Handing a small win to Affordable Care Act opponents, a federal judge is letting the Oklahoma attorney general sue to try to block the federal government's enforcement of the employer and individual mandates.
Federal judge Ronald White, from the Eastern District of Oklahoma, dismissed two parts of Oklahoma Attorney General Scott Pruitt's challenge to the ACA, but allowed three others to proceed -- including the argument that individual mandate subsidies and employer mandate penalties can't be enforced in states that decline to create insurance exchanges.
After having several iterations of the lawsuit thrown out since 2011, Pruitt is taking the ruling as a win, even though it's not ruling on the merits of the matter -- and even though the judge described one of the arguments as based on "a polemical law review article."
"We're optimistic the court will recognize what states have known for months," Pruitt said in a media release. The "IRS disregarded the law by making the large employer mandate effective in Oklahoma or in any of the 33 other states without a state healthcare exchange."
Taking up the legal hypotheses of Case Western Reserve University law professor Jonathan Adler and Cato Institute analyst Michael Cannon, Pruitt is challenging both the Department of Health and Human Services and the Internal Revenue Service's interpretations of ACA exchange and subsidy provisions -- arguing that the law doesn't let the feds run exchanges, provide tax subsidies or enforce shared responsibility mandates in states that opt not to create exchanges.
Arguing that exchanges can only be run by states, Pruitt and his backers cite section 1311 of the ACA: "Each State shall, not later than January 1, 2014, establish an American Health Benefit Exchange...An Exchange shall be a governmental agency or nonprofit entity that is established by a State."
However, as Washington and Lee University professor Timothy Jost pointed out in Health Affairs, ACA section 1321 -- called "State flexibility in operation" -- say that if a state does not create its own HIX, the HHS Secretary "shall (directly or through agreement with a not-for-profit entity) establish and operate such Exchange within the State and the Secretary shall take such actions as are necessary."
Pruitt, Adler and Cannon also argue that the IRS misinterpreted ACA section 1401, which created a new revenue code section for premium subsidies, in its decision to make the tax credits available through both state and federal HIXs. They're arguing that the IRS can't administer premium assistance in states with federally-managed exchanges, because the eligibility directives refer to enrollees receiving the tax credits "through an Exchange established by the State under 1311."
That Oklahoma was even given legal standing as a plaintiff may be surprising to some. White, the federal judge, rejected a number of Pruitt's arguments to seek standing to sue, ruling that Oklahoma could not challenge the federal government on behalf of its residents and that, as a state, it hadn't been injured the IRS's decision.
But "in its own capacity as an employer" subject to ACA mandates, White wrote, the state of Oklahoma might be injured the decision, and so can seek reprieve from the liabilities of the insurance mandates -- "obligations," "actions," and "expenses."
Now that the lawsuit has a leg to stand on, White and perhaps other federal judges may end up ruling on the merits of its complaints.
Jost, the Washington and Lee University law professor, thinks the courts will skeptically consider those arguments. It "is clear that Congress intended the federal fallback exchange to take the place of and fulfill all of the functions of the state exchange," Jost wrote in Health Affairs.
Still, he said, Pruitt's lawsuit and a similar filed by Washington D.C. businesses "fundamentally threaten the implementation of the ACA in almost two thirds of the states."
A ruling invalidating the federal government's authority to manage exchanges, or provide subsidies to citizens through them, would effectively wave the individual mandate for several million Americans and the employer mandate for hundreds or thousands of employers.
"If the ACA opponents are correct in their interpretation of the law, some of the most important ACA reforms are essentially a dead letter in states that choose not to establish a state exchange," Jost wrote.