A group of small-business owners and individuals have asked a federal judge to block the government from handing out premium subsidies for health care coverage purchased through federally run insurance exchanges.

Attorneys for St. Louis-based Innovare Health Advocates L.L.C., San Antonio, Texas-based GC Restaurants SA L.L.C. and Seneca, Kan.-based Community National Bank — as well as four individual citizens — claim in their lawsuit filed last week that the Internal Revenue Service rule penalizing employers whose employees use subsidies to buy coverage through federal exchanges oversteps the limits of Patient Protection and Affordable Care Act by improperly expanding eligibility for the premium subsidies to include consumers in states that opted out of setting up their own exchanges.

The suit, filed in U.S. District Court for the District of Columbia, argues that the IRS lacks the authority to enforce its penalty, because the health care reform law's original language only permits the government to offer premium subsidies for coverage purchased through state-run exchanges, and not through exchanges operated by the federal government.

All seven plaintiffs are based or reside in states that have opted not to establish their own insurance exchanges under the reform law, electing instead to have the federal government run their exchanges for them.

“The IRS rule we are challenging is at war with the Act's plain language and completely rewrites the deal that Congress made with the states on running these insurance exchanges.” Michael Carvin, a Washington-based partner at Jones Day L.L.P. and lead counsel for the plaintiff group, said in a statement issued Thursday by the Competitive Enterprise Institute, which is coordinating the lawsuit.

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A ruling in the plaintiffs' favor likely would limit the government's ability to enforce minimum coverage requirements for employers and individuals in states that refuse to establish insurance exchanges. A favorable ruling for the plaintiffs also would effectively cut off access to subsidized coverage for the millions of lower-income, uninsured adults in those states.

Innovare CEO's statement

The business owners suing the government claim that the IRS' rule improperly subjects them to the law's “employer mandate,” which requires employers with more than 50 full-time workers — defined as employees working 30 hours or more per week — to offer health benefit plans to 95% of their qualifying employees beginning next year or incur a $2,000-per-employee tax penalty in the event that any of their employees use a federal subsidy to purchase coverage through a public exchange.

“Contrary to the clear language in the Affordable Care Act, the government is directly impeding my ability to design a quality affordable health plan for my employees,” Dr. Chuck Willey, CEO of Innovare Health Advocates, said in the Thursday statement. Attorneys for Innovare claim the application of the IRS' rule prevents the company from extending its consumer-driven health insurance plan to all of its 55 full-time employees because that plan would likely not meet affordability requirements set by the health care reform law, according to the suit.

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“I maintain the right to choose my own employees' health plan without government intervention into its benefit design and without penalty,” Dr. Willey said.

Similarly, the four individuals claim that the IRS' rule improperly subjects them to the reform law's individual coverage mandate, because affordable exchange-based coverage would be unavailable in their home states absent the application of the subsidies.

The plaintiffs' claims against the IRS echo those levied in Oklahoma Attorney General Scott Pruitt's ongoing lawsuit, which also seeks to block the application of premium subsidies for coverage purchased through federal exchanges. The IRS has moved to have the case summarily dismissed, arguing that Mr. Pruitt's office lacks sufficient legal standing to challenge the agency's rule, because the state itself — as an employer —likely would not be impacted by its enforcement.