Oklahoma AG Scott Pruit writes in the WSJ about his state’s challenge to the Obamacare exchanges. In short, the ACA says that certain tax credits and subsidies are only available to those plans that “were enrolled in through an exchange established by the State under section 1311 of the Patient Protection and Affordable Care Act.” What about exchanges created not by the state, but by the federal government, such as the one in Oklahoma? Pruitt argues that the plain text prevents subsidies from being offered in these no- participating states.
In addition to the suit in Oklahoma, several others have been filed. In both Oklahoma and D.C., motions to dismiss have been denied, and the issue is headed towards summary judgment.
When Oklahoma first raised this challenge in 2012, many experts predicted that the Sooner State would “go it alone” in pursuing this legal strategy. Not so. In Indiana, the state and 15 school districts have filed a lawsuit against the IRS, the agency that collects the penalties. Business owners (who, like the state of Oklahoma, would be subject to penalties as employers) and individuals in Virginia and the District of Columbia have done the same. In the D.C. lawsuit, the presiding judge recently rejected the Obama administration’s attempt to have the case dismissed, as the judge in the Oklahoma case did in August.
Motions for summary judgment will soon be filed in federal district courts, and our court system will determine whether what the administration has called its “improvements” to the ACA—essentially by ignoring some of its provisions—are lawful.
It is hard to explain the gravity of these suits, if successful. The exchanges only work because the federal government hands out generous tax-payer funded subsidies to make health care policies more affordable. Without these subsidies, there would be massive sticker shock, and the policies on the exchanges would be extremely expensive.
Who is harmed by offering these subsidies? Well, in the long run, taxpayers have to pay for it. But in the short run, the presence of these exchanges triggers various penalties for businesses who do not offer qualified health insurance plans to their employees. In other words, if these exchanges are operational, a business who does not offer health insurance must pay penalties. But, if this suit is successful, and the exchanges are unable to offer these subsidies, no penalties can be assessed (in a nutshell).
However, the frank reality is that millions of people, if this suit is successful, will be unable to afford insurance. If Pruitt and others win, the exchanges in non-participating states (about 34 of them by my last count) would collapse.
While much time has been devoted in Washington to the issue of “defunding” the Affordable Care Act, the success of these lawsuits would have much the same effect. Should the courts decide the IRS is exceeding its authority and isn’t allowed to assess the employer penalties in states that have not established their own exchanges, the structure of the ACA will crumble—as one of the primary mechanisms the federal government has employed to force people into the health-insurance market evaporates.
Those who have already purchased plans on the exchanges would now have to pay higher rates. Millions would be unable to afford their policies. This could likely kickstart a massive death spiral.
Further, the origination clause suit, if successful, would absolutely gut the ACA of its mandate, rendering it inoperable.