Oklahoma Challenge to IRS Enforcement of Obamacare Moves Forward

Oklahoma Challenge to IRS Enforcement of Obamacare Moves Forward
June 27, 2013

Loren Heal

Loren Heal (loren.heal@gmail.com) is a research programmer at the University of Illinois at Urbana-... (read full bio)

The State of Oklahoma made oral arguments June 20 on the federal government’s motion to dismiss its case Pruitt v Sebelius, which challenges the IRS expansion of the employer mandate into states that choose under President Obama’s law not to implement their own health insurance exchanges.

The federal government has argued Oklahoma lacks standing, the arguments are premature because the IRS has not yet had taxed the state or its businesses, and that federal health exchanges are equivalent to state exchanges.

“The administration miscalculated how many states would support this law, so now they’re using the IRS to push through provisions that Congress did not pass,” Attorney General Scott Pruitt said in a statement announcing the suit.

Upholding the Law?

Jonathan Small, a health care policy analyst with the Oklahoma Center for Policy Analysis, said the state is only trying to force the IRS to comply with the law.

“The purpose of the lawsuit is basically to affirm and to require the IRS to actually uphold a provision of the Affordable Care Act, which allowed states to decide not to build their own state-based exchange, and then therefore, premium subsidies and credits wouldn’t be flowing through a federal exchange because there is no provision in the Affordable Care Act for those premiums to flow through those exchanges,” Small said.

Under a literal interpretation, Small says, this would allow the state to avoid the employer mandate.

“Employers are protected from penalties, and the state preserves its right not to be entangled with the administration of what’s very likely going to be a troubled and embattled effort by the federal government to try to build an exchange,” Small said. “And it’s not just Oklahoma. Numerous states have opted not to build to build these massive, expensive exchanges that are going to be fraught with problems and really going to saddle states with a federal bureaucracy that really gets controlled by Kathleen Sebelius anyway.”

Escape for Employer Mandate

The law provides subsidies to buy insurance under the mandate, which almost everyone will be forced to do starting January 1, 2014.  But the price of subsidized items tends to rise to match the subsidy, meaning the subsidies become less attractive, Small notes.

“It’s no coincidence that whether it’s housing, or higher education, or common education, in all of these areas where government has gotten heavily involved spending lots of money, the costs have drastically increased,” Small said.

If Oklahoma prevails, it could mean no subsidies can be given when employees purchase insurance through a federal exchange, and thus no penalties can be charged against those who don’t.

“Any state that opted for the federal exchange,” said Small, “avoided all the costly penalties and high cost and administrative effort of operating a state exchange. So states are at a critical business attraction advantage to not have a state exchange based on the plain text of Obamacare.”

Loren Heal

Loren Heal (loren.heal@gmail.com) is a research programmer at the University of Illinois at Urbana-... (read full bio)