Okla. AG: New IRS rule conflicts with health care law

Jessica M. Karmasek Sep. 24, 2012, 11:45am


OKLAHOMA CITY (Legal Newsline) - Oklahoma Attorney General Scott Pruitt filed an amended complaint in federal court last week, challenging the implementation of certain provisions of President Barack Obama's federal health care law.

Pruitt filed the complaint in the U.S. District Court for the Eastern District of Oklahoma Wednesday.

"Oklahoma is in a unique position with the only active lawsuit against the (Patient Protection and) Affordable Care Act to hold the federal government accountable in how it implements the law," Pruitt said in a statement last week.

"Now that the Supreme Court has deemed the ACA a tax, and therefore constitutional, the federal government must follow the law and proper procedures, and that is not being done."

In its highly-anticipated ruling in June, the nation's high court said the controversial provision of the law requiring individuals to purchase insurance or face a financial penalty is a constitutional tax.

The individual mandate imposed a $695 annual penalty on individuals who did not purchase health insurance. Obama's own budget director said in February that the mandate was not a tax.

"The Affordable Care Act's requirement that certain individuals pay a financial penalty for not obtaining health insurance may reasonably be characterized as a tax," Chief Justice John Roberts wrote in the Court's 5-4 ruling.

"Because the Constitution permits such a tax, it is not our role to forbid it, or to pass upon its wisdom or fairness."

Oklahoma's original lawsuit, filed Jan. 21, 2011 in the Eastern District, challenged the health care law's constitutionality under the Commerce Clause, specifically whether the federal government had the power to mandate individuals to buy health insurance as simply a condition of being a citizen.

The State's suit was stayed by Judge Ronald White until the U.S. Supreme Court issued a ruling in the case.

Following the Court's decision in June, Pruitt filed a request with White to lift the stay on the Oklahoma case so new issues related to implementation of the act could be addressed.

White granted the request earlier this month, lifting the stay.

Pruitt said with Oklahoma's suit still at the district level, the State can amend the complaint, which would not be allowed with cases on appeal.

Among the issues raised in the most recent complaint is a new IRS rule, which Pruitt contends violates the Administrative Procedures Act and conflicts with the health care law.

"More specifically, Sections 1311 and 1321(c) of the Act allow States to choose to establish an 'American Health Benefit Exchange' to operate in the State to facilitate execution of the Act's key provisions. If a State elects not to establish an Exchange under Section 1311, Section 1321(b) authorizes the Secretary of Health and Human Services to create an Exchange to operate in that state," the attorney general explained in his 23-page filing.

"Under the Act, this choice has important consequences for the State's people and the State's economy, because health insurance premium tax credits for low-income employed individuals and employer obligations under the Act both depend on which alternative the State chooses."

Pruitt said if Oklahoma elects to establish its own exchange, the federal government will make "advance payments" of premium tax credits to insurance companies on behalf of some of the state's residents to subsidize health insurance enrollment through the state-created exchange.

However, the payment of the subsidy for even one employee triggers "costly" obligations on the part of the employer that would not be triggered in a non-electing state, placing the electing state at a competitive disadvantage for jobs and job growth, he said.

"The Act leaves this policy judgment to each state and provides a mechanism for each state to choose the alternative it thinks is better for its people," Pruitt wrote.

"The Final Rule upsets this balance by providing, contrary to the Act, that qualifying taxpayers are eligible for premium tax credits and 'advance payments' if they enroll for health insurance through the Exchange where they live, regardless of whether it is a State-established Exchange or an HHS-established Exchange."

The attorney general continued, "Thus, if the Final Rule is permitted to stand, federal subsidies will be paid under circumstances not authorized by the Congress; employers will be subjected to liabilities and obligations under circumstances not authorized by Congress; and States will be deprived of the opportunity created by the Act to choose for itself whether creating a competitive environment to promote economic and job growth is better for its people than access to federal subsidies."

In its amended complaint, Oklahoma also is asking the federal court to recognize that because the U.S. Supreme Court deemed the law's individual mandate a tax that it no longer conflicts with the state's constitutional provision that no law or rule can "compel any person, employer or health care provider to participate in any health care system."

From Legal Newsline: Reach Jessica Karmasek by email at jessica@legalnewsline.com.

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