or business (and, as you said, it would be a hard case to make), the only entity that could sue would be within the Administration itself (for violating the law) and why would you sue yourself. Good article. Thanks.

      Also, wondering how political you think the decision was. I realize that many states have been so focused on the Individual Exchanges that the SHOP has been a second thought. California, for example, was going to start addressing that in July (for an October launch? really?) but they’ve been working on the Individual exchange since last year. Some are saying the move is to kick the can until after the 2014 election. Does this hold any weight with you?

    • Couldn’t the House or Senate file the suit?

      • “Couldn’t the House or Senate file the suit?”

        In theory, yes. In practice, not likely. The Supreme Court has ruled that individual Representatives and Senators can’t file suit in these situations; it would require a majority vote. It would be very hard to scrape together that majority, because Democrats won’t want to undercut the Obama Administration, and the business lobby favors delaying the employer mandate and would push Republicans to vote nay.

    • If an employer voluntarily reports the necessary information before it is required to, would the IRS have to enforce the mandate on that employer?

    • Thanks for the info – good article and very helpful. I was wondering if you had a POV on the proposed offering of subsidies to enrollees NOT buying through a state exchange – but a federal one?

    • Cato’s suit to attack the exchange subsidies relies, in part, on the employer mandate for standing. That might partially explain the reaction from Cannon and Roy.

      • Interesting, Kevin. Even if the employer mandate is delayed, however, that shouldn’t affect the standing of the employers that Cato represents. Because the mandate is still in place and will kick in on January 1, 2015, they’d still face an imminent, non-speculative injury (imminence is a pretty flexible term in standing doctrine). And since the case presents a straightforward legal question, it should be ripe for review, even with the year-long delay.

    • I think you misread the text here. The secretary has discretion as to the timing of the filings, but the rather clear implication is that there is a filing related to the time periods beginning 1/2014. For example, the Secretary may not require the filing until 2015, but there should be reporting for the 2014 period.

      As an analogy, during Katrina and other natural disasters, the Treasury Secretary extended the date that tax filings were due. It did not change the amount of tax or the periods for which it was reported. It only changed the date the documents were to be filed. This appears to me to be discretion the Secretary has in this statute. Delaying the reporting on taxable activity does not eliminate the tax itself.

      Now as to whether or not they can get away with it, that’s another matter.

      • I don’t think it really matters what the law says. The IRS is clearly capable of ignoring the law if they want to; they have done it before. For instance, they redefined exclusive to mean primarily which did cause problems for them recently concerning charitable organizations….

        Can they get away with it? Well, no one is suggesting any change in their interpretation of charitable organization law after the recent “scandal”. So outside of new clarifying legislation or a successful court case, why not? And if it’s beneficial to important people, it’s not likely.

        As a result, the writer from Cato has a point. Considering their past behavior and positions, however, I’m not terribly sympathetic. Something about a horse and a barn door.

    • Um, isn’t this justification similar to the justification attempted, unsuccessfully, regarding the coercion and seizure of State fiscs? That is, isn’t this an unsustainable argument regarding lack of standing (“the supposedly unlawful agency action must have injured, or be expected to injure, the litigant”) followed by an unsustainable argument that the complexity of the statute necessarily expands Executive powers beyond those granted by the Congress and the Constitution (“part and parcel of a comprehensive administrative scheme that depends on the new reporting requirements”)?

      While this justification might actually work to prevent claims regarding the IRS’s illicit action itself, it actually strengthens pending arguments regarding equal protection, due process, religious liberties, and freedom of association; moreover, if an Executive has expanded powers, what then prevents them from being used in other ways.

      In contrast, the IRS’s action might defer pending litigation under the privacy act (related to the PPACA databases and wrongful release of personally identifiable information). Specifically, the employer reporting requirements, when implemented, will have the unintended consequence of exposing certain information for small employers.

    • An individual’s eligibility for subsidies on the exchange depends on his employer no offering an qualifying, affordable health insurance plan. Qualification and affordability were supposed to be determined from the employer reports that Obama has delayed. It’s not clear how the administration plans to determine eligibility for the subsidy without the information, but anyone who is denied a subsidy will have standing to challenge the delay of the employer mandate.

    • What about a separation of powers argument? Could the administration argue it has a constitutional right to decide which laws it will enforce?

    • So who’s hurt? Are you kidding me? How about the citizens whose hard-earned money is paying for the salaries, attorney’s, Navigators? How dare this Administration ‘entitle themselves’ to violate that law that they signed into law. . . Do these leaders care about the citizens and how hard they must work to pay for changes, do they really feel they can overrule and “change direction on a whim” using unlimited taxpayer money? To “the dreamers” without a plan; those that lay down law without reading the law – Affordable Care Act! The billions you have spent (overspent), wasted because you never did your homework (due diligence) to make sure what you promised the American Citizens you could do. Common sense says and the right thing to do for citizens, scrap the bill and begin again.

      • Thank you Susan. This delay and whole process in general has put the private sector in limbo for the entirety of this administration’s reign in Washington. In particular, TPA’s on the verge of gaining new business with the “Virgin Groups” (small employers) whom the employer mandate specifically applies to are now scrambling for ways to stay in the black after the eminent fact that now these employers will most likely not choose to provide benefits because of the delay of the penalty. TPA’s that had contracts sealed, delivered and all but signed have lost out on an opportunity to gain new business. If congress or this megalomaniac administration would at least take the time to figure out what it is that they are doing and the consequences of their actions before throwing the burden onto the private sector’s shoulders then maybe this wouldn’t be the slowest Economic recovery after a recession/depression ever, literally of all time in the history of this country, even the Great Depression. So if anyone in particular has the right to take action against this decision it would be Third Party Administrators who manage self-funded employers and do their best to reduce healthcare costs. The Law of Unintended Consequences always prevails.

        This is a travesty.

    • Are you kidding me? The argument that the authority to require returns to be submitted “at such time as the Secretary may prescribe” allows the IRS to waive the penalties is laughable on its face. The IRS has similar authority over tax returns of any kind. By your argument, the IRS could effectively waive any tax it wanted to.

    • “But any individual worker is going to be hard-pressed to convince a court that her employer would have given her health insurance in 2014 but for waiver of the tax penalty.”

      Is it too speculative? Well, there are plenty of employers who hate the law and would be perfectly happy to swear that they are delaying offering insurance because the employer mandate has been delayed. In fact, plenty of them would be delighted to provide a paper trail proving this.