Businesses sue IRS over employer health insurance mandate rule

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A group of small businesses have filed a lawsuit challenging a rule imposed by the Internal Revenue Service under the federal health care law, alleging that the agency exceeded its authority by expanding the law’s employer mandate.

The plaintiffs, business owners in six states including Missouri and Virginia, claim that the IRS rule places burdens on small businesses in states that have declined to set up health care exchanges under the Affordable Care Act. The Act authorizes health insurance subsidies for qualifying individuals in states that set up the exchanges, but the subsidies also trigger the law’s employer mandate, which imposes a $2,000-per-employee penalty on employers who fail to maintain a minimum level of health insurance coverage for their employees. But in the lawsuit filed Thursday in federal court in the District of Columbia, the plaintiffs claim that the IRS rule expands the employer mandate to all 50 states — something only Congress has the power to do.

“The IRS rule we are challenging is at war with the Act’s plain language and completely rewrites the deal that Congress made with the states on running these insurance exchanges,” said the plaintiffs’ attorney Michael A. Carvin, a partner at Jones Day in Washington, in a statement announcing the lawsuit. Carvin argued before the U.S. Supreme Court last year on behalf of businesses challenging the constitutionality of the health care law.

The plaintiffs in the suit claim that their businesses will be harmed by the IRS regulation. The rule would force them to choose between laying off workers or paying for costly insurance packages they don’t need or want, they argue.

“Contrary to the clear language in the Affordable Care act, government is directly impeding my ability to design a quality affordable health plan for my employees,” said plaintiff Dr. Chuck Willey, head of Innovare Health Advocates in St. Louis. “The IRS will extra-legislatively extend this onerous benefit requirement (which will increase premiums and costs of care) and impose the employer penalty in states with federally-run exchanges. I maintain the right to choose my own employees’ health plan without government intervention into its benefit design and without penalty.”

To date, 33 states have declined to set up health care exchanges that trigger the mandates. In November, Missouri voters passed a ballot measure blocking Gov. Jay Nixon from creating a state exchange by executive order. In December, Virginia Gov. Bob McDonnell told federal officials that the state would not set up an exchange under the health care law.

Supporters of the lawsuit say that an agency rule imposing the mandate on a vast majority of states is unconstitutional.

“Agencies are bound by the laws enacted by Congress,” said Sam Kazman, general counsel of the Competitive Enterprise Institute, in a statement. “Obamacare is already an incredibly massive program. For the IRS to expand it even more, without congressional authorization and in a manner aimed at undercutting state choice, is flagrantly illegal.” The lawsuit is the latest chapter in ongoing litigation over the health care law and its employer mandate.

A constitutional challenge to the employer mandate is currently pending before the 4th U.S. Circuit Court of Appeals and is expected to reach the Supreme Court as soon as next term.