• Oklahoma’s Challenge to Health Care Reform’s “Employer Mandate” May Proceed
  • August 24, 2013 | Authors: James R. Napoli; Brian S. Neulander
  • Law Firm: Proskauer Rose LLP - New York Office
  • A federal district court recently ruled that, at the pleadings stage, Oklahoma established standing to pursue its suit to bar enforcement of the Affordable Care Act’s (“ACA”) shared responsibility penalty provisions. Oklahoma ex rel. Pruitt v. Sebelius, No. CIV-11-30, 2013 WL 4052610 (E.D. Okla. Aug. 12, 2013).

    ACA contains a shared responsibility provision (also known as the “Employer Mandate”) under which, effective for 2015, large employers (those that employ 50 or more full-time equivalent employees) have to pay a shared responsibility payment if they do not offer minimum value, affordable coverage to their full-time employees. 26 U.S.C. § 4980H. As discussed in our May 31, 2013, blog post, there are two different penalties that could apply depending on whether an employer either (a) offers no health care coverage to at least 95% of its full-time employees or (b) offers full-time employees coverage that is unaffordable or does not provide minimum value. In either case, at least one full-time employee must qualify for a premium tax credit subsidy to purchase health insurance through a health care exchange before penalties apply.

    Under ACA, health insurance exchanges are generally required to facilitate the purchase of health care coverage. If a state fails to set up its own exchange, the federal government steps in and creates a federally facilitated exchange. To date, Oklahoma has not created its own exchange.

    In its suit, Oklahoma argues that ACA’s text regarding the calculation of Employer Mandate penalties is tied to exchanges “established by the State” and that, because Oklahoma has no “State” exchange, the Employer Mandate did not apply to large employers in Oklahoma. Oklahoma also argued that the IRS’s rule expanding the definition of “exchange” to include both state and federally facilitated exchanges was beyond the scope of its authority.

    Under the legal theory being pursued in the Oklahoma suit, individuals would not be eligible for federal premium subsidies for coverage purchased through a federally facilitated exchange. Moreover, because the penalties under the Employer Mandate are triggered by a full-time employee receiving a federal premium subsidy, employees working in states that default to the federally facilitated exchange could not trigger any penalties. There are currently thirty-three states that have chosen not to establish a state-run exchange and that have defaulted to the federally facilitated exchange. Consequently, the stakes are high with respect to the merits of Oklahoma ex rel. Pruitt v. Sebelius.