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From Health Law Daily, August 13, 2013

Court limits Oklahoma’s challenge to IRS health insurance exchange regulation

By Michelle L. Oxman, JD, LLM

A federal court in Oklahoma dismissed two counts of the state’s complaint challenging the implementation of the Patient Protection and Affordable Care Act (PPACA) (P.L. 111-148) on the ground that the state did not have standing (Oklahoma v Sebelius, August 12, 2013, White, R). However, to the extent that the state was affected as a large employer, its challenges to the employer mandate would proceed.

The state’s claims. The state claimed that: (1) the “individual mandate” imposed by PPACA exceeded the power of Congress to regulate interstate commerce under the United States Constitution; (2) Internal Revenue Service (IRS) regulations (26 CFR sec. 1.36B-2(a)(1)) allowing tax credits for the payment of premiums for health insurance purchased through regional, subsidiary, and federally-facilitated exchanges exceeded the agency’s authority under PPACA sec. 1311, which limits the credits to individuals who buy their insurance through a state-established exchange; (3) the IRS regulations were arbitrary and capricious under the federal Administrative Procedure Act; and (4) the rules were unconstitutional as applied to employees of the state of Oklahoma. Alternatively, if the federal government contended that federally facilitated, regional, and subsidiary exchanges were established by the state for purposes of section 1311, that interpretation violated the state’s rights under the Tenth Amendment to the United States Constitution.

Lack of standing. The HHS Secretary argued that Oklahoma had no standing to challenge PPACA because: (1) it had not suffered any concrete harm; and (2) it could not sue on behalf of its citizens under parens patriae because the federal government also represents those interests. The court agreed. Vehement disagreement with federal policy does not amount to interference with state sovereignty under the Tenth Amendment, and the state may not sue the federal government to enforce the rights of its individual citizens.

The state constitutional amendment. In November 2010, Oklahoma voters adopted a constitutional amendment providing that no law or rule could require any person, employer, or provider to participate in any health care system and that a person or employer could pay directly for health care services without being required to pay fines or penalties. The state argued that even if the challenged PPACA provisions were within the limits of Congress’ power under the Commerce Clause, Oklahoma residents and state employees were protected by the amendment.

The court noted that the constitutional amendment was very similar to the Virginia statute that the Fourth Circuit invalidated in Liberty University, Inc. v Lew. The state could not immunize its citizens from the operation of federal law. Further, the amendment appeared to protect individual citizens, not the state. Although an individual resident might make a claim based on the interaction of the commerce Clause and the amendment, the state could not.

The state as a large employer. As a large employer, the state could challenge the requirements of PPACA to make “shared responsibility payments.” Although the state’s allegations of the current burdens and cost of compliance were not as specific as those where plaintiffs had established standing, the court found them sufficient at the pleading stage of the litigation. The federal government could renew its challenges to standing in the future as the evidence developed.

The state’s argument that the employer mandate interfered with its power to regulate its relationship with state employees failed. The Supreme Court had ruled in 1985 that federal employment laws may constitutionally be applied to the states and local governments in their capacity as employers.

The Anti-Injunction Act. The federal government argued that the lawsuit was barred by the Anti-Injunction Act (26 USC sec. 7421), which prohibits lawsuits to prevent the collection of any federal tax. However, the court adopted the reasoning of the Fourth Circuit in Liberty University v Lew and ruled that the Act did not apply to the employer assessable payments under PPACA because Congress did not clearly consider it to be a tax.

The case number is 6:11-cv-00030-RAW.

Attorneys: Cornelius Neal Leader (Office of the Attorney General) for Scott Pruitt in his official capacity as Attorney General of Oklahoma, State of Oklahoma. Joel McElvain (US Department of Justice (Civil Division)) for Kathleen Sebelius in her official capacity as Secretary of the U.S. Department of Health and Human Services and Timothy Geithner in his official capacity as Secretary of the U.S. Department of the Treasury. Susan S. Brandon (US Attorney (OKED)) for the U.S. Department of Health and Human Services and the U.S. Department of Treasury.

Companies: U.S. Department of Health and Human Services; U.S. Department of Treasury.

MainStory: TopStory CaseDecisions HealthCareReformNews OklahomaNews

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