Under ObamaCare, the IRS becomes the arbiter of health-insurance acceptability.  Now Barack Obama needs the IRS to rescue ObamaCare entirely, thanks to a massive legislative defect that the President has no hope of rectifying in the new Congress.  Thanks to sloppy legislative work, the PPACA’s subsidies to taxpayers won’t apply in states that refuse to create exchanges — which means that the states have a clear mechanism to block ObamaCare’s implementation.

That is, unless the IRS just bypasses Congress and corrects the law:

The Patient Protection and Affordable Care Act offers “premium assistance”—tax credits and subsidies—to households purchasing coverage through new health-insurance exchanges. This assistance was designed to hide a portion of the law’s cost to individuals by reducing the premium hikes that individuals will face after ObamaCare goes into effect in 2014. (If consumers face the law’s full cost, support for repeal will grow.)

The law encourages states to create health-insurance exchanges, but it permits Washington to create them if states decline. So far, only 17 states have passed legislation to create an exchange.

This is where the glitch comes in: ObamaCare authorizes premium assistance in state-run exchanges (Section 1311) but not federal ones (Section 1321). In other words, states that refuse to create an exchange can block much of ObamaCare’s spending and practically force Congress to reopen the law for revisions.

The Obama administration wants to avoid that legislative debacle, so this summer it proposed an IRS rule to offer premium assistance in all exchanges “whether established under section 1311 or 1321.” On Nov. 17 the IRS will hold a public hearing on that proposal. According to a Treasury Department spokeswoman, the administration is “confident” that offering premium assistance where Congress has not authorized it “is consistent with the intent of the law and our ability to interpret and implement it.”

Such confidence is misplaced. The text of the law is perfectly clear. And without congressional authorization, the IRS lacks the power to dispense tax credits or spend money.

Unfortunately for Obama, federal agencies can create rules — but they cannot amend statutes.  Neither can executive orders.  If the statute does not authorize premium assistance in federal exchanges, then it would require an act of Congress to amend the statute to allow it.

The chances of the Republican House fixing a fatal defect in ObamaCare is about the same as the Indianapolis Colts winning the Super Bowl this season — and the odds might not be much better in the Senate, where Democrats in red states will want to distance themselves from the unpopular legislation.  The Obama administration will probably still try to push for this “rule” to fix the defect, but a court challenge will toss it out forthwith (see the essay to find out how that would work), and the last thing Obama needs is another court ruling against ObamaCare.

The other option, though, would be to let the law take effect with the defect.  That might end up putting more pressure on states to enact the exchanges, as the mandates would still kick in (assuming they survive the Supreme Court this term) and people would be forced to buy insurance even if the premium assistance doesn’t get delivered.  As unpopular as ObamaCare is, that may end up generating so much anger among the unsubsidized that it will force states into full compliance with the PPACA.  Don’t be too surprised if the White House ends up seeing this as a feature rather than a bug.