ACA Litigation – Oklahoma’s “Federalism Unit” Piles On

By Nicole Huberfeld

We Who Follow ACA Litigation will continue to be in business.  [On September 19], Oklahoma’s Attorney General sought leave to amend the state’s original complaint regarding the individual mandate.  Now the state claims that the tax subsidies offered to those qualifying for financial assistance to obtain insurance through the exchanges are impermissible.  This amended complaint builds on an existing thread of new challenges that was promoted before NFIB was decided.  (The amended complaint also asks the court to consider the state’s nullification law, which should be struck down based on the Supremacy Clause.)  The ACA challengers that never advanced beyond district court have been seeking leave to amend their complaints with regularity.  Last week I posted about the Pacific Legal Foundation’s new strategy, which is rooted in the Orgination Clause.  (The case was also noted over at Balkinization.)

Oklahoma’s amended complaint is grounded in theories advanced by Jonathan Adler and the Cato Institute.  The argument is that tax credits to support the purchase of health insurance through qualified health plans in the exchanges are only available when the exchanges are created by the states, not the federal government.  They claim that section 1311 of the ACA only contemplated providing tax subsidies in state-run exchanges to incentivize states to create the exchanges and that the federally-established exchanges cannot offer the same tax benefit.  In testimony to Congress, they argued the problem is that the proposed IRS regulation implementing the subsidies for people from 100-400% of the FPL in the exchanges applies to both state and federally-run exchanges, not just state exchanges.  Thus, they claim that the IRS has exceeded its statutory authority.  As Tim Jost noted here, the ACA did intend to permit tax credits in federal exchanges.  I agree with Tim’s analysis and would add that the Anti-Injunction Act probably would apply to this provision; unlike the “penalty” of the individual mandate, this is actually described as a “tax.”  Also, the states are not the appropriate parties to raise this issue; individuals benefit from tax credits, individuals would need to pursue the alleged problem.

Despite the jurisdictional hurdles, we should not write off this litigation.  After all, the states should not have had standing to challenge the minimum coverage provision either.  This is where the Oklahoma “Federalism Unit” comes back into focus.  The Oklahoma AG formed this new unit to protect the state from “systematic overreach” by the federal government.  If one of the purposes of Chief Justice Roberts’ opinion was to explicate the Court’s current federalism project, then this so-called Federalism Unit may have more power than anyone would have guessed before NFIB.  We have now seen the states successfully challenge the enactment of the ‘individual mandate’ under the commerce power, even though that provision only operated on individuals (yes, individuals were part of the litigation, but the states were the real victors).  And, the Roberts opinion echoed the federalism concepts extolled by Justice Kennedy in Bond v. U.S. and Comstock – namely, that federalism exists to protect both the states and individuals from federal overreach.  Suddenly, a “Federalism Unit” seems less like political posturing and more like a potentially successful litigation strategy.

The ACA contains a number of tax-related provisions, so if any litigation regarding the tax credit sticks, it has the potential to open the courthouse doors to even more ACA litigation.  But, beyond the tax credit issue, the Court appears poised to actively enforce the federalism questions that come before it.  Each of these pile-on challenges raises this specter, which could be a threat to not only the ACA but also Medicaid and other conditional spending programs.

[Cross-posted from HealthLawProf Blog]

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