HR/BENEFITS

Court Case Could Nix Obamacare Penalties

A D.C. District Court case could take down Obamacare--along with the penalties for businesses that don't comply.
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With the deadline for enrollment in health plans fast approaching, the legal challenges to Obamacare keep coming. The U.S. Court of Appeals for the D.C. Circuit is now hearing arguments in Halbig v. Sebelius, a case that opponents of the health care law hope could put a final nail in its coffin.

The plaintiffs in the case--a group of individuals and employers in states that did not set up their own healthcare exchanges, and instead let the federal government manage the exchanges for them--say that the IRS pulled a fast one when it clarified the Affordable Care Act's rules about who is eligible to receive Obamacare subsidies. As written, the Act states that only people who buy health coverage through an exchange "established by the state" can qualify for income-based subsidies. In part, the rule was put there to motivate states to set up their own exchanges--because not doing so would mean that lower-income citizens couldn't obtain the subsidies that make health insurance affordable for them.

Nonetheless, for ideological or practical reasons, 34 states opted not to run their own exchanges. So, in May 2013, the Internal Revenue Service issued its own "interpretation" of the law--clarifying that individuals buying coverage in the federally facilitated exchanges could also qualify for subsidies.

The plaintiffs in Halbig argue that the IRS had no standing to essentially rewrite the health care law, and they want to eliminate the subsidies in states with federally run exchanges. On January 15, the U.S. District Court for the District of Columbia handed the plaintiffs a defeat, agreeing with the IRS that it had reasonably interpreted the meaning of a complex rule. If the Court of Appeals sees things differently, however, it could have major consequences for individuals and businesses.

First, if individuals live in states in which they can't qualify for subsidies, their costs for buying health coverage would be greater. That means they will more easily be able to claim hardship exemptions to the individual mandate, which requires everyone to have health coverage or else pay a penalty of up to 1 percent of household income.

For business owners, eliminating subsidies has the potential to effectively eliminate employer mandate penalties. That's because the ACA's large-employer penalties--for either not offering coverage for full-time workers, or for offering coverage that is too expensive--are triggered only if and when employees who aren't satisfied with their companies' insurance go and qualify for subsidies in the public exchange. Therefore, if there are no subsidies to qualify for, there can't be any penalties, either.

But it's unlikely the Obama administration will let that happen. Even if the Court of Appeals reverses the earlier ruling, the administration may just ignore it. Last week, the Justice Department submitted paperwork declaring that because Halbig is not a class action, any adverse ruling would only apply to the named plaintiffs and would not be enough to strike down the IRS rule.

Last updated: Mar 25, 2014

ADAM BLUESTEIN

Adam Bluestein is a frequent contributor to Inc., writing about health care, innovation, and new technology. He lives with his wife and two children in Burlington, Vermont.




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