The Supreme Court upheld the constitutionality of the individual mandate in 2012, but now another lawsuit is challenging the Affordable Care Act on different grounds. The new lawsuit, brought by the State of Oklahoma, has its roots in a legal paper by Jonathan Adler, a professor at Case Western Reserve University, and Michael Cannon, director of health policy studies at the Cato Institute. The paper, “Taxation Without Representation: The Illegal IRS Rule to Expand Tax Credits Under the PPACA,” argues that, according to the language in the law, Obamacare’s health insurance subsidies can only be applied to state exchanges, not exchanges set up by the federal government.
As Dick Morris explained in The Hill on Oct. 8, Section 1311 of the ACA establishes state health insurance exchanges. Section 1401 stipulates that refundable tax credits, the subsidies, are available only for health insurance purchased in Section 1311 exchanges, those set up by the states. Morris argues that the intent of Congress was to establish subsidies as an incentive for states to set up their own exchanges.
Only 16 states and the District of Columbia elected to form state health exchanges in spite of the promise of subsidies. One of these states, Oklahoma, filed suit in Pruitt v. Sebelius, challenging an IRS ruling that extended both the individual and employer mandates to all states according to lawyers.com. The suit claims that the employer mandate to provide health insurance to employees or pay a fine should not apply to states that did not set up their own health insurance exchanges. It also challenges the subsidies.
Although filed in 2011, a stay was issued until the Supreme Court ruled on the constitutionality of the Affordable Care Act. The federal government moved to dismiss the lawsuit after the stay was lifted, but a federal judge let stand the complaints against the employer mandate and subsidy. The court also ruled that the State of Oklahoma has standing in the suit as a large employer. The case is currently pending before the Eastern District United States Court of Oklahoma.
If the court eventually sides with Oklahoma, John Goodman of the National Center for Policy Analysis argues that it would be a “fatal blow” to Obamacare. “With so many states declining to set up exchanges,” he says, “Obamacare will be a disastrous failure if the courts agree with them.”
A victory for Oklahoma would also likely apply to other states, such as Georgia, that decided not to set up their own health exchange. As reported by Examiner, Governor Nathan Deal announced Georgia’s decision not to create an exchange in November 2012.
If the courts rule that the employer mandate and insurance subsidies do not apply in states with federal exchanges, it would destroy the delicate balance of the law in those states. Employers would not be fined if they declined to provide coverage for their employees. While the mandates for Obamacare’s “essential health benefits” would still apply in all states, subsidies would not be allowed in states with federal exchanges, making the cost of insurance prohibitively expensive.
While a court decision would not strike down the Affordable Care Act immediately, it would render the health law virtually nonexistent for employers in a majority of the country. While the individual mandate and fines would still apply, the lack of subsidies would mean that more people and companies would choose to opt out of purchasing insurance and the risk pool would shrink. Obamacare depends on young people buying expensive insurance to subsidize older and less healthy people.
If young, healthy people opt to pay the fine and employers choose not to provide health insurance, Obamacare will likely collapse under its own weight in short order. With Republicans controlling the House of Representatives, a new health care fix would require a bipartisan agreement, unlike when Obamacare was passed in 2010 with Democratic majorities in both houses and no Republican votes.