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Lawsuits over health exchange premium subsidies challenge heart of reform law

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While employers' moral objections to covering contraceptive prescriptions have commanded more popular attention, experts say the pair of lawsuits aimed at limiting availability of premium subsidies for health care coverage purchased through certain public exchanges could be far more damaging to the health care reform law's long-term viability.

In a lawsuit filed in 2011, Oklahoma Attorney General Scott Pruitt asked a federal judge to bar the Internal Revenue Service from issuing subsidies to low-income individuals for health insurance plans sold through exchanges run by the federal government, arguing that the original language of the Patient Protection and Affordable Care Act only authorizes the government to provide premium assistance for insurance bought in state-run exchanges.

A group of small businesses and individuals filed a similar lawsuit in May 2013, arguing that the IRS improperly expanded eligibility for the premium subsidies to include consumers in states that opted out of setting up their own exchanges.

Under the reform law, employers with more than 50 full-time workers are required to offer health benefit plans to 95% of their qualifying employees starting in 2015 or incur a $2,000-per-employee penalty in the event that any of their employees use a federal subsidy to purchase coverage through a public exchange.

In both cases, the plaintiffs argue that the IRS decision to include the federal exchanges in the subsidy program improperly exposes employers in states that have declined to establish their own public exchanges to penalties from which they otherwise would have been shielded.

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Judges in both cases denied the government's request for summary dismissal of the suits.

“The fact that the issue survived the government's arguments for summary judgment and that it's lasted this long makes me think that it does have a chance of prevailing,” said Amy Gordon, a Chicago-based partner at McDermott Will & Emery L.L.P.

Legal experts said a ruling against the government likely would limit its ability to enforce minimum coverage requirements for employers and individuals in states that refuse to establish insurance exchanges, as well as effectively cut off access to subsidized coverage for the millions of lower-income, uninsured adults in those states.

“When coupled with the enormous complication caused by the cancellation of millions of insurance policies, the subsidy issue has the potential to accomplish indirectly what the law's staunchest critics have hoped to accomplish in Congress, which is a repeal,” said Royal Oakes, a Los Angeles-based partner at Barger & Wolen L.L.P.

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