Lawsuit Challenges IRS Rule on Subsidies in Health Plan Exchanges

A group of 12 small businesses and individuals on Thursday filed a lawsuit in the U.S. District Court of the District of Columbia challenging the insurance subsidies that will be offered to consumers in the Affordable Care Act's health insurance exchanges, Reuters reports.

The lawsuit -- which is being led by the Competitive Enterprise Institute, and includes a hospital chain and a restaurant franchise as plaintiffs -- targets a 2012 Internal Revenue Service rule governing the exchanges and the subsidies (Temple-West, Reuters, 5/2).

Background

The IRS rule has been criticized by numerous opponents of the ACA, including several top House Republicans who have argued that IRS exceeded its legal authority by establishing a rule permitting the subsidies to be available through state and federally run insurance exchanges.

The ACA states that the subsidies will be provided to help residents purchase health policies offered "through an exchange established by the state."

However, the IRS rule -- issued in May 2012 -- allows the subsidies to be used in an exchange administered either by a state or the federal government. The rule did not clarify whether residents in states that fail or decline to establish exchanges would be eligible to receive the subsidies.

Several GOP lawmakers expressed concern about the rule and sponsored legislation in the last Congress to invalidate it. The subsidies also are the target of a lawsuit that Oklahoma Attorney General Scott Pruitt (R) filed in federal court last year (California Healthline, 1/30).

Details of New Lawsuit

In the latest complaint, the plaintiffs -- which are located in states that opted for a federally run exchange -- argue that they cannot afford to provide their workers with insurance. Therefore, their workers would qualify to receive the insurance subsidies and they would be forced to pay a fine as dictated by the ACA's employer mandate (Baker, "Healthwatch," The Hill, 5/2).

Under the ACA's employer mandate, businesses with at least 50 workers beginning in 2014 must pay a penalty of $2,000 per employee if they do not offer affordable coverage to their employees. Employers will not be required to pay for the first 30 workers included in the penalty calculation (California Healthline, 3/26).

Michael Carvin -- the plaintiffs' lead attorney, who also argued against the ACA's individual mandate before the U.S. Supreme Court last year -- said the IRS rule "is at war with the act's plain language and completely rewrites the deal that Congress made with the states on running these insurance exchanges" ("Healthwatch," The Hill, 5/2).

However, a U.S. Treasury Department spokesperson said, "We are confident that providing tax credits to individuals in every state is supported by the [ACA] and our authority to interpret it" (Reuters, 5/2).