Thought the legal battle over the Affordable Care Act ended with the Supreme Court’s much-ballyhooed decision last June? Think again.
New challengers are pressing the fight against Obamacare with lawsuits in Oklahoma and Washington, D.C. While their claims turn on an obscure technicality, the suits have the potential to cause major problems for the Affordable Care Act. If the lawsuits were to succeed, lower-income Americans in more than two dozen states could be ineligible for tax credits that are a key part of the act. And employers in those states could be exempt from the “employer mandate”—a requirement that larger employers offer insurance plans or pay a hefty penalty. Without those pieces in place, the act wouldn’t work as intended in large swaths of the country.
The stakes are high even though the lawsuits are getting far less attention than they did in the first go-around. That, no doubt, is partly because the arguments this time are a far cry from the lofty claims about “individual freedom” that dotted last year’s Supreme Court case. Instead, they turn on obscure details of how the Affordable Care Act was written—details, as one commentator put it, that “could make even a seasoned tax lawyer’s head hurt.”
The issue boils down to what Obamacare supporters say was nothing more than a drafting mistake by Congress. The Affordable Care Act calls for each state to set up an insurance “exchange”—the law’s term for a regulated marketplace where consumers can shop for insurance. But, recognizing that some states might delay or refuse to set up exchanges, the act also says the federal government must take on that task in any state that drags its feet.
That’s where the technicality crops up. A centerpiece of the Affordable Care Act is its tax credits: The act was designed to offer the credits to lower-income Americans who enroll in health care through exchanges as a way to make the coverage more affordable. But when Congress drafted that part of the law, it wrote that applicants are eligible for credits if they enroll “through an Exchange established by the State.” It said nothing about exchanges established by the federal government in states that haven’t taken action.
Obamacare critics, seizing on that omission, began arguing two years ago that there is a gaping hole in the act. More than half the states have made no move to set up exchanges. That means, according to the law’s opponents, that residents in those states can’t get the tax credits designed to make coverage more affordable; after all, those credits are only available to those who enroll through an exchange “established by the State.” What’s more, the opponents say, it means employers in those states are not subject to the “employer mandate,” which requires larger employers to offer affordable insurance to their workers or pay a tax penalty of at least $2,000 per employee. That’s so, they say, because of the way Congress wrote the employer mandate: It doesn’t kick in unless at least one of the employer’s workers is eligible for an Obamacare tax credit.
Recognizing the potential problem, the Internal Revenue Service issued a rule last year clarifying that individuals are eligible for credits if they’re enrolled in any exchange, state or federal. That’s what triggered the new round of litigation. The state of Oklahoma, a group of small businesses and other plaintiffs have sued, arguing that the IRS’s rule is illegal because it extends tax credits and the employer mandate further than Congress authorized. Congress limited the credits and the mandate to states that set up their own exchanges, the plaintiffs say. They say the limitation was not a drafting error at all, but a choice by Congress that the IRS must honor.
Affordable Care Act supporters, for their part, say the statutory wording is nothing more than a glitch . They say other parts of the act, and the history surrounding the Act’s drafting, make clear that Congress meant for the tax credits—and thus the employer mandate—to apply to all states, not just those that set up their own exchanges. After all, they say, why would Congress extend the credits to residents in some states but not others? That would undercut the purpose of the law: to encourage as many people as possible to enroll in health coverage.
These lawsuits are not the only game in town; many other groups are continuing to fight the Affordable Care Act on other grounds. And the lawsuits are still in their early stages. But they bear watching. If courts were to accept the plaintiffs’ arguments and strike down the IRS rule, it would mean trouble for the Affordable Care Act—and potentially another trip to the Supreme Court a year or two down the road.