Oklahoma risks IRS penalties on health care

Attorney general picks fight over federal credits for ‘exchanges’

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The Internal Revenue Service flatly ignored Oklahoma’s “sovereign choice” to reject a key portion of President Obama’s health care law, exposing the state to burdensome penalties despite its willful strategy to avoid the sanctions by following the letter of the law, the state’s top lawyer said in court papers filed Friday.

Oklahoma Attorney General E. Scott Pruitt’s filing is the latest salvo in his fight against a rule the IRS issued in May to ensure that tax credits will be available to persons who buy insurance through state-run insurance markets, or “exchanges,” as well as states that opted for federally run exchange under the Patient Protection and Affordable Care Act of 2010.

Mr. Pruitt and other critics contend the law clearly says the tax credits were intended for exchanges set up by the states and don’t apply to federally run exchanges. But if the government cannot pay out subsidies in the latter states, it makes the president’s health care plan much less appealing.

In effect, the Obama administration says states like Oklahoma will be subject to the “employer play-or-pay mandate” that imposes penalties on companies with more than 50 full-time employees that fail to provide adequate medical insurance coverage. Because the penalties apply when at least one full-time employee is in line for a premium tax credit to purchase insurance, states that opted for a federally run exchange say the rule no longer will allow them to be insulated from the fines.

“Congress passed a law that says one thing, but the Internal Revenue Service promulgated a rule that says another thing altogether,” Mr. Pruitt told the U.S. District Court for Eastern Oklahoma in his legal brief. “In the simplest terms possible, that is what this case is about.”

The U.S. Supreme Court upheld key portions of Mr. Obama’s health care reform last year, but Oklahoma and others say the implementation of the law has been tainted by an administration that decided to issue new rules once they realized that half of the states would not opt to set up a state-run exchange.

“Congress provided a choice for Oklahoma and other states in implementation of the law,” Mr. Pruitt said Friday in a new release. “The IRS is attempting through this rule to take away that choice.”

The Obama administration, through the Treasury Department, says it is implementing the law appropriately while states work to reach benchmarks. In court papers, it argues that Oklahoma does not have standing or jurisdiction to bring their lawsuit. 

Mr. Pruitt disagrees, arguing in his brief that the state will be directly affected as a large employer in addition to any concerns it may hold for its residents.

Rep. Darrell E. Issa, California Republican and chairman of the House Committee on Oversight and Government Reform, has been battling the Internal Revenue Service to try to get documents related to the administration’s thinking on the issue.

The fight could be worth $500 billion — the value of tax credits that would be paid over the next decade to 25 states that have refused to run their own exchanges and instead say they will let the federal government take control, according to House oversight committee staff.

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