A group of individuals and small businesses today asked a federal judge to block the IRS from enforcing a tax credit provision of the Obama administration's health care law. The plaintiffs argue the Internal Revenue Service is expanding the Affordable Care Act's reach in violation of the law’s own language.
At issue are federal tax credits for individuals who would otherwise be exempt from the law because of their low income. At a hearing this morning in Washington federal district court, the challengers, represented by Jones Day's Michael Carvin, said the IRS wrongly interpreted the law to say the tax credits could go to residents in states that did not set up health care exchanges.
The IRS regulation, Carvin said, makes certain individuals in those states—and potentially their employers-subject to the law's penalties for not complying with insurance requirements.
U.S. District Senior Judge Paul Friedman also heard arguments on the government's contention that the plaintiffs’ lawsuit should be dismissed entirely because the challengers lack standing to sue. Friedman said he intends to announce his decision Tuesday morning.
The plaintiffs, which include several individuals, a group of restaurants in Texas and a bank in Kansas, argue the health care law explicitly made the tax credits only available for individuals living in states that set up health care exchanges. Congress created the tax credits as an incentive for states to run their own exchanges, Carvin said. In the 36 states without an exchange, individuals can apply for insurance through a national exchange run by the federal government. Texas and Kansas were among states that opted not to create their own insurance exchanges.
The tax credits would make individuals otherwise exempt from the law because of their income subject to it, even if they didn't want insurance because of the potential cost, Carvin said. Another problem, the plaintiffs argued, is businesses that didn't provide health insurance would face a tax once any of their employees received the tax credit.
Joel McElvain, a senior trial counsel at the U.S. Department of Justice, said the plaintiffs' position—that the tax credit was only for residents of states with exchanges—went against Congress' intent to make the tax credits available nationwide.
If states did not set up exchanges, he said, the federal government "stands in their shoes," meaning the law's language about the tax credits would still apply. McElvain argued Friedman should dismiss the lawsuit in its entirety, saying the plaintiffs lacked standing to sue.
Carvin, who argued against the law before the U.S. Supreme Court in March 2012, said during today's hearing he expected this latest challenge would be decided on appeal—if not by the high court itself.