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A key provision of the unpopular Patient Protection and Affordable Care Act means that employers only incur a mandate penalty when an employee takes advantage of subsidies in the state-run exchange. A contemporaneous report from the Congressional Research Service confirms that interpretation.
As we have noted, if there is no state-run exchange, there can be no subsidy to an employee and thus no penalty to an employer. Some are calling this problem a typo or drafting error, but it was no mere missing word. It was a strategic decision on the part of Congress. It means states should not implement an exchange.
The Obama Administration, of course, is interpreting the law to mean what they want it to mean, not what it says it means by its plain wording and legislative history.
Michael Cannon of the Cato Institute and Jonathan Adler of Case Western Reserve University called the IRS action illegal, saying "The IRS rule is contrary to congressional intent and cannot be justified on other legal grounds."
The Act was passed and signed into law on March 23, 2010. An April 28, 2010 report from the non-partisan Congressional Research Service shows that the law was understood as allowing tax credits only to individuals living in a state that has implemented its own exchange:
Premium credits will only be available to individuals enrolled in a plan offered through an exchange. Individuals may enroll in a plan through their state’s exchange if they are (1) residing in a state that established an exchange; (2) not incarcerated, except individuals in custody pending the disposition of charges; and (3) lawful residents.
The  cites to Sec. 1401 of PPACA.
Why did Congress do this? Like so much else wrong with the Act, one culprit is groupthink. Because only members of one faction of one party really had much influence in writing the bill, and because it was done in secret, no one was able to tell those writing it "Hey, some states aren't going to want this. Maybe a lot of states."
Instead, we were told to pass it and then we would find out what was in it.
People intent on achieving their own policy goals through law can easily make basic, fundamental miscalculations like this. Our laws should reflect popular will and Constitutional restrictions. Laws should not be attempts to change the popular sentiment, nor require extraordinary judicial reconstruction in order to pass Constitutional inspection.
The only way to fix this problem -- and the dozens of others that have come up and will be seen in the future -- is full repeal of the law and implementation of reasonable, patient-centered reforms that comply with Constitutional restrictions and the spirit of American free enterprise.