Ignoring tax and insurance law is a big deal

The announcement today by Jeff Sessions that the U.S Justice Department will not defend parts of federal tax and insurance law related to health insurance is a big deal but not only for the reasons that most news reports (like this report from Reuters on the bizarre legal logic that the law is unconstitutional) are focusing on tonight.

First, the federal government’s choice to selectively ignore parts of the tax and insurance law fuels the trend among citizens to ignore laws they don’t believe in. Congress refused to repeal the law and the majority of Americans indicate that they recognize the importance of this law. It is unusual for the US Attorney General to elect to ignore federal law, but in this administration ‘unusual’ is the norm. Meanwhile, the IRS is moving in the opposite direction with a recent increase in ACA penalty enforcement. Tax advisors like me are already struggling to guide clients in this period of flux. This announcement makes it even more difficult.

Second, the government’s action doesn’t actually change our tax and insurance practices but ultimately defers the rule-making back to the states. Remember that state control was the standard before ACA. Each state had its own health insurance environment. Advisors like me even included a discussion of jurisdiction when advising clients on difficult health jurisdictions. A number of states, including mine, are already working on laws to replace the void in federal individual mandate and guaranteed insurance requirements. It appears that we are returning to that state controlled tax and insurance dominance.