A federal judge is being asked to bar enforcement — prior to a final court ruling — of a health care reform law rule that extends federal premium subsidies to uninsured individuals to buy coverage through any public insurance exchange.
A group of individuals and small employers filed suit in May in U.S. District Court in Washington challenging the Internal Revenue Service rule. The plaintiffs allege that under the Patient Protection and Affordable Care Act, premium subsidies are limited to states that have set up insurance exchanges, and not in the 34 states where the federal government has established exchanges after the states declined to do so.
In their request Tuesday for a preliminary injunction, submitted to Richard Roberts, chief judge of the U.S. District Court for the District of Columbia, to block the IRS rule, the plaintiffs, who include a San Antonio, Texas-based restaurant and a Seneca, Kan.-based bank, argued the court must act prior to Jan. 1, 2014, when the subsidies become available.
“It serves everyone's interests — those of plaintiffs, the government and the public alike — to obtain a prompt ruling on the legal validity of the IRS rule, so that there will be no need subsequently to confront the logistical nightmare of trying to unscramble and undo the unlawful expenditure of billions of federal dollars,” the plaintiffs said in the Tuesday motion.
The outcome of the litigation is of critical importance to employers and individuals. If the court strikes down the IRS rule, employers that do not offer health coverage would be less likely to be penalized to a big health care reform penalty.
Under the IRS rules, if an employer does not offer coverage to at least 95% of its full-time employees and just one employee uses a federal premium subsidy to buy coverage in an exchange — state or federal — the employer is liable for a $2,000 penalty for each full-time employee, minus the first 30 employees. That mandate goes into effect in 2015, with penalty payments due the next year.
If the subsidies were limited to coverage offered through state-established exchanges, employers that do not offer coverage for employees who live in states that have not set up exchanges would not face the $2,000 per-employee penalty.
Correspondingly, premium subsidies would not be available to the millions of uninsured individuals residing in states that have not set up exchanges.
In a somewhat similar suit filed by Oklahoma Attorney General Scott Pruitt challenging the IRS rules, a federal judge ruled last month that the litigation can go forward.