Obamacare’s Employer Mandate Brings More Legal Problems

by Sean Hackbarth

Should the Supreme Court keep a large portion of the Patient Protection and Affordable Care Act (PPACA) on the books, companies could get thwacked with an unauthorized tax according to Professor Jonathan Adler and Michael Cannon of the Cato Institute. In a USA Today op-ed, they tie together the employer mandate, health insurance tax credits, and health insurance exchanges to be created under Obamacare.

Adler and Cannon write,

The [PPPACAs] “employer mandate” taxes employers up to $3,000 per employee if they fail to offer required health benefits. But that tax kicks in only if their employees receive tax credits or subsidies to purchase a health plan through a state-run insurance “exchange.”

The wrinkle is “state-run” exchanges. Because of political opposition, many states haven’t created them. In response, the Department of Health and Human Services (HHS) has said they’ll run federal exchanges for those states that don’t have them. On May 18, the IRS declared that tax credits will be available for employees to buy insurance through these federally-run exchanges.

However, Adler and Cannon argue that the IRS can’t do this:

The language limiting tax credits to state-established exchanges is clear and consistent with the rest of the statute. The law’s chief sponsor, Senate Finance Committee chairman Max Baucus (D-Mont.), is on record explaining creation of an exchange is among the conditions states must satisfy before credits become available. Indeed, all previous drafts of the law also withheld credits from states to push them to cooperate.

At The Volokh Conspiracy, Adler points out that the “IRS rule may be illegal, but that doesn’t mean there will be a lawsuit.” However, the IRS making available tax credits from federal exchanges would trigger a penalty on the employer because of the employer mandate. “So by expanding tax credit eligibility to federal exchanges, the IRS is exposing employers in states without their own exchanges to financial penalties, and this should be sufficient for an affected employer to file suit,” Adler writes.

The Supreme Court’s ruling on Obamacare could make this moot or open up another line of lawsuits.

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