Tuesday, August 13, 2013

Oklahoma’s Challenge to Illegal IRS ObamaCare Subsidies in Federal Exchanges to Proceed: U.S. District Court

Oklahoma won court approval to proceed with a federal lawsuit challenging tax aspects of President Barack Obama’s 2010 health-care legislation.

U.S. District Judge Ronald A. White in Muskogee, Oklahoma, yesterday denied the federal government’s request for complete dismissal of a lawsuit first filed in 2011 over the Patient Protection and Affordable Care Act.

While White tossed claims that the act’s mandatory minimum-coverage provision exceeded Congress’ powers and that a related Internal Revenue Service rule is unconstitutional as applied to Oklahoma employees, he said the U.S. must defend three counts arising from that same IRS rule.

“Oklahoma challenged implementation of the Affordable Care Act after the IRS finalized a rule that would allow the federal government to punish ‘large employers’ including local government with millions of dollars of tax penalties in states without health care exchanges, which is not allowed under the health care law,” state Attorney General Scott Pruitt said in a statement yesterday.

Allison W. Price, a spokeswoman for the U.S. Justice Department, declined to comment immediately on the court’s ruling.

The U.S. Supreme Court upheld the legislation last year as a valid use of Congress’s tax powers.

Insurance Exchanges

The Obama health-care law called for the states to create marketplace-type insurance exchanges, through which coverage could be obtained from a variety of insurers.

It also contained a provision penalizing large employers who don’t offer coverage to full-time workers and offering tax credits to people who enroll in a health-care plan through an exchange.

The federal government reserved the right to create an exchange if a state didn’t do so.


 was one of those states. It also amended its own constitution in 2010 to bar rules or laws compelling people to participate in a health-care system.

IRS Regulation

While the Obama health-care law treats states differently, depending on whether they establish an exchange or leave it up to the U.S., the accompanying IRS regulation eliminates that distinction. Oklahoma contends the regulation wasn’t authorized by Congress.

White ruled that the state, as a large employer itself, has standing to pursue two of the four IRS-related claims, and he allowed another federal constitutional claim to proceed.

Oklahoma didn’t have standing to press a claim based on the amendment to its own constitution as that right was granted to individuals, not the state, the judge said. He also rejected the state’s argument that the IRS rule didn’t apply to state workers.

“Congress provided a choice for Oklahoma and other states in implementation of the health care law and the IRS is attempting to take that away,” Pruitt, the state’s attorney general, said in his statement.

The case is State of Oklahoma v. Sebelius, 11-cv-00030, U.S. District Court, Eastern District of Oklahoma (Muskogee).