Indiana School Districts’ Obamacare Challenge Moves Forward

By Mark Walsh — August 14, 2014 2 min read
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A federal district judge has ruled that a key claim may move forward in a lawsuit by the state of Indiana and 39 of its school districts over the so-called employer mandate of the federal health-care reform law.

The state and school districts sued the federal government last fall, challenging certain aspects of the Patient Protection and Affordable Care Act, President Barack Obama’s signature expansion of health care. (Education Week‘s Sean Cavanagh reported on the suit here.)

The districts contend they offer essential health coverage to most of their employees, but all have workers whom they consider part-time and not eligible for coverage and whom the federal law defines as full-time.

Although the provision has been delayed by Obama administration regulations until 2015, the Affordable Care Act requires all large employers to pay a tax penalty when they fail to provide coverage to those who work at least 30 hours per week.

The Indiana suit also challenges the provisions of the ACA and its regulations that subject large employers to penalties if at least one full-time employee (under the federal definition) purchases insurance through either the federal or a state insurance exchange and receives a subsidy to help cover the monthly premium. The language of the ACA refers to the subsidies being available only on exchanges established by the states, but the IRS has issued regulations extending the subsidies to eligible people who apply through the federal exchange.

The suit contends that because Indiana chose not to establish its own exchange, employees in the state who use the federal exchange should not be eligible for the federal subsidies, and thus no Indiana employer would be subject to the tax penalty.

In his Aug. 12 ruling in Indiana v. Internal Revenue Service, U.S. District Judge William T. Lawrence of Indianapolis rejected the federal government’s motion to dismiss the key claim in the school districts’ lawsuit.

“In this case, there is no doubt that the [school districts] have a personal stake in the outcome of this litigation—the avoidance of very large shared-responsibility payments,” Judge Lawrence said.

He noted that the districts contend that between them they “will have hundreds of employees who work more than 30 hours per week on average and therefore are defined as full-time under the ACA, but who were not entitled to health insurance under the [districts’] personnel policies because they did not satisfy the relevant [employer’s] definition of full-time.”

Lawrence dismissed some of the state’s other arguments and set a hearing for Oct. 9 as the next step in the case.

The Indiana suit’s challenge to subsidies under the federal exchange attracted relatively little notice last fall. But in a different case, the U.S. Court of Appeals for District of Columbia Circuit, in Washington, ruled July 22 that the IRS’s interpretation that federal exchange participants are eligible for subsidies was invalid. That July decision gave fresh hope to opponents of Obamacare that a pillar of the controversial law might be toppled.

But the same day, the U.S. Court of Appeals for the 4th Circuit, in Richmond, Va., reached the opposite conclusion, construing language in the ACA to allow the subsidies for participants in state or federal exchanges.

A version of this news article first appeared in The School Law Blog.