Oklahoma Court Rules Against Key ACA Provision

An Oklahoma district court has ruled that the Internal Revenue Service (IRS) does not have the authority to issue health insurance tax credits to offset premium costs for some low-income people, including those in states that have not established state-based health exchanges as part of the Affordable Care Act (ACA).

The U.S. District Court for the Eastern District of Oklahoma became the third to rule on the controversial ACA provision. Earlier this year, two courts of appeal issued conflicting opinions—on the same day—about an IRS rule that allows the agency to distribute premium subsidies to people insured through federally run health exchanges. The subsidies are critical to the ACA, with millions of people enrolled in the health exchanges whose premiums are made more affordable because of the subsidies.

In the Oklahoma case, Judge Ronald White said, “The court holds that the IRS Rule is arbitrary, capricious, an abuse of discretion or otherwise not in accordance with law … in excess of statutory jurisdiction, authority, or limitations, or short of statutory right … or otherwise is an invalid implementation of the ACA, and is hereby vacated.”

The ruling makes it likely that the Supreme Court will weigh in on the issue.

Oklahoma Attorney General Scott Pruitt (R), the plaintiff in the case on behalf of the state of Oklahoma, hailed the ruling in a statement on his website. “Today’s ruling is a consequential victory for the rule of law,” he said. “The administration and its bureaucrats in the IRS handed out billions in illegal tax credits and subsidies and vastly expanded the reach of the health care law because they didn’t like the way Congress wrote the Affordable Care Act. That’s not how our system of government works.”

Oklahoma’s lawsuit challenges an IRS rule issued in May 2012 that called for tax subsidies to be issued in states like Oklahoma that have not chosen to establish a state-based health care exchange and assessed “large employer” penalties in such states.

Pruitt asserted—and the Oklahoma district court agreed—that the IRS rule contradicts the language of the ACA, which he says “plainly states” that tax subsidies can be issued, and tax penalties can be assessed, only in states that established state-based health care exchanges.

“This is a case of statutory interpretation,” White wrote. “[T]he court is upholding the [Affordable Care] Act as written. Congress is free to amend the ACA to provide for tax credits in both state and federal exchanges, if that is the legislative will.”

But White said that the ACA as presently written does not permit the distribution of subsidies for individuals in the federal—as opposed to a state-run—health exchange and cited earlier law stating that “vague notions of a statute’s ‘basic purpose’ are … inadequate to overcome the words of its text regarding the specific issue under consideration” and further that it is a “core administrative-

law principle that an agency may not rewrite clear statutory terms to suit its own sense of how the statute should operate.”

In July, the U.S. Court of Appeals for the District of Columbia Circuit issued a similar ruling. “Within constitutional limits, Congress is supreme in matters of policy, and the consequence of that supremacy is that our duty when interpreting a statute is to ascertain the meaning of the words of the statute duly enacted through the formal legislative process,” Judge Thomas Griffith wrote in the majority opinion for the three-judge panel.

(A dissenting voice in that ruling, Judge Harry Edwards, said the court’s ruling ignores the overall statutory intent of Congress in passing the ACA, which was to expand affordable health insurance.)

On the same day, the U.S. Court of Appeals for the 4th Circuit for the Eastern District of Virginia, echoing Edwards’ dissent in the D.C. court decision, ruled that Congress clearly intended to make subsidies as widely available as possible as part of the effort to make insurance more affordable (Psychiatric News, August 11). ■

The Oklahoma decision can be accessed here. The decision of the District of Columbia appeals court is available here. The decision of the Virginia appeals court is posted here.