Oklahoma’s Attorney General has revived his state’s challenge to the federal health reform law, this time targeting the law’s employer mandate.
The state’s amended complaint at the U.S. District Court for the Eastern District of Oklahoma seeks to overturn an IRS regulation allowing some consumers to get federal subsidies to buy insurance on health insurance exchanges in states that opted not to establish such exchanges.
Note: States may elect to set up and run their own insurance exchanges, and states may forego that task, opting instead for HHS to establish and run their exchanges.
Pruitt: Employer Penalties Will Cost Jobs
In State of Oklahoma v. Sebelius, CIV-11-030-RAW (E. Okla., Sept. 19, 2012) Attorney General Scott Pruitt said large employers in states that elected not to run exchanges should not have to pay shared responsibility payments when a health exchange run by HHS gives a subsidy to a person living in one of those states.
The health reform law only authorized such applicability in states that actually establish health insurance exchanges, the AG contended. The IRS rule expanded the definition to include “federally-facilitated exchanges.”
“Oklahoma has not established or elected to establish an exchange and does not expect to do so,” according to the complaint. Employer penalties for offering no coverage, or coverage that is unaffordable or inadequate can be disproportional to the tax credit.
Under Code Section 4980H(a), the annual assessable amount is $2,000 for each full time employee above 30 employed by the employer. Thus, if just one of an employer’s 600 full-time employees is eligible for a Premium Tax Credit, the employer’s annual Assessable Amount will be $1,140,000.
Note: Oklahoma in November 2010 amended its constitution in opposition to the individual mandate. “To preserve the freedom of Oklahomans to provide for their health care … [a] law or rule shall not compel … any person, employer or health care provider to participate in any health care system,” the amendment states.
Background
State of Oklahoma v. Sebelius originated in January 2011 as a challenge to the health reform law’s mandate that all individuals buy health insurance, saying it was unconstitutional under the Commerce Clause.
In June 2012, the Supreme Court ruled that the individual mandate was authorized under Congress’ powers of taxation (but not under the Commerce Clause).
A federal judge had stayed State of Oklahoma v. Sebelius in anticipation of the Supreme Court ruling. The state persuaded the judge to lift the stay to give it an opportunity to submit this amended complaint.
In light of the Supreme Court decision, Pruitt amended the complaint to object to the IRS rule.
The Amended Complaint
The expanded definition in the IRS rule disadvantages employers in states that do not set up their own exchanges, Pruitt reasoned in his complaint.
[U]nder the plain terms of the Act, employers in Oklahoma should not be subject to the Employer Mandate because of a determination that an Oklahoma resident employed by the employer in Oklahoma is entitled to advance payment of a premium tax credit because of enrolling for coverage through an Exchange established by HHS to operate in Oklahoma.
[C]ontrary to the Act, [the IRS rule provides] that qualifying taxpayers are eligible for premium tax credits and “advance payments” if they enroll for health insurance through the Exchange where they live, regardless of whether it is a State-established Exchange or an HHS-established Exchange. … [F]ederal subsidies will be paid under circumstances not authorized by the Congress; employers will be subjected to liabilities and obligations under circumstances not authorized by Congress; and States will be deprived of the opportunity created by the Act to choose for itself whether creating a competitive environment to promote economic and job growth is better for its people than access to federal subsidies.
[The IRS rule] expand[s] the circumstances under which an Applicable Large Employer must make an Assessable Payment unless it makes minimum essential coverage available under an eligible employer-sponsored plan as specified in the Act, with the result that an employer may be required to make an Assessable Payment under circumstances not provided for in any statute and explicitly ruled out by unambiguous language in the Affordable Care Act.
For more on health reform’s employer mandates, see Thompson Publishing Group’s The New Health Reform Law: What Employers Need to Know.